The power equipment sector may see a clearing point in 4Q25, with margins and UHV recognition likely to improve in 2H26
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The power equipment sector may see a clearing point in 4Q25, with margins and UHV recognition likely to improve in 2H26
J.P. Morgan believes Xuji and Pinggao's results fell short mainly due to low-priced meters, distribution centralized procurement, and order recognition timing, but 15th FYP grid capex, UHV, and high-voltage GIS demand will support a subsequent recovery.
- Xuji's 1Q26 gross margin fell by more than 4 percentage points YoY to 19%, mainly due to low-priced smart meters, distribution centralized procurement, and the recognition of low-margin UHV retrofit projects.
- Management expects the drag from low-priced meters and distribution orders to gradually fade in 2H26; distribution centralized procurement prices have already recovered, and the gross margin on new national-standard supplemental meter tenders is close to normal levels.
- During the 15th FYP period, total investment by the two grid operators is expected to exceed Rmb 5tn, with around 20 UHV DC lines implying an annual UHV investment run rate of more than Rmb 100bn.
- Pinggao maintains about 45% market share in 750kV GIS; construction of Northwest wind and solar mega-bases and the strengthening of main-grid carrying capacity will continue to support high-voltage GIS demand.
- Overseas business is shifting toward standalone equipment exports: Xuji's FY25 overseas revenue grew by more than 70%, and Pinggao's international revenue grew 26% but is still dragged by legacy EPC losses.
Report interpretation
Overview
Based on Xuji Electric and Pinggao Electric FY25 earnings calls, this report summarizes operating highlights across meters, distribution, UHV, high-voltage GIS, overseas business, and new technology directions in China's power equipment sector. Near-term results fell short mainly because of low-priced bid orders and project recognition timing, but the report believes these drags are temporary and that 2H26 should improve as prices recover and UHV deliveries accelerate.
Core views
The core view is: first, the profit pressure in 4Q25 and 1Q26 mainly came from lower meter prices, regional joint procurement, and some low-margin UHV retrofit projects, rather than copper or steel input prices; second, more than Rmb 5tn of 15th FYP grid investment will create a multi-year growth cycle, and UHV DC and Northwest high-voltage GIS demand have clear support; third, 4Q25 results may become the sector's flush-out event, after which sequential margin recovery and faster order recognition will be the main catalysts.
Analysis framework
The report triangulates company earnings-call information, order and revenue recognition timing, gross margin changes by business line, 15th FYP grid capex plans, UHV and GIS delivery expectations, and changes in overseas business mix.
Methodology notes
Break down the gross margin decline into low-priced meters, distribution centralized procurement, UHV retrofit projects, and raw material factors.
The report believes tender prices and order batches are the main drivers of margin changes; the impact of copper and steel prices largely offsets, and raw materials are not the main drag.
Use total 15th FYP grid investment, UHV line count, and high-voltage GIS deliveries to judge medium-term demand.
The two grids' 15th FYP investment is expected to exceed Rmb 5tn, with UHV accounting for about 15% and distribution/transmission and transformation exceeding 60%, supporting a multi-year upcycle in power equipment.
Use backlog, new orders, and quarterly delivery cadence to validate revenue recovery.
Xuji's UHV-related backlog exceeds Rmb 5bn, with FY26 project delivery targets of more than Rmb 2bn in revenue, concentrated mainly in 3Q/4Q.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Xuji Electric (000400.CH/000400.SZ)One of the core companies discussed in the report, rated OW.
- Strengths
- UHV backlog exceeds Rmb 5bn, 1Q26 on-grid order growth was about 26%, FY25 overseas revenue grew by more than 70%, and there are signs that distribution prices are recovering.
- Weaknesses
- 1Q26 gross margin fell to 19%, and the FY25 low-priced meter tenders and distribution centralized procurement orders will still weigh on 2Q-3Q26.
- Comparison
- Compared with Pinggao, Xuji is more directly affected by meter, distribution, and DC transmission order mix, and the pace of UHV revenue recognition is more critical to FY26 earnings upside.
- Risks
- Slower-than-expected digestion of low-priced orders, delayed UHV deliveries, renewed declines in bidding prices, and overseas execution risk.
- Pinggao Electric (600312.CH)One of the core companies discussed in the report, rated NC.
- Strengths
- 750kV GIS market share is about 45%, FY26 1000kV GIS deliveries could exceed the 11 units in FY25, and demand is supported by Northwest new-energy base construction and main-grid strengthening.
- Weaknesses
- FY25 results missed consensus by more than 5%, 4Q25 750kV GIS deliveries were nearly cut in half, and legacy international EPC losses continue to drag on overseas business.
- Comparison
- Compared with Xuji, Pinggao is more influenced by high-voltage GIS deliveries and main-grid construction for new-energy absorption, while overseas business is still in the transition from EPC to standalone equipment exports.
- Risks
- Uncertain annual GIS growth pace, continued drag from legacy EPC losses, delivery volatility, and overseas expansion falling short of expectations.
- Nari Technology - A (600406.SS)Listed by J.P. Morgan as one of the top picks, rated OW.
- Strengths
- Benefits from grid capex, transmission and distribution, and grid digitalization-related demand.
- Weaknesses
- This report does not provide detailed company-level financial segmentation.
- Comparison
- It belongs to the same power equipment/utilities coverage universe as Xuji and Pinggao, but the report mainly positions it as a sector top pick.
- Risks
- Grid investment timing, order recognition, and valuation volatility.
- Huaming Equipment - A (002270.SZ)Listed by J.P. Morgan as one of the top picks, rated OW.
- Strengths
- Benefits from transmission and transformation equipment demand and the grid investment cycle.
- Weaknesses
- This report does not provide detailed company-level financial segmentation.
- Comparison
- Also a top pick in the report alongside Nari Tech, focused on beneficiaries within the power equipment chain.
- Risks
- Order and delivery timing, raw material changes, and competitive landscape shifts.
- Wasion Holdings Ltd - H (3393.HK)The report also remains positive on it, rated OW.
- Strengths
- Related to meter and power equipment demand, and may benefit from grid investment and overseas demand.
- Weaknesses
- This report does not provide detailed operating segmentation.
- Comparison
- Compared with A-share equipment companies, Wasion is an H-share name and the current price is quoted in HKD.
- Risks
- Meter tender pricing, overseas demand, and foreign exchange volatility.
Key data
- Xuji 1Q26 gross margin19%, down more than 4 percentage points YoYAffected by low-priced smart meters, distribution centralized procurement, and recognition of low-margin UHV retrofit projects.
- Xuji 1Q26 UHV revenueRmb 170mnHigher than Rmb 44mn in 1Q25, but part of it came from low-margin retrofit projects.
- 15th FYP grid investment>Rmb 5tnCombined investment expected from State Grid and China Southern Power Grid, implying a mid- to high-single-digit CAGR.
- Expected UHV DC linesAbout 20 lines, each at roughly Rmb 30bn+Implied annual investment run rate of about Rmb 100bn+.
- Xuji UHV backlog>Rmb 5bnFY26 project delivery target of Rmb 2bn+, plus about Rmb 400-500mn of regular revenue.
- Xuji 1Q26 on-grid order growthAbout 26% YoYExcluding new energy business; smart distribution +46%, medium-voltage +10%+, meters +15%.
- Pinggao FY25 new contractsRmb 13.7bn, up 5%High-voltage business Rmb 13.4bn, up 7%; distribution about Rmb 3.6bn, down 2%.
- Pinggao 750kV GIS shareAbout 45%All 750kV tenders in FY25 were in Northwest China, driven by new-energy base grid-connection demand.
Impact & implications
For investors, the power equipment sector should focus in the near term on the clearing of low-priced orders and sequential gross margin recovery, while the medium-term key variables are 15th FYP grid investment, UHV DC line bidding and delivery, and the strength of high-voltage GIS demand in new-energy absorption. If 2H26 UHV recognition and distribution price recovery materialize, sector earnings expectations may be revised up; if price competition or delivery delays persist, the recovery pace will slow.
Risks
- The drag from low-priced meter and distribution centralized procurement orders lasts longer than expected.
- UHV project bidding, delivery, or revenue recognition is delayed.
- The growth pace of 750kV and 1000kV GIS demand is uncertain.
- During the transition from EPC to standalone equipment exports, legacy losses or execution risks continue to affect profits.
- Grid capex falls short of 15th FYP expectations, or the investment mix changes.
- Bid-price competition intensifies again, causing gross margin recovery to fall short of expectations.
What to watch
- Xuji's digestion progress of low-priced FY25 meter orders in 2Q-3Q26.
- Whether distribution equipment regional centralized procurement price recovery in 2H26 passes through to gross margin.
- Whether Xuji's FY26 UHV project deliveries can reach the Rmb 2bn+ target.
- Whether the bidding pace for 15th FYP UHV DC lines and the annual Rmb 100bn+ investment run rate are realized.
- Pinggao's 750kV GIS and 1000kV GIS delivery volumes.
- Growth in Xuji and Pinggao overseas standalone equipment export orders and the winding down of EPC losses.
- Whether demand for solid-state transformers and AIDC/microgrid-related distribution equipment begins commercial adoption.