China Power and Renewables Shanghai Roadshow Takeaways: Funds Favor Power Grid Equipment Leaders After the Correction

Overview

This report summarizes Morgan Stanley's Shanghai marketing meeting on China's power and renewables sector. Its core observation is that investor preferences are diverging among power equipment, utilities and AI infrastructure-related names. Popular Chinese power equipment companies previously driven by AI or export themes have seen their share prices correct by more than 50% from their early-2026 highs, prompting some investors to reassess names with improving fundamentals and excessively depressed valuations.

Core views

The report is most positive on Sieyuan, believing that new orders and product mix continue to support growth and that growth could reaccelerate after 3Q26 as currency pressure eases and the product mix improves. Huaming ranks second; despite low market expectations for 2Q26 earnings, its valuation below approximately 20x 2027E P/E and dividend yield of approximately 4% are attractive. Yingliu's long-term demand could be supported by GEV's capacity expansion, but investors are temporarily hesitant given its approximately 30x 2027E P/E and weakening sentiment toward AI infrastructure. ZTT appears inexpensive after its valuation declined to 10x 2027E P/E, but new capacity and intensifying competition are the main concerns. Sungrow is not expensive, but the market is still waiting for greater visibility on geopolitical risks, the earnings inflection point and new-product catalysts.

Analysis framework

Based on feedback from Shanghai investors, the report ranks relative preferences among covered Chinese power equipment and utility companies by considering valuation, order trends, product mix, subsector conditions, dividend yields and potential catalysts.

Methodology notes

• Valuation methodologyDCF

  Discounted cash flow

  The report uses long-term cash flows from 2027-2037 for DCF analysis of certain names. Key assumptions include a 7.5% WACC and a 1% perpetual growth rate.

• Valuation methodologyforward P/E

  One-year forward P/E

  Huaming's target price is based on 25x one-year forward P/E, approximately one standard deviation above the long-term historical average since 2019, below the historical high of 30-40x and below the global peer average valuation of approximately 30x.

• Industry viewrelative rating system

  Relative rating system

  Morgan Stanley uses relative ratings including Overweight, Equal-weight, Not-Rated and Underweight, typically over a 12-18 month time frame.

Asset mapping & comparison

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

• Sieyuan Electric Co.Ltd. (002028.SZ)

  The report's top pick, covered under power grid equipment exports and China utilities.

  Strengths

  Solid new-order growth in 1H26, continued improvement in product mix and investor expectations for growth to reaccelerate after 3Q26.

  Weaknesses

  The share price previously corrected sharply along with the popular power equipment sector and remains sensitive to market risk appetite in the short term.

  Comparison

  Compared with other power equipment companies, Sieyuan is the most widely agreed-upon bullish choice among investors.

  Risks

  Lower-than-expected overseas new orders, domestic orders, State Grid tender share and penetration of high-end products would pose downside risks.

• Huaming Power Equipment (002270.SZ)

  The report's second-ranked bullish name, benefiting from grid construction and demand for tap changers.

  Strengths

  Valuation below approximately 20x 2027E P/E, dividend yield of approximately 4%, and the author is more optimistic than the market about future competitive dynamics.

  Weaknesses

  Market expectations for 2Q26 earnings are low, with some bearish investors expecting zero or negative growth.

  Comparison

  It has slightly less consensus than Sieyuan, but its valuation and dividend appeal stand out.

  Risks

  A slowdown in global grid construction, intensified competition compressing margins and geopolitical risks extending delivery cycles.

• Anhui Yingliu Electromechanical Co Ltd (603308.SS)

  A beneficiary of long-term demand related to AI infrastructure and GEV capacity expansion.

  Strengths

  GEV's announced capacity expansion plans through 2030 could become a long-term demand growth catalyst.

  Weaknesses

  The report believes the share-price correction was driven mainly by valuation compression rather than EPS downgrades; approximately 30x 2027E P/E remains expensive.

  Comparison

  Compared with Sieyuan and Huaming, its current valuation is higher and investors are more hesitant.

  Risks

  Weakening sentiment toward AI infrastructure could continue to pressure valuation, while the timing of long-term demand realization remains uncertain.

• Jiangsu Zhongtian Technology Co.Ltd. (600522.SS)

  An optical fiber and related power communications equipment name.

  Strengths

  After the sharp share-price decline, valuation has fallen to 10x 2027E P/E, restoring apparent appeal.

  Weaknesses

  It faces the most resistance in investor feedback.

  Comparison

  Although valuation is below pre-2026 re-rating levels, competition concerns are significantly greater than for other key names.

  Risks

  Potential new capacity from existing manufacturers and new entrants could intensify competition and suppress earnings.

• Sungrow Power Supply Co.Ltd (300274.SZ)

  An inverter and AIDC power supply-related name.

  Strengths

  Its current valuation does not appear expensive.

  Weaknesses

  The market is still waiting for clearer catalysts.

  Comparison

  Compared with power grid equipment exporters, investors are more focused on geopolitical risks and visibility on the earnings inflection point.

  Risks

  Geopolitical risks, an unclear earnings growth inflection point and new product launches falling short of expectations.

• China Yangtze Power Co. (600900.SS)

  A defensive hydropower utility name.

  Strengths

  Dividend yield above 3%; viewed as a high-quality defensive choice away from the AI theme. El Nino could improve 2027 inflows and power generation.

  Weaknesses

  Growth elasticity may be lower than that of the power grid equipment export chain.

  Comparison

  Compared with AI-related equipment stocks, it offers stronger defensive and dividend characteristics.

  Risks

  Climate and inflow uncertainty, as well as electricity pricing or regulatory factors, could affect generation and earnings.

• China Longyuan Power Group (0916.HK/001289.SZ)

  A renewable power generation operator.

  Strengths

  Low valuation, with the share price below 0.6x P/B; downside is considered limited.

  Weaknesses

  The report does not provide a clear short-term growth catalyst.

  Comparison

  Compared with equipment manufacturers, its valuation is closer to the bottom and more defensive.

  Risks

  Uncertainty surrounding renewable electricity prices, utilization hours, subsidies and returns on capital expenditure.

• Dajin Heavy Industry (002487.SZ)

  An offshore wind equipment-related name.

  Strengths

  Improved new orders after 4Q26 could create an opportunity for reassessment.

  Weaknesses

  H shares have fallen more than 40% since the IPO, 2Q26 operations were weak and progress on European offshore wind orders has been slow.

  Comparison

  Compared with power grid equipment names that have already become valuation-attractive, investors are still waiting for a better entry point.

  Risks

  2026/27 earnings downgrades, delays in new orders and European offshore wind demand falling short of expectations.

Key data

• Correction in popular power equipment stocksMore than 50%Share prices of popular Chinese power equipment companies driven by AI or export themes have corrected by more than 50% from their early-2026 highs.
• Sieyuan valuationApproximately 20x 2027E P/EThe report says Sieyuan remains the top pick and that its current valuation is attractive.
• Huaming valuation and dividend yieldBelow approximately 20x 2027E P/E; approximately 4% dividend yieldMarket expectations for 2Q26 earnings are low, but the valuation and dividend yield are considered attractive.
• Yingliu valuationApproximately 30x 2027E P/EThe valuation remains high, and with sentiment toward AI infrastructure weakening, investors are not in a hurry to buy the dip.
• ZTT valuation10x 2027E P/EAfter the sharp share-price decline, valuation has fallen below pre-2026 re-rating levels, but new capacity and competitive pressure remain obstacles.
• China Yangtze Power dividend yieldAbove 3%It is viewed as a defensive choice away from the AI theme and could benefit from improved inflows in 2027.
• Longyuan valuationBelow 0.6x P/BCompared with the historical low of approximately 0.4x P/B, the report believes downside is limited.
• Dajin Heavy H-share performanceDown more than 40% since the IPOThe decline was mainly driven by weak 2Q26 operations and the risk of 2026/27 earnings downgrades due to slow progress on European offshore wind orders.

Impact & implications

For investors, the report suggests that opportunities in China's power and renewables sector are shifting from simply chasing the AI theme toward finding names that retain support from orders, product mix or dividends after valuation corrections. The power grid equipment export chain remains the main bullish direction, but investors need to distinguish among order visibility, competitive dynamics and whether valuations already reflect the risks. Hydropower and renewable energy operators within utilities provide defensive characteristics and valuation floor support.

Risks

• Overseas new orders fall short of expectations, particularly in the US and Middle East markets.
• Domestic orders or State Grid public tender shares fall short of expectations.
• Penetration of high-end products falls short of expectations, such as GIS tenders above 330kV.
• Global grid construction slows.
• New capacity and intensifying competition compress margins.
• Geopolitical risks extend product delivery cycles or affect overseas business.
• Weakening sentiment toward AI infrastructure causes valuations of related names to remain under pressure.

What to watch

• Whether Sieyuan's order growth reacceleration from 3Q26 materializes.
• Whether Huaming's 2Q26 results exceed low expectations and whether the competitive landscape improves.
• New capacity and competitive pressure from new entrants in ZTT's optical fiber segment.
• Sungrow's mitigation of geopolitical risks, earnings growth inflection point and new product launches.
• Whether China Yangtze Power benefits from improved inflows driven by El Nino in 2027.
• Potential new orders for Dajin Heavy in 4Q26 and its valuation position after mid-term results.