Sieyuan Electric revenue grows rapidly as profits come under pressure; Citi cuts target price but maintains Buy
Revenue rose 28.5% year on year in the first three quarters of 2026, while net profit attributable to shareholders grew just 9.7%. Citi believes foreign-exchange and non-operating items masked growth in core earnings, but has cut its earnings forecasts and target price for the next three years.
Original source：Citi ResearchFirst published on Unhidea：Original source date：
Key takeaway
Order growth supports Sieyuan Electric’s revenue expansion, but foreign-exchange effects, impairment charges and a rising share of lower-margin businesses are weighing on profits. Citi has therefore cut its earnings forecasts while maintaining its Buy rating.
Why has revenue growth not translated fully into net profit?
In the first three quarters of 2026, Sieyuan Electric reported revenue of 17.762 billion yuan, up 28.5% year on year, and net profit attributable to shareholders of 2.403 billion yuan, up 9.7%. Third-quarter revenue rose 30.7% year on year, while attributable net profit grew just 4.5%; results fell short of market expectations.
Foreign exchange was one of the main drags: the company recorded a foreign-exchange loss of 130 million yuan in the first three quarters, compared with a gain of 20 million yuan a year earlier, a difference of 150 million yuan. About eighty percent of its overseas revenue is denominated in US dollars; higher credit and asset impairment charges and lower government grants also weighed on profits.
Based on revenue, cost of sales and controllable expenses, among other measures, the company calculated core pre-tax profit of 2.94 billion yuan for the first three quarters, up 27% year on year. Goods worth approximately 500 million to 600 million yuan have also been shipped but their revenue has yet to be recognized; the company plans to accelerate recognition in the fourth quarter.
How much of the gross margin decline came from exchange rates and the product mix?
The company’s overall gross margin for the first three quarters was 30.6%, down 1.7 percentage points year on year. Excluding the impact of renminbi appreciation, gross margin was 31.5%, down 0.8 percentage points year on year and within the company’s full-year target of a year-on-year change of no more than 1 percentage points.
Beyond exchange rates, a rising revenue share from relatively lower-margin businesses such as energy storage also reduced the overall gross margin. The energy storage business became profitable in September, and its third-quarter gross margin improved from the first half, benefiting from a higher share of high-margin overseas revenue, lower battery-cell costs and easing price pressure. Its gross margin nevertheless remained below the company’s overall level.
Prices are fixed after contracts are signed, so additional copper costs cannot be passed on to customers under existing contracts and can only be included in new quotations. New energy storage orders in the first three quarters totaled 5 billion yuan, of which 80% came from China; the company expects some domestic orders to be canceled as returns on new projects decline.
Can order growth support future revenue?
The company believes revenue growth in 2026 could exceed its target of 25%, and that it will also meet its target for full-year new orders to grow more than 30% year on year. In the first three quarters, new overseas orders rose more than 50% year on year, while domestic orders from State Grid grew 15% to 20%.
The share of revenue from overseas operations rose from 27% in 2025 to 30% in the first three quarters of 2026. However, overseas transformer deliveries take more than a year, so orders take time to convert into revenue. Construction has begun on the third-phase transformer factory in Jiangxi, with trial production planned between month 7 and August of 2027.
The US executive order restricting imports of electrical equipment remains open for public comment, and the final document is expected on 24 December 2026. The company considers a blanket US ban on Chinese-made equipment above 69 kilovolts unlikely.
How has Citi adjusted its earnings forecasts and valuation?
Citi cut its forecasts for net profit attributable to shareholders for 2026–2028 by approximately 5% to 9%, to 3.535 billion yuan, 4.494 billion yuan and 5.631 billion yuan respectively, citing lower gross margin forecasts and higher non-operating costs.
The forecasts for the three years are respectively 13.7%, 19.7% and 23.0% below the market consensus cited in the report. Taking changes in earnings forecasts and cash flow into account, Citi cut its discounted cash flow (DCF) target price by 24.5%, from 216 yuan to 163 yuan, while maintaining its Buy rating.
