Capitalising on the longevity economy Investment Conference 2019 - PowerPoint PPT Presentation

Capitalising on the longevity economy Investment Conference 2019

Automation and Robotics Opportunities in China Raymond Ma Portfolio Manager Fidelity International

Automation evolution ▪ “Automation is the creation of technology and its application in order to control and monitor the production and delivery of various goods and services. It performs tasks that were previously performed by humans” ▪ Evolution towards Industry 4.0 1 2 3 4 Mechanization Technological Computer/Internet Convergence IT/OT Steam engines Electrification Digital manufacturing Autonomous machine Water/stream power Production line PLC/Robotics Advanced robotics New manufacturing Mass production IT and OT Big Data/Analytics Iron production Globalization Digitization Internet of Things Textile industry Engines/turbines Automation Digital ubiquity/Cloud Mining and metallurgy Broad adoption of telegraph, Electronic/digital Smart factory Machine tools gas, water supply Networks Machine learning & AI Steam factories Digital machines Cyber Physical Source: Technopedia, BCG Partners, 2018

Automation evolution ▪ Autonomous, cooperating industrial robots Advanced Robotics ▪ Numerous integrated sensors and standardized interfaces ▪ 3D printing, particularly for spare parts and prototypes Additive Manufacturing ▪ Decentralized 3D facilities to reduce transport distances and inventory ▪ Augmented reality for maintenance, logistics, and all kinds of SOP Augmented Reality ▪ Display of supporting information, e.g., through glasses ▪ Simulation of value networks Simulation ▪ Optimization based on real-time data from intelligent systems ▪ Cross-company data integration based on data transfer standards Horizontal / Vertical ▪ Precondition for a fully automated value chain (from supplier to customer, Integration from management to shop floor) ▪ Network of machines and products Industrial Internet ▪ Multidirectional communication between networked objects ▪ Management of huge data volumes in open systems Cloud ▪ Real-time communication for production systems ▪ Operation in networks and open systems Cybersecurity ▪ High level of networking between intelligent machines, products, and systems ▪ Full evaluation of available data (e.g., from ERP, SCM, MES, CRM, and machine data) Big Data and Analytics ▪ Real-time decision-making support and optimization Source: BCG Partners, 2018

Is China ready for more automation? China ranks 12 th globally in automation readiness China's index score of 67.1 places it 12th out of 25 countries included in the index. It has the best score out of the upper-middle- income countries. China achieves a 'developed' score for its Labour Market Policies, where it ranks 7th= overall. This is due in part to strong policy support for students transitioning into the workplace. Automation readiness index Rank Country Score/100 Rank Country Score/100 Innovation 1 South Korea 91.3 14 Malaysia 57.7 environment 2 Germany 89.6 Mature 15 Turkey 53.7 10 th 3 Singapore 87.3 16 Russia 52.5 82.6 4 Japan 17 Argentina 51.7 Labour 5 Canada 81.8 China 47.2 18 India Emerging market 6 Estonia 79.5 overall 19 Brazil 46.4 policies 7 France 78.9 12 th 20 Colombia 44.7 7 th Developed 8 UK 73.1 21 Saudi Arabia 42.0 72.0 9 US 22 South Africa 41.0 Education 10 Australia 70.4 40.7 23 Mexico policies 11 Italy 67.5 24 Vietnam 37.3 14 th 12 China 67.1 25 Indonesia 33.1 13 UAE 64.3 Source: EIU, 2017

Who are the big players? Europe/US Japan Taiwan China Rockwell Schneider Emerson Mitsubishi Advantech Baosight Neusoft Digiwin Control Siemens GE SAP Siasun Yonyou MES -> iMES/SCADA/DCS System Infosys Aspen Tech Oracle Chint Hollysys Honeywell ABB Seimens Rockwell Schneider Mitsubishi Omron Panasonic Advantech Ennoconn Adlink Hollysys Xinjie Electronic PLC/PAC/IPC GE Honeywell Sharp Toshiba Keyence Teco Delta Etrol Control Device Seimens Schneider Fanuc Yaskawa Toshiba Delta Estun HNC CNC Omron Okuma Mitsubishi ABB KUKA Fanuc Yaskawa Nachi Siasun Estun Robotics Omron Denso Epson Boshi Yushin Zhiyun Automation Toshiba Mistubishi Heavy DMG Mori Shenyang/Qichuan/Kunming Machine Tools Doosan (Kor) Machine Tool Tongtai Equipment IPG Photonics Coherent GE Fanuc Keyence Omron Han's Laser Siasun Daheng Laser Processing Hua Gong Tech 3D Systems GE Materialise Shining 3D Luster 3D Printing Honeywell Seimens Stratesys Cognex SICK Keyence Daheng Imavisi Hikvision Jintuo Machine Vision Systems; Siemens GE Nidec Hitachi Delta Teco Johnson Electric Electric Shanghai Electric SMC CKD Festo Airtac Chelic Actuators Pneumatic Emerson Nachi Hydraulic Harmonic Drive Leaderdrive Component Reduction Gears Nabtesco QCMT&T Siemens Elesy Yaskawa Delta Tsino Dynatron Inovance Servo Motors Estun THK Hiwin Others; linear guides, ball ATS Automation Teradyne Advantest Chroma screws, testing Source: FIL adapted/updated/edited from Bernstein/CLSA, 2018 Note: Reference to specific securities is for illustration only and should not be construed as a recommendation to buy or sell these securities.

China is leveling up its smart factory solutions FANUC Nanjing Estun ▪ Automating industries since 1956 and ▪ Incorporated in 1993 and listed in A- listed in Japan share market ▪ 264 locations in 108 countries ▪ Multiple enterprise and engineering ▪ Offering solutions and products for technology centers in Jiangsu Province global market: ▪ Providing automation solutions and ▪ Robots - Industrial robots, products for domestic market: accessories and software ▪ Metalforning automation - CNC ▪ Robodrill - Compact CNC systems and electro-hydraulic servo machining centres system ▪ Robonano - Ultra precision machine ▪ AC servo system & motion control ▪ CNC - CNCs, servo motors and system - Servo drives, motors and lasers motion control products, etc ▪ Roboshot - Electric CNC injection ▪ Industrial robot - linear and multi moulding machines axis palletizing and articulated ▪ FIELD system - Open IIoT platform robots, etc ▪ Laser - Fiber laser and CO2 laser ▪ Smart manufacturing system - ▪ Robocut - CNC wire-cut electric automobile, elevator and new energy discharge machines industries, etc Source: Company data, 2019 Note: Reference to specific securities is for illustration only and should not be construed as a recommendation to buy or sell these securities.

What drives the development of automation in China? Key long term structural factors - demographic changes Rising average wage of workers Shrinking population at working age 100,000 820 800 80,000 780 CNY per annum Million of persons 60,000 760 40,000 740 720 20,000 700 0 680 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2017 2025E Source: Refinitiv Datastream, Chinese Bureau of Statistics, Statista, 2019 Source: World Bank, 2018

What drives the development of automation in China? (cont’d) Key long term structural factors - demographic changes Increasing number of university graduates Factory jobs are not preferred by new generations “Chinese Graduates Say No Thanks to Factory Jobs” 9 NY Times “The young generation don’t want to work in factories” 8 Foxconn Chairman Million of graduates People are attracted by more flexible delivery jobs 7 Daily average active delivery Parcel delivery couriers in riders of Meituan China 60 4 Million of couriers 50 ‘000 of riders 6 3 40 30 2 Senior high school graduates 20 1 University graduates 10 5 0 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 4Q 15 4Q 16 4Q 17 2016 2017 2018E Source: Chinese Bureau of Statistics, Statista, 2018 Source: Company data, CBNData, 2018 Note: Reference to specific securities is for illustration only and should not be construed as a recommendation to buy or sell these securities.

What drives the development of automation in China? (cont’d) Favourable structural factors - production costs and government supports Falling cost of buying a robotic system by manufacturer Significant subsidy/tax break support Industry examples: 200 180 13 160 ▪ tax breaks, R&D rebates, subsidised capex, 11 Semiconductor ‘back stopped losses’ Cost (USD 000s) 140 81 9 120 62 8 100 46 7 39 ▪ tax breaks, R&D rebates, debt waivers, 80 33 Display 33 subsidised capex 40 60 45 40 36 40 55 43 20 33 30 28 New energy ▪ customer subsidies, tax breaks, R&D rebates, 0 vehicle carbon credit scheme incentive 2005 2010 2014 2020E 2025E Project Management Systems Engineering (programming, installation) • Non ‘high tech’ industries can also gain incentives to automate Peripherals • Robot (inc. software) Localised production encouraged Source: BCG: ABB, Economic Justification for Industrial Robotic Systems, 2007, IFR, World Robotics, Industrial Robots, expert interviews, 2018. Source: MIIT, 2018