Maintain Buy: earnings met expectations, gross margins improved, and overseas expansion continues
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Maintain Buy: earnings met expectations, gross margins improved, and overseas expansion continues
Nomura believes Shemar Electric's first-half profit growth outpaced revenue growth. European orders and manufacturing deployment in Vietnam and the United States support international growth, but the target price was cut to CNY74.80 due to an industry valuation correction.
- 1H26 revenue rose 27.0% YoY to CNY890mn, while net profit increased 34.0% YoY to CNY210mn, broadly in line with expectations.
- Overall gross margin increased 3.0 percentage points YoY to 47.4%, with improved gross margins across several core products.
- The company secured framework procurement contracts for composite transmission-line insulators from the UK's National Grid and Belgium's Elia.
- The Vietnam plant has obtained investment approval and a business license and is building production lines, while the US plant has signed a lease.
- The target P/E was reduced from 62x to 55x, and the target price from CNY84.32 to CNY74.80, while the Buy rating was maintained.
Report interpretation
Overview
Shemar Electric's 1H26 results were in line with Nomura's expectations. The company maintained strong revenue and net profit growth, with product upgrades, gross margin improvement, and cost control driving net profit growth above revenue growth. The report also highlights that the company won important customer orders in Europe and continues to build manufacturing bases in Vietnam and the United States, with overseas expansion underway.
Core views
Nomura maintains its 2026-2028 revenue and net profit forecasts, believing the company offers stronger earnings growth and ROE prospects than peers and therefore merits a premium to the peer-average valuation. Given the recent industry valuation correction, the target P/E was lowered from 62x to 55x and the target price was reduced accordingly, while the Buy rating was maintained. Raw-material cost pressure and rising overseas expansion expenses are expected to result in slightly lower 2H26 profitability than in 1H26.
Analysis framework
The report bases its fundamental assessment on YoY earnings performance, product-level gross margins, overseas orders, and capacity construction progress. It applies a relative valuation method using 2026 forecast EPS multiplied by the target P/E to determine the target price, while also referencing peer-average valuations and differences in the company's growth and ROE.
Methodology notes
The target price is calculated based on 2026 forecast EPS and the target P/E.
A target price of CNY74.80 is derived using 2026 forecast EPS of CNY1.36 and a target P/E of 55x.
The company's target valuation is above the peer-average level.
The report assigns a premium to peers based on the company's stronger expected earnings growth and ROE; peers trade at an average 2026 forecast P/E of 32x.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Shemar Electric (603530.SS)Directly covered company
- Strengths
- First-half results were in line with expectations; core product gross margins improved; European orders validate product competitiveness; overseas capacity deployment is progressing; expected earnings growth and ROE exceed peers.
- Weaknesses
- 2H26 may face raw-material cost pressure and higher overseas expansion expenses, with profitability potentially declining slightly from the first half.
- Comparison
- The target P/E of 55x is above the peer-average 2026 forecast P/E of 32x; the report considers this premium justified by stronger growth and ROE expectations.
- Risks
- Product quality issues, exchange-rate fluctuations, and raw-material price volatility.
Key data
- 1H26 revenueCNY890mn, up 27.0% YoYIn line with expectations.
- 1H26 net profitCNY210mn, up 34.0% YoYGrowth outpaced revenue, driven by product upgrades, gross margin improvement, and cost control.
- Overall gross margin47.4%, up 3.0 percentage points YoYGross margins improved broadly across core products.
- 2026F revenueCNY2,531mnNomura's forecast is unchanged.
- 2026F net profitCNY588mnNomura's forecast is unchanged.
- 2026F EPSCNY1.36Used for target-price valuation.
- Target priceCNY74.80Target P/E of 55x; previous target price was CNY84.32.
- 2026F P/E34.6xThe current trading valuation stated in the report.
Impact & implications
Orders from key European customers validate the quality of the company's products and its ability to meet high technical thresholds, potentially supporting further overseas market expansion. Manufacturing deployment in Vietnam and the United States is expected to mitigate trade-related risks and enhance the sustainability of international business growth; however, near-term overseas expansion expenses and raw-material costs may pressure margins.
Risks
- Product quality issues could affect customer recognition and order acquisition.
- Exchange-rate fluctuations could affect overseas business revenue and costs.
- Raw-material price volatility could erode gross margins.
- Increased overseas expansion investment and delays in revenue recognition could disrupt near-term results.
- An industry-wide valuation correction could further lower the valuation benchmark.
What to watch
- The pace of revenue recognition and changes in profitability in 2H26.
- The impact of raw-material costs and overseas expansion expenses on gross and net margins.
- Execution of framework orders from the UK's National Grid and Belgium's Elia, and subsequent order expansion.
- Progress in production-line construction at the Vietnam plant and implementation of the US plant.
- The actual contribution of overseas manufacturing deployment to mitigating trade risks and growing international revenue.