Customer Advances Rise 35% YoY; Second-Half Overseas Revenue Recognition May Drive Earnings Recovery

Overview

Sieyuan Electric's 1H26 results were in line with guidance. Goldman Sachs believes weak second-quarter revenue did not reflect softer demand, but primarily resulted from revenue-recognition timing and foreign-exchange factors; growth in customer advances, finished goods inventory, and goods already shipped all indicates strong visibility for subsequent revenue.

Core views

The company benefits from global power-grid upgrades, rising overseas market share, and tight supply of U.S. power transformers. Goldman Sachs expects earnings to be back-end loaded in 2H26, with recognition of deferred overseas revenue and a higher mix of North American transformers and UHV/EHV projects offsetting pressure from low-margin EPC and energy-storage businesses. Over the long term, EPS CAGR is expected to be 23% in 2027E-2030E, while export revenue CAGR is projected at 43% in 2025-2030E.

Analysis framework

The report assesses earnings visibility and investment value by combining revenue and gross-margin analysis by business, changes in customer advances and inventory, overseas shipment timing, U.S. order expansion, and forward P/E valuation.

Methodology notes

• Valuation methodsForward P/E Valuation

  25x 2028E P/E discounted valuation

  The 12-month target price of Rmb204.5 is based on 25x 2028E P/E, discounted to 2027E using a 9.5% cost of equity.

• Factor AnalysisGoldman Sachs Factor Profile

  Growth, financial returns, valuation, and composite factors

  Goldman Sachs' factor framework compares stocks' growth, financial-return, and valuation attributes using standardized rankings and produces a composite percentile indicator.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Sieyuan Electric (002028.SZ)

  Covered company

  Strengths

  Growth in customer advances and inventory supports revenue visibility; global power-grid upgrades, export expansion, and tight U.S. transformer supply are growth drivers; the company holds strong market positions across multiple product categories.

  Weaknesses

  EPC and energy-storage businesses have lower gross margins; overseas revenue margins are under pressure from a higher EPC mix.

  Comparison

  The 12-month forward P/E is 27x, slightly above the historical average of 24x, but corresponds to a 23% EPS CAGR for 2027E-2030E.

  Risks

  Underperformance in overseas project execution, margins below expectations, and a slowdown in data-center construction.

Key data

• 1H26 gross margin31.6%Up 2.6 percentage points QoQ, above expectations.
• 1H26 EBIT margin19.8%Above the prior forecast of 17.2%, mainly driven by strict control of selling and administrative expenses.
• Customer advances at end-2Q26QoQ +22%, YoY +35%The YoY growth rate exceeded 23% at end-1Q26, reflecting improved revenue visibility.
• Switchgear revenueRmb4,330mn, YoY +22%Gross margin was 39%, up 4 percentage points YoY; UHV orders are expected to be gradually recognized from 3Q26.
• Transformer revenueRmb2,261mn, YoY +12%Gross margin was 36%; U.S. shipments are expected to begin contributing from 3Q26.
• Energy storage system revenueRmb1,391mn, YoY +231%Gross margin was 11%; the company resumed taking orders in June after hedging lithium prices.
• Overseas revenueRmb3,183mn, YoY +11%Accounted for 29% of total revenue, with a 33% gross margin, down 2 percentage points YoY.
• Valuation and earnings forecasts27x 12-month forward P/E; 2027E-2030E EPS CAGR of 23%Goldman Sachs considers the current valuation attractive.

Impact & implications

In the near term, key areas to monitor are the pace of deferred overseas revenue recognition in 2H26 and U.S. order conversion. If North American transformer and high-voltage project mix increases, overall margins could improve; however, expansion of low-margin EPC and energy-storage businesses may limit margin upside.

Risks

• Risks related to overseas business execution and revenue recognition.
• Product and project mix changes could result in margins below expectations.
• A slowdown in data-center construction could weaken transformer demand.
• Lithium-price volatility could again affect energy-storage business profitability and order timing.
• Weaker domestic photovoltaic demand and risks associated with low-margin EPC business.

What to watch

• U.S. transformer shipments and revenue recognition from 3Q26.
• Progress of deferred overseas revenue recognition and order conversion in 2H26.
• Continued growth in customer advances, finished goods, and shipped inventory.
• Progress toward the Rmb2bn U.S. market order target and expansion into additional product categories.
• The extent to which North American transformers and UHV/EHV projects improve overall gross margin.
• Order recovery and profitability of the energy-storage business after lithium-price hedging.