Citi: Huaming Power Equipment’s third-quarter growth slows as Citi bets on exports and domestic demand to accelerate profit growth in 2027

Why did growth slow in the third quarter?

Huaming Power Equipment’s revenue rose 4.4% year on year in the third quarter of 2026, below the 14.2% recorded in the first half. Citi attributed the slowdown to lower service revenue.
Domestic tap-changer sales grew only modestly: non-grid demand was weak, wind and solar installations declined year on year, and grid investment that year was more concentrated on ultra-high-voltage projects, with less activity in the main power grid.
The company is more optimistic about 2027, expecting continued export growth and increased renewable energy installations and main-grid investment in China. On that basis and taking easing cost pressures into account, Citi forecasts net profit growth of 18% year on year in 2027, 8 percentage points above its forecast growth rate for 2026.

Overseas revenue rose 46% year on year to 709 million yuan in the first three quarters of 2026, driven mainly by exports to Europe. Third-quarter overseas revenue rose 48% year on year to 259 million yuan, compared with growth of 45% to 450 million yuan in the first half.
Europe accounted for more than 50% of overseas revenue in the first three quarters, and Asia outside China accounted for 30%; Turkey was the largest contributor and fastest-growing market. Direct exports grew faster than indirect exports sold through domestic transformer manufacturers.
The US accounts for less than 2% of exports, leading Citi to view US policy risk as low. The company has production bases in Turkey and Indonesia and plans to increase localization over the long term; expansion in Saudi Arabia has been affected by regional conditions, and the company aims to generate revenue there in the second half of 2027.

The company’s overall gross margin rose 0.5 percentage points year on year to 55.9% in the first three quarters of 2026, and increased 1.2 percentage points to 56.5% in the third quarter.
Citi noted that power equipment, which carries higher gross margins, accounted for a greater share of revenue. Export gross margins in that business are about 10 percentage points higher than those on domestic sales, and the higher overseas share also lifted the average selling price.
Overseas sales accounted for 41% of power equipment revenue in the first three quarters of 2026; the company aims for that share to exceed 50% in 2028. Meanwhile, employee equity incentive expenses in 2026 are expected to exceed 70 million yuan, of which 62 million yuan had already been recognized in the first three quarters.

Citi maintained its buy rating and 28 yuan target price. The target is based on a discounted cash flow model that includes cash flow forecasts through 2030 and a terminal growth rate of 4%.
Citi believes limited competition and earnings resilience support the company’s valuation premium. On the report’s basis, the share price corresponds to 18.5 times forecast earnings for 2027. Overseas new orders or Chinese power grid capital expenditure below expectations, or raw material costs above expectations, could affect its assessment.