Reiterate Buy: Strong Growth in Advances Enhances Revenue Visibility; Overseas and High-Voltage Projects Support 2H Growth

Overview

Sieyuan Electric's 1H26 results were broadly in line with prior guidance. Goldman Sachs believes below-expectation 2Q26 revenue was primarily due to revenue-recognition timing and FX factors rather than weaker demand; order intake and product shipments remained solid. Based on accelerating growth in advances, deferred recognition of overseas revenue, and an increasing contribution from higher-value projects, Goldman Sachs reiterates its Buy rating.

Core views

Customer advances rose 35% YoY at end-2Q26, accelerating from 23% YoY at end-1Q26, indicating enhanced visibility for subsequent revenue.Earnings are expected to be back-end loaded in 2H: deferred overseas revenue will be recognized gradually, and U.S. transformer shipments are expected to begin contributing revenue from 3Q26.A rising share of North American transformers and EHV/UHV projects should offset the drag from low-margin EPC and energy-storage businesses and improve overall margins.The company benefits from the global grid-upgrade cycle, overseas market-share gains, and tight U.S. power-transformer supply; Goldman Sachs forecasts a 23% EPS CAGR for 2027E–2030E.

Analysis framework

The report combines 1H26 segment revenue and gross margins, changes in customer advances and inventories, and overseas shipment and order progress to assess the pace of revenue recognition and product mix; valuation uses a forward P/E approach, discounting the 2028E valuation to 2027.

Methodology notes

• Valuation MethodDiscounted Forward P/E Method

  Based on 2028E P/E and discounted

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

• Operating TrackingWorking Capital and Inventory Metrics Analysis

  Assessing revenue visibility through advances and inventories

  Growth in customer advances, finished goods, and shipped inventory is used to assess the visibility of orders, shipments, and future revenue recognition.

Asset mapping & comparison

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

• Sieyuan Electric (002028.SZ)

  Direct coverage target

  Strengths

  Growth in customer advances, overseas business expansion, U.S. transformer opportunities, EHV/UHV demand, and the global grid-upgrade cycle.

  Weaknesses

  Low-margin EPC and energy-storage businesses weigh on the overall product mix, and some revenue recognition has been deferred.

  Comparison

  The company currently trades at 27x 12-month forward P/E, slightly above its historical average of 24x; Goldman Sachs views this as still attractive relative to its 23% EPS CAGR for 2027E–2030E.

  Risks

  Weaker-than-expected overseas execution, lower-than-expected margins, and a slowdown in data-center construction.

Key data

• Customer advances growth at end-2Q26+22% QoQ, +35% YoYAccelerated from +23% YoY at end-1Q26, reflecting strong revenue visibility.
• Gross margin31.6%Up 2.6 percentage points QoQ, above Goldman Sachs' expectation.
• EBIT margin19.8%Above the prior 17.2% expectation, mainly supported by expense control.
• Switchgear revenue and gross marginRmb4,330mn; 39%Revenue +22% YoY; gross margin +4 percentage points YoY.
• Transformer revenue and gross marginRmb2,261mn; 36%Revenue +12% YoY; gross margin +1 percentage point YoY; U.S. shipments are expected to contribute revenue from 3Q26.
• Energy storage systems revenue and gross marginRmb1,391mn; 11%Revenue +231% YoY; gross margin +4 percentage points YoY; the company resumed taking orders in June after hedging lithium prices.
• Overseas revenueRmb3,183mn, 29% of total revenue+11% YoY; gross margin of 33%, down 2 percentage points YoY, mainly due to a higher EPC mix.
• Target priceRmb204.5Previously Rmb203.7; Buy rating maintained.

Impact & implications

In the short term, revenue-recognition timing, FX, and overseas project delivery schedules may cause quarterly volatility; however, advances, inventories, and U.S. shipment data support accelerated revenue recognition in 2H. Over the medium to long term, global grid upgrades, tight transformer supply, and the company's overseas certification and delivery capabilities are expected to drive export expansion and margin improvement.

Risks

• Overseas project execution, delivery, or revenue recognition may fall short of expectations.
• Overall margins may be below expectations, particularly due to the mix of low-margin EPC and energy-storage businesses.
• A slowdown in data-center construction may weaken demand for transformers and related grid equipment.
• FX fluctuations and changes in the timing of overseas revenue recognition may increase quarterly earnings volatility.
• Domestic new-energy EPC demand is weak, with demand having declined after the peak in solar installations.

What to watch

• Progress of U.S. transformer shipments and revenue recognition from 3Q26.
• Subsequent changes in customer advances, finished goods, and shipped inventory.
• Order conversion and revenue recognition for EHV/UHV switchgear.
• Margin performance of overseas EPC orders and mobile/prefabricated substations.
• Recovery in energy-storage order intake after lithium-price hedging and conversion of contracted backlog.
• The extent of gross-margin improvement from North American transformers and overseas projects.