Robotics and Automation EQUITY RESEARCH

June 20, 2016 Romeo Alvarez senior equity analyst [email protected] 310.448.6913

Rated Stocks in Coverage Universe Focus List:

Sunny Optical Tech.* (SOPT.HK) EPS Rank

98

Rel Strength Rating

96

Datagraph Rating

82

Comp Rating

Theme Update: Human-Robot Collaboration Spurs Next Growth Phase

Acc/Dis Rating SMR Rating

The adoption of industrial robots by manufacturers looking to in-

Interest List:

crease efficiency and contain labor costs reached new records

ATS Automation Tooling Sys (ATA.CA)

in 2015. Growth is driven by demand from the automotive and

Daifuku (DFUK.JP)

electronics industries, the rapid adoption of automation solutions

Fanuc ([email protected])

in China, and the emergence of collaborative robots. Although

Harmonic Drive Systems* (HARM.JP)

multiple robotics providers are benefiting from this megatrend, we

Hiwin Technologies (HIW.TW)

view four vendors as the best positioned within our Robotics and

Keyence* (KEYE.JP)

Automation investment theme: KEYENCE CORP (KEYE.JP; 6861:JP)

KUKA* (IWKX.DE)

and Harmonic Drive Systems (HARM.JP; 6324:JP) in Japan, KUKA

Mobileye (MBLY)

AG (IWKX.DE; KU2:GR) in Germany, and Hong Kong-based Sunny

Siasun Robot & Automation (RSA.CN)

Optical Technology Group Co. (SOPT.HK; 2382:HK).

Yaskawa Electric ([email protected])

Industrial Robot Market Continues to Grow

n/a Bn/a

*Stock highlighted in this update.

The $32 billion industrial robot market is dominated by “the Big Four” manufacturers: KUKA, ABB, Fanuc, and Yaskawa Electric. For years, these four companies have controlled the market for factory robots, with their share currently nearly 60%. But in recent years, the competitive landscape has evolved. Developers of lightweight, collaborative robots (“cobots”) have emerged, including Denmark-based Universal Robots and U.S.-based Rethink Robotics. Despite the challenging macro-economic conditions in China and other large economies, in 2015, the global demand for industrial

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Refer to the end of the report for important disclosures. disclosures

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Robotics and Automation Theme robots grew 8% to 239,000 units, reaching an all-time-high for the third year in a row, according to the International Federation of Robotics (IFR). Between 2010 and 2014, global robot sales increased at an approximate 17% average annual rate.

Romeo Alvarez senior equity analyst [email protected] 310.448.6913

Worldwide annual supply of industrial robots 2005-2015*

The automotive and electronics industries, which jointly account for two-thirds of global demand, continued to drive automation equipment growth in 2015. Asia, particularly China, is the largest and fastest growing market for industrial robots, with 144,000 units sold in that region in 2015. Robot sales in North America (the U.S., Canada, and Mexico) grew 11% year-over-year to a record 34,000 units. Likewise, in Europe, sales increased 9%, hitting record levels. The demand outlook is promising for the coming years. According to IFR forecasts, by 2018, global sales of industrial robots will grow 15% per year on average, nearly doubling to approximately 400,000 units. Healthy demand from the automotive and electronics industries, coupled with China’s ambition to automate its

Market Share for Industrial Robots in China

industrial complex, will likely continue driving demand for industrial robots and related solutions over the next several years.

17%

22%

China Still in the Early Innings Despite its slowing economy, the Chinese market for robots remains

3%

by far the biggest worldwide. The number of industrial robots sold

14%

19%

13%

increased 16% year-over-year in 2015, reaching 66,000. Though 12%

strong, sales growth nevertheless fell far short of IFR’s 30% forecast. IFR estimates that China will account for more than one-third of the

Fanuc

KUKA

industrial robots installed worldwide in 2018. This is at least partly be-

ABB

Yaskawa

cause the market for industrial robots in China is still developing. IFR

Other overseas firms

Siasun

Other Chinese firms

also projects that China will have more than 100 robots per 10,000

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Source: Company data, William O’Neil + Co.

2

Robotics and Automation Theme Annual supply of industrial robots to China 2005-2015*

Romeo Alvarez senior equity analyst [email protected] 310.448.6913

workers by 2020, up from the current 36. For comparison, Germany’s robotic density is over eight times larger (292 units) and Japan’s is nine times more (315 units). According to IFR, in order for China to catch up to the leaders, approximately one million new robots will need to be installed in the country over the next few years. This forecast comes as the country strives to upgrade its labor-intensive manufacturing sector through technological innovation to offset a shrinking working age population and rising labor costs. The government’s guidelines indicate that China plans to deploy industrial robots in a wide variety of industries, including car manufacturing, electronics, home appliances, aviation, textiles, chemicals, logistics, and food production. Special funding from the central budget will be directed to support robotics research and development, and financial institutions are encouraged to finance robotic projects, according to the guidelines.

Human-Machine Collaboration Opens New Markets As discussed in our previous theme report, we believe that as robots become more intuitive and safer for humans to work alongside, the global marketplace will reach a tipping point and begin to adopt robots in industries beyond automotive and personal electronics manufacturing. In fact, human-robot collaboration is one of the hottest topics in industrial robotics and is gaining substantial momentum.

Cobots in the Automotive Industry Some of the largest automakers in Europe,

including

Mercedes-Benz,

BMW, and Volkswagen, are currently testing lightweight, sensor-equipped robots that are safe enough to work alongside factory workers. These cobots free up employees for jobs that

The division of labor between humans and machines, which is still

require intellect and creativity while

prevalent on factory floors, could be disrupted by the emergence

themselves performing more tedious

of the next generation of robots. For decades, large robot manufac-

or dangerous tasks.

turers in Europe and Japan have focused on the development of

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Robotics and Automation Theme traditional articulated robot arms mainly employed in the automotive and electronics industries. But thanks to breakthroughs in sensors, hydraulics, machine vision, and artificial intelligence, robot manufacturers are shifting their focus to a new breed of user-friendly machines:

Romeo Alvarez senior equity analyst [email protected] 310.448.6913

cobots. These easy-to-deploy, simple-to-program machines are able to sit alongside human workers. Aside from their greater flexibility and ease of deployment and use, cobots are less expensive to own than traditional industrial robots, between $25,000 and $50,000 per unit, compared with traditional systems that cost up to $100,000. This gentler class of robots is starting to enter the workplace, and the market opportunity is massive. The Institute for Robotics and Intelligent Machines at Georgia Tech estimates that robots have penetrated only 10% of the manufacturing industry, partly due to the dangers that traditional robots pose to the humans who work alongside them. Advancements in human-robot collaboration technology are already spurring robot demand from industries such as food and beverage, agriculture, metal processing, plastics, pharmaceuticals, logistics, and packaging. The market for collaborative

Tier-1 automotive supplier Lear Corp. has optimized assembly by introducing cobots on its production line. Everyday, this robotic arm performs approximately 8,500 drilling actions on car seats and monitors their quality to prevent faulty seats from continuing on the conveyor belt.

robots is currently valued at USD 100 million and, according to various sources, is forecast to reach approximately USD 1 billion in 2020. Demand will be driven by secular, long-term factors, including the contraction of the labor force in developed economies, rising labor costs, and growing demand for personalized products.

Recent Developments •

On May 18, 2016, China-based Midea Group (MGA.CN; 000333:CH) launched a USD 5 billion plus bid for German robotics developer KUKA AG. Midea, one of China’s largest home appliance manufacturers, is offering EUR 115 per share for KUKA, a 36% premium over Kuka’s prior-day closing price and a 60% premium over the Febraury 3 closing price of EUR 72.05, a day before Midea announced an increase in its stake in KUKA to 10.2%. Midea had a 13.5% stake in the German robotics specialist when it launched the bid. The Chinese appliance maker indicated that its offer is subject to a minimum acceptance rate of 30% of KUKA’s issued shares, and that it plans to keep the company listed. It also said that it does not intend to take full ownership of KUKA, but by stating it was seeking a stake of more than 30%, it was obliged under German law to make an offer for all outstanding shares. Midea’s management said the deal would help its overall strategy to improve its facilities and expand into robots and automation equipment. KUKA is reviewing Midea’s offer.

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Robotics and Automation Theme •

On May 24, 2016, Pizza Hut announced a partnership with Japanese robotics company SoftBank Robotics and MasterCard for the introduction of “Pepper” robots at Pizza Hut restaurants. Pepper bots won’t deliver pizza to the table, but will offer an

Romeo Alvarez senior equity analyst [email protected] 310.448.6913

additional payment option for diners. According to the senior VP of innovation management at MasterCard Labs, Pepper robots have faces and can respond to human customers with some emotional intelligence. Pizza Hut will run a pilot program at several stores in Asia starting later this year. Restaurants are turning to robotic and automation technology as rising minimum wages make labor more costly for the fast/casual food industry. A former McDonald’s CEO recently told a U.S. media outlet that a minimum-wage hike to $15 an hour would incentivize companies to consider robot workers. “It’s cheaper to buy a $35,000 robotic arm than it is to hire an employee who

The Adidas “Speed Factory” aims to bring local customization to manufacturing with KUKA robots

is inefficient, making $15 an hour bagging French fries,” the executive warned. •

On May 25, 2016, Adidas (ADSX.DE; ADS:GR), the German designer and manufacturer of sports shoes and equipment, announced it would pilot a new automated process in a 4,600-square-meter manufacturing facility it calls Speedfactory. This plant will automate the production of shoes and enable them to be made more quickly and closer to sales outlets. The new factory will be located in Ansbach, Germany and will produce a test set of about 500 pairs of shoes the third quarter of 2016. Over 20 years ago, Adidas ceased producing in Germany and moved to Asian countries, including China, Indonesia, and Vietnam. Starting next year, Adidas will begin large-scale production in Germany and will open a second Speedfactory in the U.S., followed by more in Western Europe. Adidas management plans to scale production at the German and American plants to half a million pairs of shoes per year, equivalent to 17% of the 301 million pairs it currently manufactures annually in Asia. Output is increasing roughly 10% per year.

•

On May 26, 2016, a Chinese government spokesperson announced that Apple supplier Foxconn was able to cut the workforce at its factory in Kunshan from 110,000 to 50,000 thanks to the introduction of industrial robots, and cautioned that more companies are likely to follow suit. In fact, approximately 600 major companies in Kunshan have similar plans, according to a government survey. Kunshan, a manufacturing hub for the electronics industry in Jiangsu province, is seeking a drastic reduction in labor costs and encouraging start-ups as

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Robotics and Automation Theme an attempt to reinvent itself after an explosion that killed 146 factory workers in 2014. Poor safety standards led to the blast.

Top Picks

Romeo Alvarez senior equity analyst [email protected] 310.448.6913

Of all the stocks in our coverage universe, we view the following four vendors as the best-positioned to benefit from the current trends in robotics and automation. Sunny Optical Technology (SOPT.HK; 2382:HK) Price: HKD 25.30 Market cap: USD 3.6 billion Rating: Focus List Hong-Kong based Sunny Optical develops and manufactures optical and optical-related products such as lenses, mobile phone camera modules, microscopes, and surveying instruments. Sunny Optical shares are rated Focus List in our Robotics and Automation theme due to the Company’s strong fundamentals and the technical characteristics described in the table below. Sunny Optical is a high-conviction name and is included in William O’Neil’s Global Focus List, which features companies that best fit our rigorous methodology of stock picking. The stock was added to our Focus List on March 15, 2016 after it broke out of a long consolidation area on 3x the average daily volume. O’Neil Methodology Criteria

Sunny Optical Technology

Current growth: History has shown that strong earnings growth is one of the dominant factors behind outstanding performers. We look for double-digit year-over-year growth for the past three or four quarters as well as past two years.

Sunny Optical has generated an average of 23% annual earnings growth for the past three years. EPS growth has accelerated in the past four quarters.

Forward guidance: We believe guidance is well represented in market consensus estimates. To be a potentially outperforming stock, revenue and EPS forward estimates should grow doubledigits for the next two years.

Consensus expects 23% sales growth and 41% EPS growth in 2016. For 2017, consensus expects 16% and 25% growth in sales and EPS, respectively.

Growth catalysts: The investment thesis should support a secular or a companyspecific growth story with identifiable catalysts.

Sunny Optical is benefiting from a strong focus on vehicle cameras, which has helped it to weather softer smartphone growth and capitalize on the adoption of ADAS features and the development of autonomous vehicles. Vehicle lens shipments increased 47% year-over-year in 2015 and management is optimistic about gaining market share, with more than 30% shipment growth expected in 2016.

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Robotics and Automation Theme O’Neil Methodology Criteria

Sunny Optical Technology

Institutional sponsorship: Growing institutional support (by number of institutions) validates positive fundamental factors for a stock. Market direction: A market on an uptrend provides less resistance to value appreciation. Conversely, market on a downtrend will likely shake out even the fundamentally stronger stocks.

Technical set-up: We believe the technicals reflect the underlying fundamentals of a company. The O’Neil Methodology attempts to identify stocks that are either on a technical uptrend or constructively setting up a base for a potential breakout.

The number of institutions that own Sunny Optical shares has increased from 270 as of March 2015 to 337 as of March 2016. Accumulation/Distribution Rating is B-.

Romeo Alvarez senior equity analyst [email protected] 310.448.6913

The recent rally in the Hong Kong market is now under selling pressure. The main equity benchmark recently broke below the 50- and 200-day moving averages, while the number of distribution days is increasing. Sunny Optical shares broke out of a long-term consolidation area in midMarch 2016. Since then, the stock has been on a steady uptrend and holding above key support areas. Relative Strength Rating is strong, currently at 95.

Keyence Corp. (KEYE.JP; 6861:JP) Price: ¥68,510 Market cap: USD 39.9 billion Rating: Interest List Japan-based Keyence is a fabless developer and supplier of industrial automation and inspection equipment. Its products include sensors and measuring equipment, programmable controllers, touch panels, bar code readers, and laser markers. Keyence shares are rated Interest List in our Robotics and Automation theme due to the Company’s strong positioning in a multi-year, secular growth trend. We believe Keyence shares have the potential to benefit from such trends and outperform when analyzed under our O’Neil Methodology. Despite strong fundamentals, the stock is not ready to earn the Focus List rating due to its price action and the status of the Japanese market (more details in the table below). Look for shares to break out to new highs under healthier market conditions for the stock to potentially earn the Focus List rating in our theme. O’Neil Methodology Criteria Current growth: History has shown that strong earnings growth is one of the dominant factors behind outstanding performers. We look for double-digit year-over-year growth for the past three or four quarters as well as past two years.

Keyence Although year-over-year EPS growth decelerated to 13% in FY2016, Keyence has generated an average of 31% annual earnings growth for the past three years. EPS rank is high; it currently stands at 89.

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Robotics and Automation Theme O’Neil Methodology Criteria

Keyence

Forward guidance: We believe guidance is well represented in market consensus estimates. To be a potentially outperforming stock, revenue and EPS forward estimates should grow doubledigits for the next two years.

Consensus expects single digit growth in revenue and EPS for FY2017 and FY2018, which constitutes a deceleration from previous years.

Growth catalysts: The investment thesis should support a secular or a companyspecific growth story with identifiable catalysts.

Institutional sponsorship: Growing institutional support (by number of institutions) validates positive fundamental factors for a stock. Market direction: A market on an uptrend provides less resistance to value appreciation. Conversely, market on a downtrend will likely shake out even the fundamentally stronger stocks. Technical set-up: We believe the technicals reflect the underlying fundamentals of a company. The O’Neil Methodology attempts to identify stocks that are either on a technical uptrend or constructively setting up a base for a potential breakout.

Romeo Alvarez senior equity analyst [email protected] 310.448.6913

We expect Keyence to continue to post record profits, as it delivers sustainable growth on the back of global factory automation requirements and expansion into overseas markets. Keyence’s foreign operations (50% of revenues) continue to grow across all regions, increasing sales 13% year-over-year in FY 2016. The number of institutions that own Keyence shares has been rising over the past year. The Accumulation/Distribution Rating is good, currently at B-. The Japanese market has been in a long-term downtrend that started in mid-2015. The main equity benchmark is trading below the 50- and 200-day moving averages and 23% off highs. Keyence shares are currently consolidating in a tight price range and trading close to new highs. The stock’s Relative Strength Rating is good, currently at 89.

Harmonic Drive Systems (HARM.JP; 6324:JP) Price: ¥2,600 Market cap: USD 2.4 billion Rating: Interest List Based in Japan, Harmonic Drive Systems manufactures high-precision speed reducers for industrial robots, semiconductor production equipment, and other industrial machinery. It also makes planetary gear reducers and mechatronic products such as actuators and motors. Harmonic shares are rated Interest List in our Robotics and Automation theme due to the Company’s strong positioning in a multi-year, secular growth trend. We believe Harmonic Drive shares have the potential to benefit from such trends and outperform when analyzed under our O’Neil Methodology. The stock, however, is not ready to earn the Focus List rating due to its price action and the status of the Japanese market (more details in the table below). Look for shares to break out to new highs under healthier market conditions for the stock to potentially earn the Focus List rating in our theme. williamoneil.com • [email protected] • 800.545.8940 

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Robotics and Automation Theme O’Neil Methodology Criteria Current growth: History has shown that strong earnings growth is one of the dominant factors behind outstanding performers. We look for double-digit year-over-year growth for the past three or four quarters as well as past two years.

Forward guidance: We believe guidance is well represented in market consensus estimates. To be a potentially outperforming stock, revenue and EPS forward estimates should grow doubledigits for the next two years. Growth catalysts: The investment thesis should support a secular or a companyspecific growth story with identifiable catalysts.

Institutional sponsorship: Growing institutional support (by number of institutions) validates positive fundamental factors for a stock. Market direction: A market on an uptrend provides less resistance to value appreciation. Conversely, market on a downtrend will likely shake out even the fundamentally stronger stocks. Technical set-up: We believe the technicals reflect the underlying fundamentals of a company. The O’Neil Methodology attempts to identify stocks that are either on a technical uptrend or constructively setting up a base for a potential breakout.

Harmonic Drive Systems The Company has generated an average of 42% annual earnings growth for the past three years. EPS growth recovered in the most recent quarter after hitting a low in the three-month period ended September 2015. The stock’s EPS Rank is high at 85.

Romeo Alvarez senior equity analyst [email protected] 310.448.6913

Consensus expects 7% sales growth and 22% EPS growth in FY 2017. For FY 2018, consensus expects 13% and 14% growth in sales and EPS, respectively.

Harmonic is the leader in the market for high-precision speed reducers used in small robots, and we believe the Company is well-placed to grab share in the growing market for collaborative robots. The number of institutions that own Harmonic Drive shares has remained stable over the past three quarters. The Accumulation/Distribution Rating is B-. The Japanese market has been in a long-term downtrend that started in mid-2015. The main equity benchmark is trading below the 50- and 200-day moving averages, and 23% off highs. Since April 2013, Harmonic’s shares have moved higher, forming multiple bases that have resulted in a multiple-year uptrend. Shares broke out of an 11-week base in early March 2016 and are currently trading at support at their 10-week moving average.

KUKA AG (IWKX.DE; KU2:GR) Price: EUR 107.36 Market cap: USD 4.8 billion Rating: Interest List Germany-based KUKA develops and manufactures robot technology and automation solutions, with two-thirds of sales derived from the automobile industry (largely in Europe and North America) and the balance derived from General Industry. KUKA shares are rated Interest List in our Robotics and Automation theme due to the Company’s strong positioning in a multi-year growth trend and its best-of-breed technology within the industry. We believe KUKA shares have the potential to benefit from such trends and outperform when analyzed under our O’Neil Methodology. Despite the stock’s price action, it is not ready to

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Robotics and Automation Theme earn the Focus List rating due to the Company’s lumpy results in terms of sales and EPS growth in recent quarters (more details in the table below). Look for KUKA to report solid top- and bottomline growth in upcoming quarters for it to potentially earn the Focus

Romeo Alvarez senior equity analyst [email protected] 310.448.6913

List rating in our theme. O’Neil Methodology Criteria Current growth: History has shown that strong earnings growth is one of the dominant factors behind outstanding performers. We look for double-digit year-over-year growth for the past three or four quarters as well as past two years.

Forward guidance: We believe guidance is well represented in market consensus estimates. To be a potentially outperforming stock, revenue and EPS forward estimates should grow doubledigits for the next two years. Growth catalysts: The investment thesis should support a secular or a companyspecific growth story with identifiable catalysts.

Institutional sponsorship: Growing institutional support (by number of institutions) validates positive fundamental factors for a stock.

Market direction: A market on an uptrend provides less resistance to value appreciation. Conversely, market on a downtrend will likely shake out even the fundamentally stronger stocks.

Technical set-up: We believe the technicals reflect the underlying fundamentals of a company. The O’Neil Methodology attempts to identify stocks that are either on a technical uptrend or constructively setting up a base for a potential breakout.

KUKA AG The Company has generated an average of 18% annual earnings growth for the past three years. EPS growth recovered in the most recent quarter after hitting a low in the three-month period ended September 2015. It’s EPS Rank is strong, currently at 91. Consensus expects 2% sales growth and 26% EPS growth in 2016. For 2017, consensus expects 5% and 15% growth in sales and EPS, respectively.

KUKA continues to benefit from various structural catalysts, including the factory automation trend in China (14% of sales) and North America (34% of sales), the emergence of human-robot collaboration, and rising adoption of automation outside the automotive industry. The number of institutions that own KUKA shares has increased from 234 funds as of March 2015 to 267 as of March 2016. The Accumulation/Distribution Rating is B. The German market is in an Uptrend Under Pressure. Institutional selling has significantly increased in recent sessions, and the main equity benchmark is trading below its 50- and 200-day moving averages. KUKA shares have move significantly higher since July 2012, forming multiple bases that have resulted in a multipleyear uptrend. The stock shot to new all-time highs in mid-May 2016 after receiving an acquisition offer from a Chinese appliance maker.

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Robotics and Automation Theme Companies Under Coverage The move from manual labor to increasing automation in machine operation and product manufacturing is prompting significant investment and innovation across the globe. Our Robotics and Automation theme stretches broadly across many industries and countries, from developers of self-driving technology in Israel and the U.S. to developers of factory robots and ancillary parts in Japan. We are tracking these companies in our PANARAY list, “Robotics and Automation”, and will be issuing subsequent reports profiling leading companies and new developments within this theme.

Companies in Our Robotics and Automation Theme Company Name

Symbol

Bloomberg symbol

Trading Country

Market Cap ($ bil)

O'Neil Rating

ABB

ABB/ABB.CH

ABBN:VX

Switzerland

47.3

NR

Aida Engineering

[email protected]

6118:JP

Japan

0.7

NR

Alphabet Inc.

GOOGL

GOOGL:US

U.S.

ATS Automation Tooling Sys

ATA.CA

ATN:CN

Canada

208.7 0.7

NR Interest List

Cognex

CGNX

CGNX:US

U.S.

3.6

NR

Cyberdyne

DYNE.JP

7779:JP

Japan

3.0

NR

Daifuku

DFUK.JP

6383:JP

Japan

2.2

Interest List

Fanuc

[email protected]

6954:JP

Japan

31.6

Interest List

Harmonic Drive Systems

HARM.JP

6324:JP

Japan

2.4

Interest List

Hiwin Technologies

HIW.TW

2049:TT

Taiwan

1.1

Interest List

Hollysys Automation Tech

HOLI

HOLI:US

U.S.

1.0

NR

Intuitive Surgical

ISRG

ISRG:US

U.S.

24.7

NR

iRobot

IRBT

IRBT:US

U.S.

1.0

NR

Keyence

KEYE.JP

6861:JP

Japan

KUKA

IWKX.DE

KU2:GR

Mobileye

MBLY

Nabtesco

NACO.JP

Nachi-Fujikoshi

39.9

Interest List

Germany

4.8

Interest List

MBLY:US

U.S.

8.9

Interest List

6268:JP

Japan

3.2

NR

[email protected]

6474:JP

Japan

0.8

NR

Nippon Ceramic

NICE.JP

6929:JP

Japan

0.8

NR

Nordson

NDSN

NDSN:US

U.S.

4.9

NR

Omron

OMRN.JP

6645:JP

Japan

7.5

NR

Rockwell Automation

ROK

ROK:US

U.S.

15.4

NR

Shenzhen Inovance Tech.

SIQ.CN

300124:CH

China

4.6

NR

Siasun Robot & Automation

RSA.CN

300024:CH

China

5.9

Interest List

Sunny Optical Tech.

SOPT.HK

2382:HK

Hong Kong

3.6

Focus List

Tecan

TECN.CH

TECN:SW

Switzerland

1.7

NR

Yaskawa Electric

[email protected]

6506:JP

Japan

3.5

Interest List

Yushin Precision Equipment

INPR.JP

6482:JP

Japan

0.3

NR

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Robotics and Automation Theme O’Neil Stock Recommendation System The O’Neil Stock Recommendation System ranks stocks by how strongly their characteristics match up with the criteria of the O’Neil Methodology. This system creates a framework that fits together stock ideas covered by thematic research with those that appear on the U.S., Global and European Focus Lists. This system replaces previous ratings that William O’Neil has used in the past. Stock ratings will now appear as Focus List or Interest List. Focus List Rating The Focus List rating is reserved for those stocks that fit the O’Neil Methodology, which identifies fundamentally and technically strong companies that may materially outperform the market. Focus List rated stocks are included in William O’Neil + Co.’s US Focus List, Global Focus List, or European Focus List products. These stocks represent the best ideas that fit our rigorous methodology of stock picking. Interest List Rating Interest List rated stocks are actively covered under our thematic research. Our theme research identifies secular multi-year growth trends and stocks that may benefit from them and outperform when analyzed under our O’Neil Methodology. Interest List rated stocks are not ready to earn the Focus List rating, but may emerge to display those characteristics that fit within the O’Neil Methodology and become candidates to be included in the Focus List products. Interest List rated stocks represent the breadth and depth of our thematic research and are monitored to identify fundamental or technical changes during the lifecycle of a stock.

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Robotics and Automation Theme Proprietary Ratings + Rankings In 1963 we began profiling characteristics of top performing stocks prior to their outstanding runs in market cycles back to the 1880’s. Through our years of research, we’ve produced powerful, proprietary metrics that help reveal leading and lagging stocks before they make their big moves. The eight exclusive ratings and rankings proprietary metrics below help form the foundation of the William O’Neil + Company methodology and evaluation services. Accumulation/Distribution (A/D) Rating | A (best) to E (worst) The A/D Rating shows where money is flowing by tracking the relative degree of institutional buying (accumulation) and selling (distribution) in a particular stock over the last 13 weeks. The A/D Rating is a technical rating based on price and volume statistics. The numerical values range from +100 to −100. A positive rating from +100 to 0 means a stock has been showing accumulation. Negative ratings from −1 to −10 are neutral. A rating below −10 indicates a stock under distribution. The letter rating also measures money flow with A = best and E = worst. Composite Rating | 99 (best) to 1 (worst) The Composite Rating combines the EPS Rank, Relative Strength Rating, Industry Group Rank, SMR Rating, Accumulation/Distribution Rating, and the stock’s percent off its 52-week high. More weight is placed on EPS Rank and Relative Strength Ratings. The resulting rating of technical and fundamental factors is compared against all other stocks in the trading country and assigned a rating from 1 to 99, with 99 being the best. A rating of 90 means the stock has outperformed 90% of all other stocks. DatagraphTM Rating | 99 (best) to 1 (worst) TM

The Datagraph

Rating is an overall rating for all major technical and fundamental elements of a stock. The rating incorporates fundamental and TM

technical characteristics that influence stock prices. By looking at historical weekly trends, the Datagraph Rating

is the easiest way to get an

overall picture of a stock. The rating is based on a proprietary formula that assigns certain weights to reported earnings, capitalization, sponsorship, relative strength, price/volume characteristics, industry group rank, and other factors. Each stock is assigned a rank from 1 to 99, with 99 being the TM

best. The Datagraph Rating

is calculated as a country-specific and a global rating.

EPS Rank | 99 (best) to 1 (worst) The EPS Rank is a single earnings measure that gives insight into one of the most important factors of evaluating a stock – earnings per share. Four different fundamental factors are calculated: the percent increase in the most recent quarter versus a year ago; the percent increase in the prior period versus the same quarter a year ago; the five-year or three-year earnings growth rate, depending on availability; and the earnings stability factor. These factors are ranked separately and weighted. The result is then ranked on a scale from 1 to 99, with 99 being the highest. The EPS Rank is calculated as a country-specific rank and a global rank. Industry Group Rank | 1 (best) to 197 (worst) The Industry Group Rank, a technical tool, looks at above average stocks in each group as well as performance of the entire group against all other groups in the trading country. Separate weightings are used for different time periods. Groups are ranked from 1 to 197 (dependent on trading country) with 1 being the best group. The Industry Group Rank is calculated as a country-specific and a global rank. Institutional Sponsorship Rating | A (best) to E (worst) Sponsorship drives increased performance. To calculate the Institutional Sponsorship Rating, we average the three-year performance of all mutual funds owning a stock and then factor in the trend of the stock’s ownership in recent quarters. The rating scale ranges from A to E. Relative Strength Rating | 99 (best) to 1 (worst) This technical indicator is one of our clients’ preferred ratings to gauge the market’s top performers. The Relative Strength Rating looks at a stock’s percentage price change over the last 12 months with most recent periods receiving higher weight. All stocks are arranged in order of greatest price percentage change and assigned a rank from 99 (highest) to 1 (lowest). For example, a value of 85 means the stock has outperformed 85% of all other stocks in its trading country. The Relative Strength Rating is available as a country-specific and a global rating. SMR Rating | A (best) to E (worst) The SMR Rating measures a firm’s sales (S), profit margins (M), and return on equity (R). All stocks are arranged in order from A to E, with A = best and E = worst. An SMR Rating of “A”, for example, places a stock in the top 20% of companies in terms of sales growth, profitability, and return on equity. This rating combines four fundamental calculations: a company’s sales growth rate over the last three quarters; pre-tax profit margins; after-tax profit margins; and ROE. Sales growth and after-tax margins are calculated using quarterly figures, while ROE and pre-tax margins are calculated using annual figures. All four factors take into account acceleration (rate of increase).

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Robotics and Automation Theme William O’Neil + Company, Incorporated Offers the world’s leading institutional investment managers a distinct blend of quantitative, fundamental, and technical expertise in global stock buy-and-sell recommendations. Its core method profiles stocks displaying

Romeo Alvarez senior equity analyst [email protected] 310.448.6913

the characteristics of outperformance proven persistent over market history — drawn from the firm’s industry-leading database. William O’Neil + Co., Incorporated is a Registered Investment Advisor with the State of California and certain other states. The firm and its affiliates may now or in the future have positions in the securities mentioned in this or other publications. Charts are intended to be used as tools to assist institutional investors in identifying equity ideas worthy for further review. Charts provide certain current and historical information, but are not a substitute for comprehensive analysis of the individual stocks. For further information about our business and legal policies, please see williamoneil.com/legal. Analyst Certification The analysts primarily responsible for preparing this report certifies that: (i) the views about the companies and their securities expressed in this report accurately reflect his/her personal views, and (ii) no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in this report. No Investment Banking William O’Neil + Company and its affiliates do not engage in investment banking and do not make a market in any securities. Neither William O’Neil + Company nor any of its affiliates have, during the past 12 months, received any compensation from any of the companies discussed in this report. None of the companies discussed in this report are, or have been during the past 12 months, clients of William O’Neil + Company or its affiliates. Proprietary Positions William O’Neil + Company does not maintain proprietary positions in any securities. Employees of William O’Neil + Company and/or affiliates may now or in the future own positions in the companies discussed in this report. As of the end of the month immediately preceding the date of publication of such reports, none of such employees or affiliates beneficially owned 1% or more of the common equity securities of any of the companies discussed in this report.

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