Goldman Sachs adjusts 1Q26 forecasts for Inovance, Hongfa, and NARI Technology; all three maintain Buy ratings

Overview

This report is a forecast update by Goldman Sachs on its covered China Industrial Tech companies, focusing on Shenzhen Inovance Technology, Hongfa Technology, and NARI Technology. The analysis is based on the latest Chinese industrial indicators, end-industry data, raw material price trends, power-grid investment, and power-grid equipment tracking data. In conclusion, all three companies remain Buy-rated, but short-term operating forecasts are diverging: Inovance is dragged by weaker EV demand, Hongfa benefits on the revenue side from power-grid demand and price increases but faces margin pressure, and NARI Technology cuts its medium- to long-term EPS due to market-share loss in some grid-equipment categories.

Core views

The core views are: first, Inovance's 1Q26 revenue is revised down because domestic EV production and sales declined year over year and key customer Li Auto's shipments grew only slightly year over year, while full-year forecasts remain unchanged; second, Hongfa's overall shipments are still expected to be strong, with price increases supporting revenue growth, but raw material prices such as copper and silver and gross margin pressure constrain net profit performance; third, NARI Technology faces share pressure in network system integrators and SVC/STATCOM, leading to a slight cut to 2025-30E EPS and a corresponding reduction in target price.

Analysis framework

The report uses a top-down tracking of industrial indicators and end-industry data, combined with bottom-up adjustments to company revenue, profit, and valuation models. For Inovance, it mainly references domestic EV shipments and data from key customer Li Auto; for Hongfa, it mainly references power-grid investment, price increases, and gross margin changes; for NARI Technology, it mainly references power-grid equipment tracking data and market-share changes in subsegments.

Methodology notes

• Valuation methodsP/E multiple valuation

  P/E valuation

  Inovance's target price of Rmb75.4 is based on 35x 2026E P/E; Hongfa's target price of Rmb35.3 is based on 21x 2028E P/E discounted back to 2027E; NARI Technology's target price of Rmb29.2 is based on 25x 2026E P/E.

• forecastingChina Industrial Indicators and trackers

  Industrial indicators and tracking data

  The report uses Chinese industrial indicators, end-industry data, raw material price trends, power-grid investment, and power-grid equipment tracking data to adjust quarterly and medium- to long-term company forecasts.

• factor_profileGS Factor Profile

  Goldman Sachs factor profile

  The Goldman Sachs factor profile compares stocks' characteristics versus the market and industry peers across growth, financial returns, valuation multiples, and composite scores.

• corporate_eventM&A Rank

  M&A probability ranking

  Goldman Sachs uses a three-tier M&A framework to assess the probability of a company becoming an acquisition target; tier 1 is high probability, tier 2 is medium probability, and tier 3 is low probability.

Asset mapping & comparison

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

• Shenzhen Inovance Technology Co. (300124.SZ)

  Covered company, Buy rating maintained

  Strengths

  Its industrial automation and EV components businesses have a foundation for growth, full-year forecasts remain unchanged, and the target price of Rmb75.4 is still above the disclosed price.

  Weaknesses

  Domestic EV production and sales were weak year over year in 1Q26, and key customer Li Auto's shipments rose only slightly year over year, leading to a reduction in the 1Q26 revenue forecast.

  Comparison

  Compared with Hongfa Technology and NARI Technology, Inovance's short-term pressure comes more from EV end-demand and the shipment pace of customers.

  Risks

  Industrial automation market-share gains are slower than expected, margin trends are weaker than expected, EV components ramp more slowly than expected, and manufacturing capex and automation demand slow down.

• Hongfa Technology (600885.SS)

  Covered company, Buy rating maintained

  Strengths

  Power-grid investment supports overall shipments, and the average price increase of about 10% since January helps revenue growth; 1Q26 revenue is expected to grow 18% year over year.

  Weaknesses

  Despite price increases, 1Q26 net profit is expected to decline 9% year over year, and gross margin is expected at 30%, down 4 percentage points year over year, showing that cost pressure remains significant.

  Comparison

  Compared with Inovance, Hongfa's revenue side is more supported by power-grid investment; compared with NARI Technology, its core pressure is more concentrated in gross margin and raw material costs.

  Risks

  Smart meter revenue recognition is weaker than expected, pre-positioned solar inverter-related revenue is weaker than expected, and further increases in copper and silver prices squeeze gross margin.

• NARI Technology (600406.SS)

  Covered company, Buy rating maintained but target price lowered

  Strengths

  1Q26 revenue and net profit are still expected to grow 9% and 7% year over year, respectively, and long-term demand for power-grid equipment remains an important support.

  Weaknesses

  It has been observed losing market share to other vendors in network system integrators and SVC/STATCOM, and 2025-30E EPS is cut by 1%-2%.

  Comparison

  Compared with Inovance and Hongfa, NARI Technology's revision is more focused on medium- to long-term EPS and market share, with the target price lowered from Rmb29.9 to Rmb29.2.

  Risks

  Fiscal support and State Grid's 2025 budget announcement come in below expectations, and the approval pace of UHV projects lags the published work plan.

Key data

• Inovance 1Q26 revenue/net profit YoY12% / 0%Due to weak domestic EV shipments and Li Auto's 1Q26 shipments rising about 2% year over year, Goldman Sachs lowered its 1Q26 revenue forecast but kept the full-year forecast unchanged.
• Inovance target priceRmb75.4Based on 35x 2026E P/E, Buy rating maintained.
• Hongfa 1Q26 revenue/net profit YoY18% / -9%Power-grid investment supports shipments, with an average price increase of about 10% since January, but gross margin is still expected at 30%, down 4 percentage points year over year.
• Hongfa target priceRmb35.3Based on 21x 2028E P/E discounted back to 2027E, Buy rating maintained.
• NARI Technology 1Q26 revenue/net profit YoY9% / 7%The report observes that it is losing market share to other participants in network system integrators and SVC/STATCOM.
• NARI Technology EPS revision2025-30E EPS cut by 1%-2%The 12-month target price is lowered from Rmb29.9 to Rmb29.2, while the 25x 2026E P/E valuation multiple remains unchanged.
• Goldman Sachs global equity rating distributionBuy 50%, Hold 34%, Sell 16%As of April 1, 2026, Goldman Sachs Global Investment Research covered 3,074 stocks.

Impact & implications

The investment implication is that, although the report maintains Buy ratings on all three companies, its judgment on short-term fundamental quality is becoming more differentiated. The key variable for Inovance is recovery in EV demand and customer shipments; for Hongfa, the key question is whether price increases can offset raw material cost pressure from copper and silver; for NARI Technology, the key variables are power-grid equipment share and the pace of UHV projects. Target prices still imply upside versus disclosed prices, but the forecast revisions suggest investors need to pay closer attention to first-quarter execution, gross margin, and order-share data.

Risks

• Inovance's industrial automation market-share gains are slower than expected.
• Inovance's margin trend is weaker than expected.
• Inovance's EV components business ramps more slowly than expected.
• Manufacturing capex or automation demand may slow.
• Hongfa's smart meter revenue recognition is weaker than expected.
• Hongfa's solar inverter-related pre-positioned revenue is weaker than expected.
• Further increases in copper and silver prices may squeeze Hongfa's gross margin.
• NARI Technology faces the risk that fiscal support and the State Grid budget come in below expectations.
• The approval pace of UHV projects may lag the work plan.

What to watch

• Recovery in domestic EV production, sales, and shipments from key customer Li Auto.
• Whether Chinese industrial indicators show improvement in manufacturing capex and automation demand.
• Year-to-date progress in power-grid investment and its boost to Hongfa's shipments.
• Whether Hongfa's gross margin can remain stable near the expected level after price increases.
• Trends in raw material prices such as copper and silver.
• Bid wins and share changes for NARI Technology in network system integrators and SVC/STATCOM.
• State Grid's 2025 budget, fiscal support, and the approval progress of UHV projects.
• Whether the three companies' subsequent quarterly revenue, EBIT, and net profit forecasts continue to be revised.