Seeking Alpha: HollySys Executing Well, But Process Automation Is A Rough Neighborhood

I still believe that there will be substantial adoption of discrete and process automation in the coming years, and that key markets like China will increasingly look to substitute products sold by ABB (NYSE:ABB), Fanuc (OTCPK:FANUY), and Honeywell (NYSE:HON) with "home-grown" solutions. The problem for companies like HollySys (NASDAQ:HOLI) (also sometimes spelled "Hollysys") is that by no means precludes some pretty scary stretches of end-market weakness along the way.

Process automation is a pretty rough place to operate right now; Honeywell did fine in the fourth quarter, but ABB and Emerson (NYSE:EMR) were both in the range of double-digit revenue declines due to ongoing weakness in markets like oil/gas, chemicals, and metals. That doesn't help HollySys right now, particularly as the company is trying to diversify into chemicals, but the company does at least have a growing rail business to help it along.

I continue to believe that HollySys is an interesting, albeit risky, play on the growth of domestic automation companies in China. I'm still looking for long-term growth in the high single-digits, with a fair value of around $23 stemming from that. Given the surplus of cheap, relatively safer plays right now, though, I can understand that HollySys likely won't feature very high on most investors' buy lists.


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HollySys Executing Well, But Process Automation Is A Rough Neighborhood