How did third-quarter results compare with expectations?

  • Huaming Power Equipment’s recurring net profit rose 11% year on year in the third quarter of 2026, below Morgan Stanley’s earlier forecast of 15%. Excluding the impact of employee stock ownership plan expenses, adjusted net profit rose 12% year on year.
  • Morgan Stanley viewed the results as a slight miss, but said they had little impact on its investment thesis and expected a broadly neutral market reaction.

How quickly did the core business and overseas revenue grow?

  • The core power equipment business grew approximately 12% year on year in the third quarter, outpacing the company’s overall revenue growth of 4% and showing that the core business performed more strongly than the company overall.
  • Overseas revenue rose 48% year on year, accelerating further from 45% in the first half of 2026 and exceeding the 22% growth in the value of Chinese transformer exports over the same period.

How did margins and cash flow change?

  • Third-quarter gross and net margins reached 56.5% and 31.5%, respectively, rising 1.2 and 0.9 percentage points year on year; the improvement in margins continued.
  • Operating cash flow rose 53% year on year in the first nine months of 2026. Morgan Stanley said strong cash flow supports the company’s ability to continue paying dividends.

Why is Morgan Stanley optimistic about future growth?

  • The bank said recurring net profit fell 5% year on year in the fourth quarter of 2025, creating a low base, and that profit growth could accelerate further in the fourth quarter of 2026.
  • Looking ahead to 2027, catch-up investment in the domestic power grid, overseas business development, margin expansion and a reduced impact from employee stock ownership plan expenses could together strengthen earnings performance. A slowdown in global power grid construction, increased competition depressing margins, or delivery delays caused by geopolitics would affect this assessment.
  • Morgan Stanley maintained its Overweight rating with a price target of 26.40 yuan. The report said the company trades at 18.6 times expected 2027 earnings, with a dividend yield of approximately 4%, and forecast annual compound earnings growth of approximately 20% over 2026–2029.