Power equipment margins are expected to improve in 2H26, with UHV and 750 kV GIS demand providing medium-term support

Overview

This report summarizes J.P. Morgan's key takeaways from the FY25 earnings calls of Xuji Electric and Pinggao Electric in China's power equipment sector. It argues that the two companies' recent results fell short of expectations mainly because of pricing and recognition timing rather than demand collapse: Xuji was weighed down by low-price smart meters, distribution centralized procurement, and low-margin UHV retrofit projects, while Pinggao was hit by lower 750 kV GIS deliveries, year-end expenses, and losses from overseas EPC. Looking ahead to FY26 and the 15th Five-Year Plan period, grid investment, UHV project deliveries, high-voltage GIS demand, and overseas single-equipment exports are the main growth themes.

Core views

The core views are: first, the negative impact from low-price meter and distribution equipment batches will continue to show up in 2Q-3Q26, but margins should improve more clearly in 2H26 as later batches reprice higher; second, copper and steel price changes largely offset each other, so raw materials are not the main margin driver, while tender pricing matters more; third, grid investment during the 15th Five-Year Plan period is expected to exceed RMB 5 trillion, with annual UHV investment potentially above RMB 100 billion, supporting a multi-year growth cycle; fourth, Northwest China new-energy base construction is keeping 750 kV GIS demand elevated; fifth, the overseas business is shifting from traditional EPC to single-equipment exports, which should improve risk structure, although Pinggao still needs to digest historical EPC losses.

Analysis framework

The report combines qualitative and quantitative analysis based mainly on management guidance from the two companies' FY25 earnings calls, order and revenue recognition timing, gross margin decomposition, segment order changes, grid investment planning, and regional equipment demand, while comparing near-term earnings pressure with the medium-term grid investment cycle.

Methodology notes

• Performance attributionMargin bridge analysis

  Break gross margin changes into the effects of tender prices, product mix, revenue recognition, and raw material costs.

  The report notes that Xuji's margin decline was mainly driven by low-price smart meters, distribution centralized procurement orders, and UHV retrofit projects, while copper and steel costs largely offset each other, making pricing batches and recognition timing more important than raw materials.

• Industry cycleCapex-driven framework

  Use grid capital expenditure, the 15th Five-Year Plan, and UHV line construction to judge the equipment demand cycle.

  Management expects combined investment by the two grid operators to exceed RMB 5 trillion during the 15th Five-Year Plan period, and around 20 UHVDC lines plus high-voltage GIS demand should provide medium-term demand support for the sector.

• Orders and revenue recognitionBacklog conversion analysis

  Use order growth, backlog, and quarterly delivery timing to identify revenue recognition inflection points.

  Xuji's FY26 UHV project delivery target is above RMB 2 billion and is concentrated in 3Q/4Q, leading the report to judge that UHV revenue recognition may accelerate materially in the second half of the year.

Asset mapping & comparison

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

• Xuji Electric (000400.SZ)

  One of the two companies discussed in depth; rated OW.

  Strengths

  UHV backlog exceeds RMB 5 billion, with FY26 project delivery targets above RMB 2 billion; 1Q26 grid-connected orders grew about 26%; FY25 overseas revenue grew by more than 70%.

  Weaknesses

  1Q26 gross margin was weighed down by low-price meters, distribution centralized procurement, and low-margin UHV retrofit projects, and the FY25 low-price meter tender batches will still affect 2Q-3Q26.

  Comparison

  Compared with Pinggao, Xuji disclosed more growth drivers in smart meters, distribution equipment, DC transmission, and overseas meters/charging piles/ring main units.

  Risks

  Slower-than-expected digestion of low-price batches, delayed UHV deliveries, slower-than-expected tender price recovery, and execution risk on overseas orders.

• Pinggao Electric (600312.SS)

  One of the two companies discussed in depth; rated NC.

  Strengths

  750 kV GIS demand is supported by Northwest China new-energy base construction, and the company maintained about 45% market share; 34 units of 1000 kV GIS remain undelivered, and FY26 deliveries are expected to exceed the 11 units delivered in FY25.

  Weaknesses

  FY25 results missed market expectations by more than 5%, weighed down by lower 750 kV GIS deliveries, year-end expenses, and international EPC losses; the overseas business remains loss-making.

  Comparison

  Compared with Xuji, Pinggao benefits more directly from high-voltage GIS and main-grid reinforcement demand, but it also has a heavier historical EPC burden and more visible revenue recognition volatility.

  Risks

  Uncertainty in the annual growth pace of 750 kV GIS, continued drag from overseas EPC losses, and disruptions from expense recognition and delivery timing.

• Nari Tech; Huaming Equipment; Wasion Holdings

  Preferred names mentioned in the report, with Nari Tech and Huaming Equipment as top picks and Wasion Holdings also viewed positively.

  Strengths

  Benefit from grid investment, equipment upgrades, transformer/power equipment demand, and improved meter-related industry conditions.

  Weaknesses

  The report does not provide company-by-company financial model or target price analysis.

  Comparison

  These names are presented as preferred sector allocations, while Xuji and Pinggao are the main companies discussed in this earnings-call review.

  Risks

  Valuation, order recognition, tender pricing, regulatory, and overseas execution risks.

Key data

• Grid investment during the 15th Five-Year Plan period>RMB 5 trillionSupported by combined investment expectations from the two grid operators, implying a mid- to high-single-digit CAGR.
• Annual UHV investment run rate>RMB 100 billion/yearThe report expects about 20 UHVDC lines, each at roughly RMB 30 billion or more.
• Xuji 1Q26 gross margin19%, down >4 percentage points YoYAffected by low-price meters, low-price distribution centralized procurement orders, and low-margin UHV retrofit project recognition.
• Xuji FY26 UHV project delivery target>RMB 2 billionPlus about RMB 400-500 million in recurring revenue, with deliveries mainly concentrated in 3Q/4Q.
• Xuji UHV backlog>RMB 5 billionProvides support for improved FY26 revenue recognition.
• Xuji 1Q26 grid-connected order growthAbout +26% YoYExcluding the new-energy segment; smart distribution +46%, medium voltage +10%+, meters +15%.
• Pinggao FY25 newly signed contractsRMB 13.7 billion, +5%High-voltage business RMB 13.4 billion, +7%; distribution about RMB 3.6 billion, -2%.
• Pinggao 750kV GIS market shareAbout 45%All 750 kV tenders in FY25 were in Northwest China, driven by new-energy base grid connections and main-grid reinforcement demand.

Impact & implications

In terms of investment implications, the report views 4Q25 as a sector-clearing event and believes that margin pressure from low-price procurement batches and centralized procurement will gradually ease in 2H26. At the same time, grid capex, UHV deliveries, high-voltage GIS demand, and overseas single-equipment exports provide medium-term growth support for power equipment companies. The more attractive areas within the sector include UHVDC, distribution equipment, high-voltage GIS/transformers, smart meter price recovery, and power electronics equipment related to AIDC/microgrids.

Risks

• The duration of weak margins from low-price meter and distribution equipment batches may be longer than expected.
• UHV project tendering, delivery, or revenue recognition may be delayed.
• Grid capex may fall below management expectations or project mix may be unfavorable for related equipment companies.
• The pace of 750 kV GIS demand is uncertain.
• Overseas business, especially losses from legacy EPC projects, may continue to drag on profits.
• If raw material prices stop offsetting each other, cost pressure could re-emerge.
• The report discloses that J.P. Morgan has conflicts of interest related to market making, client relationships, or potential investment banking compensation with some of the companies mentioned.

What to watch

• The digestion pace of low-price meter and distribution procurement orders in 2Q-3Q26.
• The magnitude of Xuji's UHV revenue recognition and margin improvement in 2H26.
• The detailed grid investment plan for the 15th Five-Year Plan period, and the number and pace of UHVDC line tenders.
• The number of 750 kV GIS and 1000 kV GIS units delivered by Pinggao.
• Whether prices in subsequent rounds of regional joint procurement for distribution equipment continue to recover.
• Growth in overseas single-equipment export orders and the winding down of Pinggao's legacy EPC losses.
• Commercialization progress in solid-state transformers, AIDC/microgrid equipment, and power electronics products.