J.P. Morgan: Zhuzhou CRRC Times Electric’s third-quarter revenue accelerates, while profit remains under pressure

Why is revenue accelerating while profit lags?

The company reported third-quarter 2026 revenue of 7.747 billion yuan, up 17% year on year and a marked acceleration from 4% in the second quarter; net profit attributable to shareholders was 1.093 billion yuan, up just 4% year on year.
Third-quarter gross margin fell 1.8 percentage points year on year to 31.4%, while selling expenses rose 36% year on year. Emerging equipment accounted for a larger share of revenue, and the business was more affected by rising raw material costs, weighing on margins.
Cash flow also moved in the opposite direction: net operating cash outflow was 210 million yuan in the first three quarters of 2026, compared with a net inflow of 2.117 billion yuan a year earlier.

Emerging equipment revenue rose 20% year on year in the third quarter, accounting for about half of total revenue. Semiconductor revenue was 1.8 billion yuan, up 24% year on year, while the industrial and new energy vehicle power systems businesses grew 74% and 31%, respectively.
Management said price increases announced in July were gradually taking effect and intense price competition in the low-voltage IGBT market had eased somewhat. Increased deliveries to power grid projects in the third quarter could also support the semiconductor business. IGBTs are power semiconductor products the company uses in applications including automobiles.
Management said IGBT production capacity was fully utilized, but actual price increases depended on customer negotiations, and new energy vehicle customers might be more resistant to increases. JPMorgan believes tightening global supply and demand provides a favorable backdrop for a recovery in prices and margins.

Railway equipment revenue rose 15% year on year in the third quarter. By the end of October, tenders had been issued for 268 standard trainsets with a speed of 350 kilometers per hour and more than 500 locomotives, with the latter already close to the full-year 2025 level.
Maintenance revenue rose 17% year on year to 2.6 billion yuan in the first three quarters of 2026, accounting for 23% of railway revenue. After-sales services are becoming a source of growth as vehicles in service enter overhaul and upgrade cycles.
The silicon carbide production line is still ramping up: revenue exceeded 100 million yuan in the first three quarters, and new energy vehicle traction systems have been delivered in volume. The first phase aims to reach designed capacity by mid-2027. For AI data centers, the company has begun volume deliveries of some high-voltage direct current products to customers, while solid-state transformers remain in research and development.

Revenue in the first three quarters reached 66% of JPMorgan’s full-year forecast, above the 62% average for the same period over the past five years; net profit attributable to shareholders reached only 61% of the full-year forecast.
Working backward from the bank’s full-year model, fourth-quarter revenue needs to grow 7% year on year and attributable net profit needs to grow 30%. JPMorgan believes the revenue target is achievable, but catching up on profit requires a recovery in gross margin and improved expense discipline.
The bank maintained its overweight ratings on the A-shares and H-shares, with target prices of 67 yuan and 47 Hong Kong dollars, respectively.