J.P. Morgan: Nari Technology: Third-quarter profit under pressure as UHV and overseas businesses take up the growth baton

Why did third-quarter profit fall?

In the third quarter of 2026, net profit attributable to shareholders was 1.84 billion yuan, down 3% year on year; operating profit grew less than 13% year on year, compared with 12% growth in the first half.
Management attributed the weak profit growth primarily to foreign exchange losses, higher bad-debt provisions and delayed software tax refunds, with respective impacts of approximately 38 million yuan, 100 million yuan and 100 million yuan. Excluding these effects, pretax profit would have grown by a high-single-digit rate to around 10% year on year, versus a reported decline of 2%.
Management expects the impact of software tax refunds to diminish in the fourth quarter, but foreign exchange losses and bad-debt provisions remain uncertain.

New orders in the first three quarters of 2026 rose 13.5% year on year, including growth of approximately 25% in energy and low-carbon business, more than 20% in energy digitalization, and approximately 7% in smart grids.
Energy and low-carbon revenue rose more than 40% year on year to 15 billion yuan, accounting for more than 30% of group revenue. However, the business had a gross margin of approximately 19%, below the more than 25% margins of other major businesses, so its increased revenue share diluted the group gross margin.
Together with rising electronic component costs, this brought the group gross margin down approximately 1 percentage point year on year to approximately 26% in the third quarter. Management also expects a year-on-year decline of approximately 1 percentage point for the full year 2026 and plans to improve the profitability of non-grid businesses by optimizing the product mix and manufacturing efficiency.

Management expects 2026 UHV revenue to exceed 6 billion yuan, up more than 50% from less than 4 billion yuan in 2025; UHV orders on hand stood at approximately 12 billion yuan at the end of September. Management also expects 3 to 4 direct-current UHV lines to be approved annually during the Fifteenth Five-Year Plan period.
Overseas revenue doubled year on year in the first three quarters of 2026, with energy storage contributing approximately 4.7 billion yuan and UHV-related products approximately 2 billion yuan. Overseas revenue rose to approximately 19% of the group total, partly driven by a large project in Oman; management sees an overseas revenue share of approximately 15% by the end of the Fifteenth Five-Year Plan as a more sustainable target.
Energy storage is a source of growth, but its gross margin is approximately 15%–20%. Energy storage revenue was approximately 8 billion yuan in the first three quarters, and management expects it to exceed 10 billion yuan for the full year 2026.

Despite disappointing third-quarter operating performance, JPMorgan believes faster UHV approvals and a shift of funds into defensive stocks could support the valuation. It maintains its Overweight rating and June 2027 price target of 27.5 yuan per share. The target is based on approximately 20 times expected earnings for 2027–2028, one standard deviation below the historical average, reflecting slowing earnings growth momentum.
The company's Fifteenth Five-Year Plan is still being formulated. Management has set an internal ambition to double the value of contracts over five years, but it has not yet been formally approved. Management also said that, given the higher earnings base and intensifying competition, maintaining a growth performance target of at least 10% under the new equity incentive plan would be challenging.