Key takeawayCiti believes Huaming Equipment’s profit growth excluding share-based incentive expenses in the first three quarters was broadly in line with expectations. Overseas sales and cash flow were highlights, but foreign exchange losses reduced the net margin.
How did overseas sales support growth?
- In the first three quarters of 2026, Huaming Equipment reported revenue of 2.006 billion yuan, up 10.5% year on year. Third-quarter revenue was 725 million yuan, up 4.4% year on year but down 3.5% quarter on quarter.
- Export sales, including indirect exports, rose 45.9% year on year in the first three quarters. Third-quarter export sales rose 48.6% year on year to 260 million yuan. On that basis, Citi expects most of the company’s growth in 2026 to come from overseas.
Why did profit grow more slowly than revenue?
- Net profit for the first three quarters was 618 million yuan, up 6.5% year on year. Third-quarter net profit was 229 million yuan, up 7.6% year on year and 0.3% quarter on quarter.
- The gross margin for the first three quarters rose 0.5 percentage points year on year to 55.9%, but the net margin fell 1.2 percentage points to 30.8%. Cash and cash equivalents generated a foreign exchange loss of 31 million yuan during the period, compared with a foreign exchange gain of 2 million yuan a year earlier.
- Citi said selling expenses for the first three quarters included 62 million yuan in employee share-based incentive expenses. Excluding that expense, net profit was 640 million yuan, up 10.6% year on year. The bank considers that growth rate not far from the Bloomberg market consensus forecast of 14% full-year net profit growth in 2026.
How pronounced was the cash flow improvement?
- Operating cash inflow in the first three quarters of 2026 was 550 million yuan, up 52.7% year on year. Free cash flow was positive at 509 million yuan, up 26.6% year on year. Citi highlighted the cash flow performance.
- Net profit rose 6.5% year on year over the same period, while cash flow grew significantly faster.
What underpins Citi’s valuation?
- Citi reiterated its buy rating and its target price of 28 yuan per share. The share price listed in the report for 26 October 2026 was 19.50 yuan. The target price is based on a cash flow model incorporating forecasts through 2030 and assuming a terminal growth rate of 4%.
- The bank’s main downside risks include lower-than-expected new overseas orders, lower-than-expected capital spending by China’s power grids, and higher-than-expected raw material costs.
