Chongqing Machinery & Electric site visit: engines, transformers, and wind turbine blade businesses all show order and growth signals

Overview

This report is Citigroup's site-visit memo on Chongqing Machinery & Electric (2722.HK), focusing on the company's high-horsepower engines, high-voltage transformers, wind turbine blades, and core business divisions within China's power plant equipment manufacturing chain. Key guidance from management includes: double-digit growth in high-horsepower engine revenue in 2026; 15%-20% YoY growth in high-voltage transformer revenue in 2026 and 16% YoY in 2027; and an approximately Rmb50m YoY improvement in core business net profit in 2026.

Core views

The report conveys a broadly positive core view: driven by backup power demand from data centers, export demand, and a high-margin product mix, Chongqing Cummins may achieve mild double-digit production growth in 2026; Chongqing Hitachi Energy is supported by orders for high-voltage and ultra-high-voltage transformers, with production schedules extending into 2027; wind turbine blade revenue exceeds Rmb3bn and is mainly export-oriented. However, domestic engine price competition, raw material costs, FX fluctuations, and cost pressure in some overseas businesses remain constraints to monitor.

Analysis framework

The report is mainly based on site visits and discussions with company management, reviewing the profit contribution of Chongqing Machinery & Electric's joint ventures, order scheduling, sales channels, pricing, capacity expansion, segment structure, and dividend policy. The focus is not valuation modeling, but identifying business growth drivers, profit elasticity, and key risks for 2026-2028.

Methodology notes

• Company researchSite visits and management interviews

  Verify business trends through on-site visits and company disclosures

  The report uses information disclosed by the company during the site visit on orders, production scheduling, revenue growth, capacity, and dividend policy to form a qualitative judgment on engines, transformers, and core business improvement.

• Business segment analysisProfit contribution and order visibility analysis

  Break down profits and growth drivers by joint venture and business segment

  The report separately tracks Chongqing Cummins, Chongqing Hitachi Energy, clean energy equipment, high-end intelligent equipment, and industrial services, with a focus on profit contribution, capacity utilization, order coverage, and export mix.

Asset mapping & comparison

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

• Chongqing Machinery & Electric (2722.HK)

  Core company in the report, Hong Kong-listed company, not covered by Citigroup

  Strengths

  High-horsepower engines and high-voltage transformers have 2026 growth guidance; dividend payout ratio is planned to rise; joint ventures make significant profit contributions.

  Weaknesses

  Some core businesses have relatively low export mix, and PTG UK saw profit decline in 2025 due to financing, production, and energy costs.

  Comparison

  The company's businesses span engines, transformers, clean energy equipment, high-end intelligent equipment, and industrial services, making its growth drivers more diversified than those of a single-equipment company.

  Risks

  Domestic engine price competition, rising raw material costs, FX fluctuations, order execution, and capacity expansion execution risk.

• Chongqing Cummins

  A 50%-owned joint venture of Chongqing Machinery & Electric, contributing 81% of the company's net profit in 2025

  Strengths

  Production scheduled through Sep-Oct 2026; mild double-digit production growth expected in 2026; data center supply expected to double; 2025 GPM was 34%.

  Weaknesses

  Domestic 19L, 38L, and 50L products face price competition from peers such as Weichai and Yuchai; 60L is recognized on a net processing-fee basis and is less profitable than 38L and 50L.

  Comparison

  Overseas customers prefer 60L, while domestic data centers prefer 50L and 38L; 38L and 50L are more profitable than 60L.

  Risks

  Domestic prices are expected to decline by less than 10% YoY in 2026; if data center demand or export deliveries fall short of expectations, growth will be affected.

• Chongqing Hitachi Energy

  A 37.8%-owned high-voltage transformer joint venture of Chongqing Machinery & Electric, contributing 13% of net profit in 2025

  Strengths

  Focused on transformers above 550kv; 2025 revenue of Rmb2.6bn, new orders exceeding Rmb3.2bn; production scheduled through 2027.

  Weaknesses

  Some UHV air bushings and tap changers rely on ABB overseas supply, and key processes such as winding and core stacking depend heavily on skilled workers.

  Comparison

  Main export markets include the Middle East, Europe, South Africa, and Southeast Asia, with exports expected to account for 60%-70% of 2026 high-voltage transformer revenue.

  Risks

  Overseas selling prices have not risen significantly while raw material costs are increasing; direct exports are more sensitive to FX fluctuations.

• Goldwind (2208.HK) supply chain

  Downstream customer ecosystem related to Chongqing Machinery & Electric's wind turbine blade business

  Strengths

  Chongqing Machinery & Electric's wind turbine blade business generated more than Rmb3bn in revenue last year and held a 30% market share among Goldwind suppliers.

  Weaknesses

  The report does not disclose the segment's margin, order cycle, or future growth rate.

  Comparison

  Compared with engines and transformers, disclosure on wind turbine blades is more limited, mainly providing clues on exports and customer share.

  Risks

  Export demand, procurement pace from wind turbine OEMs, and price competition may affect revenue quality.

Key data

• Report date2026-05-31The file is shown as a 13-page Citigroup Viewpoint.
• Company guidance: high-horsepower enginesDouble-digit revenue growth in 2026Based on the company's expectations shared during the visit.
• Company guidance: high-voltage transformers2026 revenue to grow 15%-20% YoY, 2027 revenue to grow 16% YoYThe company expects exports to account for 60%-70% of 2026 high-voltage transformer revenue, with domestic sales at 30%-40%.
• Core business net profit improvementApproximately Rmb50m YoY improvement in 2026The company's expectation for core business profit improvement.
• Dividend policyPayout ratios of 32%, 35%, and 39% in 2026-2028Above 29% in 2024 and 31% in 2025.
• Chongqing Cummins profit contributionContributed 81% of Chongqing Machinery & Electric's net profit in 2025Chongqing Machinery & Electric holds a 50% stake in the joint venture.
• Chongqing Cummins production and revenueActual production of 18,911 units in 2025, revenue of Rmb5.8bnDesigned capacity is 23,000 units.
• Data center engine supply1,000 units in 2025, expected 2,000 units in 2026The company expects supply to data centers to double.
• Chongqing Cummins 1Q26 net profitUp 26% YoY to US$29mPartly due to concentrated product deliveries.
• Chongqing Cummins gross margin2025 GPM was 34%Gas engines usually have slightly higher ASP and GPM than diesel engines.
• 60L product728 units produced in 2025All 60L products are sold domestically and overseas through China Cummins, and recognized on a net processing-fee basis with cost plus markup.
• Gas engine sales102 units in 2025, expected 200-300 units in 2026The company expects at least a doubling.
• Chongqing Hitachi Energy2025 revenue of Rmb2.6bn, new orders exceeding Rmb3.2bnChongqing Machinery & Electric holds 37.8%, and it contributed 13% of Chongqing Machinery & Electric's net profit in 2025.
• High-voltage transformer product pricingUnit price of 500kv and 800kv UHV transformers at Rmb70-90mProduction scheduled through 2027, with the longest delivery cycle around one year.
• Transformer capacity expansionPhase III expands capacity to Rmb3.6bn, Phase IV targets Rmb4.5bn within two yearsPhase III is expected to be completed before 1Q27, with capex of about Rmb150m.
• Wind turbine bladesRevenue exceeded Rmb3bn last yearMainly export-oriented, with a 30% market share among Goldwind suppliers.

Impact & implications

If the company's guidance is delivered, Chongqing Machinery & Electric's profit improvement may mainly come from two lines of support: first, Chongqing Cummins is supported by data center and export demand, with its product mix shifting toward higher-margin models and gas engines; second, Chongqing Hitachi Energy is supported by overseas demand and production visibility for high-voltage transformers. The higher payout ratio provides additional support for shareholder returns, but the report does not provide valuation or a rating, so it is more suitable as material for tracking the industry chain and company fundamentals.

Risks

• The domestic engine market competes with peers such as Weichai and Yuchai, with domestic prices in 2026 expected to decline by less than 10% YoY.
• Overseas selling prices for high-voltage transformers have not risen significantly, while raw material costs are increasing, requiring hedging to mitigate risk.
• Chongqing Hitachi Energy's direct export business is relatively sensitive to FX fluctuations.
• PTG UK experienced profit decline in 2025 due to high financing expenses, production costs, and energy costs.
• 60L products are sold through China Cummins and recognized on a net processing-fee basis with cost plus markup, making them less profitable than 38L and 50L.
• Some key components for high-voltage transformers rely on overseas supply, and key manufacturing processes require skilled personnel, which may affect delivery.
• The report is on an uncovered company, with no Citigroup rating, target price, or complete valuation framework, so investment conclusions need to be validated against subsequent public financial data.

What to watch

• Whether Chongqing Cummins' high-horsepower engine revenue and production achieve double-digit growth in 2026.
• Whether data center engine supply rises from 1,000 units in 2025 to 2,000 units in 2026.
• Whether price declines for domestic 19L, 38L, and 50L products remain within the company's expected range of less than 10%.
• Whether gas engine sales rise from 102 units in 2025 to 200-300 units in 2026.
• Whether high-voltage transformer revenue in 2026 achieves 15%-20% YoY growth and whether the export mix reaches 60%-70%.
• Whether Chongqing Hitachi Energy's Phase III capacity expansion is completed before 1Q27 and whether Phase IV capacity progresses on the two-year target.
• Whether the 32%, 35%, and 39% payout ratio policy for 2026-2028 is implemented.
• The actual impact of FX, raw material costs, and overseas business costs on margins.