Overseas Growth, Competition, and FX Losses Weighed on 1H26 Performance, but Nomura Still Expects a Margin Recovery in 2H26

Overview

The report analyzes why Sieyuan Electric's 1H26 results missed expectations, focusing on how slower overseas expansion, intensifying competition, FX losses, and the increased contribution from the energy storage business affected margins. Nomura consequently lowered its 2026—2028 revenue, profit, and gross margin forecasts. However, based on order demand and an improving product mix, it still expects profitability to recover in 2H26 and maintains its Buy rating.

Core views

Sieyuan Electric's 1H26 revenue increased 27.0% YoY to CNY10.8bn, while net profit rose 13.2% YoY to CNY1.46bn. Both figures reflected business growth, but net profit growth significantly lagged revenue growth, and overall performance fell short of Nomura's expectations. The main revenue-side variance came from overseas expansion: overseas revenue grew 11% YoY, sharply decelerating from 86% in 1H25. Nomura believes this reflects intensifying competition as more Chinese companies accelerate their overseas expansion, causing the pace of international growth to fall below its original assumptions. In addition to changes in the operating mix, profitability was directly affected by exchange rates. The company recorded an FX loss of CNY85mn in 1H26, compared with an FX gain of CNY40mn in 1H25. This swing from gain to loss was an important reason net profit growth lagged revenue growth. Meanwhile, ending contract liabilities reached CNY3.83bn, up 49.5% YoY. Nomura views this as evidence that demand remains robust and therefore believes order support could drive a recovery in profitability in 2H26. Changes in the product mix were another major driver of the gross margin decline. The consolidated gross margin was 30.5% in 1H26, down 1.2 percentage points YoY. Energy storage revenue grew 231% YoY, increasing its share of total revenue from 7.1% in 2025 to 12.9%; however, the business had a gross margin of only 10.5%, below those of the switchgear, transformer, and protection and automation businesses. The rapidly rising contribution from this low-margin business therefore became an important cause of the consolidated gross margin decline. Nomura also notes that uncertainty remains around the outlook for domestic energy storage demand, while the company's long-term priority is to expand overseas sales of high-value-added products. It therefore remains to be seen whether the low-margin product mix observed in 1H26 will persist. Regional profitability also faces competitive pressure. The overseas gross margin declined from 35.7% in 1H25 to 33.4% in 1H26, down 2.3 percentage points YoY. Nomura attributes this to intensifying overseas competition as domestic peers accelerate their international expansion and global companies add capacity. Based on the 1H26 results, Nomura lowered its 2026—2028 gross margin forecasts by 0.6, 0.2, and 0.4 percentage points, respectively, to 31.4%, 31.7%, and 31.9%. The new forecasts assume that energy storage revenue growth will slow in 2H26 while the revenue contribution from higher-margin businesses increases, driving a margin recovery. Given weaker-than-expected overseas growth and overall profitability, Nomura lowered its 2026—2028 revenue forecasts by 3.8%, 3.9%, and 3.8%, respectively, and its net profit forecasts by 7.2%, 5.2%, and 5.7%, respectively. In addition, following completion of the equity transfer registration for Sieyuan Toshiba, Sieyuan Electric's ownership stake declined from 90% to 70%, potentially reducing the subsidiary's future contribution to net profit attributable to shareholders of the parent company. Regarding valuation, as market attention gradually shifts toward earnings in 2027 and beyond, Nomura changed its valuation base year to 2027 and lowered its target P/E multiple from 50x to 35x. The target multiple remains significantly above the 2027 peer average of 18x because Nomura expects Sieyuan Electric's earnings growth and ROE during 2026—2028 to exceed the peer averages. Applying a 35x target multiple to its 2027 forecast EPS of CNY6.80, Nomura lowered its target price from CNY273 to CNY238; the previous valuation was based on its 2026 forecast EPS of CNY5.46. The stock currently trades at 25.1x forecast 2027 P/E, and the CNY238 target price implies 39.2% upside from the current price of CNY171. Nomura therefore maintains its Buy rating.

Analysis framework

Nomura first compares 1H26 revenue and net profit with the year-earlier period and its own forecasts, then explains the performance variance through overseas revenue growth and FX gains or losses. It subsequently breaks down gross margins by product and region to assess the effects of the energy storage revenue contribution and overseas competition on profitability. The report uses contract liabilities to evaluate subsequent demand and accordingly adjusts its 2026—2028 revenue, net profit, and gross margin forecasts. Finally, it changes the valuation base year to 2027, derives the target price using forecast EPS and a target P/E multiple, and compares the company with peers in terms of valuation, earnings growth, and ROE.

Methodology notes

• Valuation MethodologyP/E and PEG Valuation

  Relative valuation based on forecast EPS and a target P/E multiple

  The report applies a 35x target P/E multiple to its 2027 forecast EPS of CNY6.80 to derive a target price of CNY238. The premium target multiple relative to peers is based on Nomura's expectation that the company's earnings growth and ROE will exceed those of its peers.

• Company Fundamentals and Financial FrameworkEarnings Quality Analysis

  Cross-analysis of revenue, net profit, FX gains and losses, and gross margins

  By comparing revenue and net profit growth and breaking down FX losses, product mix, and regional gross margins, the report explains why rapid revenue growth did not translate into profit growth of a similar magnitude.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Using contract liabilities to assess demand and support for subsequent revenue

  The report views the 49.5% YoY increase in ending contract liabilities as a sign of robust demand and uses it to support the assessment that profitability could recover in 2H26.

Asset mapping & comparison

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

• Sieyuan Electric (Sieyuan Electric, 002028 CH)

  The report believes the company was affected in 1H26 by slower overseas growth, competition, FX losses, and changes in its product mix, but robust demand and a higher contribution from high-margin businesses could support a margin recovery in 2H26.

  Strengths

  The company possesses core technologies across multiple product lines, has participated in formulating several Chinese national industry standards, and is viewed by the report as a leader in the international expansion of China's electrical equipment industry. Nomura expects its 2026—2028 earnings growth and ROE to exceed those of its peers.

  Weaknesses

  Overseas growth has slowed significantly, the overseas gross margin has declined, the contribution from the low-margin energy storage business has increased, and FX losses have weighed on net profit.

  Comparison

  The target 2027 P/E of 35x exceeds the 2027 peer average of 18x. The premium is based on Nomura's expectation that the company's earnings growth and ROE will outperform those of its peers.

  Risks

  Domestic orders falling short of expectations, escalating trade friction, slowing overseas expansion, and slower-than-expected development of new businesses.

Key data

• 1H26 RevenueCNY10.8bnUp 27.0% YoY.
• 1H26 Net ProfitCNY1.46bnUp 13.2% YoY and below Nomura's forecast.
• 1H26 Overseas Revenue Growth11%Below 86% in 1H25.
• 1H26 FX Gain/LossCNY85mn lossCompared with a CNY40mn gain in 1H25.
• 1H26 Ending Contract LiabilitiesCNY3.83bnUp 49.5% YoY.
• 1H26 Consolidated Gross Margin30.5%Down 1.2 percentage points YoY.
• 1H26 Energy Storage Revenue Growth231%Its revenue contribution increased from 7.1% in 2025 to 12.9%.
• 1H26 Energy Storage Gross Margin10.5%Below those of the switchgear, transformer, and protection and automation businesses.
• 1H26 Overseas Gross Margin33.4%Compared with 35.7% in 1H25, down 2.3 percentage points YoY.
• 2026—2028 Gross Margin Forecasts31.4% / 31.7% / 31.9%Lowered by 0.6, 0.2, and 0.4 percentage points, respectively.
• 2026—2028 Revenue Forecast Revisions-3.8% / -3.9% / -3.8%Lowered due to weaker-than-expected overseas growth and overall profitability.
• 2026—2028 Net Profit Forecast Revisions-7.2% / -5.2% / -5.7%The reductions were larger than those to the revenue forecasts.
• Ownership Stake in Sieyuan Toshiba70%Reduced from 90% to 70%.
• 2027 Forecast EPSCNY6.80The valuation basis for the new target price; the previous valuation used 2026 forecast EPS of CNY5.46.
• Target and Current P/E35x / 25.1xThe target 2027 P/E and current forecast 2027 P/E, respectively; the 2027 peer average is 18x.
• Target PriceCNY238Lowered from CNY273, implying 39.2% upside from the current price of CNY171.00.

Impact & implications

The report believes that intensifying competition, FX losses, and the increased contribution from the low-margin energy storage business will continue to weigh on near-term earnings, but growth in contract liabilities indicates that demand remains supportive. If energy storage growth slows in 2H26 and the contribution from higher-margin businesses increases, margins could recover. However, cuts to earnings forecasts and the valuation multiple reduce the target price to CNY238. Nomura still expects the company's medium-term earnings growth and ROE to exceed those of its peers and therefore maintains its Buy rating.

Risks

• Domestic orders could fall short of expectations.
• Trade friction could escalate further.
• Overseas or global business expansion could be slower than expected.
• Development of new businesses could be slower than expected.

What to watch

• Monitor whether energy storage revenue growth slows as forecast in 2H26 and whether the revenue contribution from higher-margin businesses recovers.
• Monitor whether the overseas gross margin can stabilize amid the international expansion of domestic peers and capacity additions by global companies.
• Monitor whether the 49.5% YoY increase in contract liabilities translates into revenue and earnings support.
• Monitor changes in FX gains and losses and their impact on net profit.
• Monitor changes in Sieyuan Toshiba's contribution to net profit attributable to shareholders of the parent company after the ownership stake declines to 70%.