Citi is bullish on Chinese power equipment manufacturers, with Dongfang Electric and Harbin Electric as top picks

Overview

This report is Citi's summary of its 2026 survey of Chinese power plant equipment manufacturers, covering Dongfang Electric, Harbin Electric, and Shanghai Electric Group. The report argues that the key investment themes in China's power equipment sector center on overseas demand for gas turbines, the continuation of thermal power equipment orders and margins, demand for nuclear and hydropower equipment, and retrofit and after-sales services for existing units. Citi overall maintains Buy ratings on all three companies, with a stronger preference within the sector for Dongfang Electric and Harbin Electric.

Core views

The core views include: first, Dongfang Electric benefits from overseas orders for its in-house G50 gas turbine and its ability to select high-margin customers, while revenue and gross margin from thermal power equipment are expected to remain strong at least through 2027. Second, Harbin Electric has an attractive valuation, with thermal power equipment running at full capacity and hydropower equipment production lines busy, and it plans to expand hydropower capacity, though its overseas gas turbine upside is weaker than peers. Third, Shanghai Electric's overseas OEM gas turbine orders, growth in nuclear power equipment, and participation in fusion projects are positives, but EPC project impairments and profit volatility still warrant monitoring.

Analysis framework

Based on company visits, order and capacity information, product pricing and gross margins, target price valuation frameworks, and peer comparisons, the report assesses the earnings elasticity of three Chinese power plant equipment manufacturers across gas turbines, thermal power, nuclear power, hydropower, and service businesses. For valuation, Dongfang Electric and Shanghai Electric use 2026E pb, while Harbin Electric uses 2026E pe, combined with premium/discount judgments based on overseas order capabilities, business mix, and downside risks from coal power.

Methodology notes

• Research methodologyCompany visits and meeting minutes

  Deriving order, capacity, gross margin, and business trend insights through management discussions and factory/business surveys.

  The report discloses clues on orders, capacity plans, pricing, and gross margins for the three companies in gas turbines, thermal power, nuclear power, hydropower, and service businesses, and uses these to form sector preferences.

• Valuation methodologypb/pe relative valuation

  Assigning target prices to Hong Kong-listed names based on 2026E pb or 2026E pe.

  Dongfang Electric's target price of HK$54.00 is based on 3.2x 2026E pb; Harbin Electric's target price of HK$30.00 is based on 18.8x 2026E pe; Shanghai Electric Group's target price of HK$4.50 is based on 1.1x 2026E pb.

• Industry comparisonComparison of order quality and gross margins

  Comparing gross margin differences across domestic and overseas orders, product lines, and service businesses.

  The report highlights that gross margin for Dongfang Electric's Canada G50 orders is at least 30%, higher than some Belt and Road orders; gross margin on overseas thermal power deliveries is 5 percentage points higher than domestic; and after-sales service and gas turbine service have higher-margin characteristics.

Asset mapping & comparison

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

• Dongfang Electric (1072.HK)

  Top pick, Maintain Buy

  Strengths

  Strong demand for overseas G50 gas turbines, with high-margin orders from North America; thermal power equipment orders and gross margin are expected to remain stable through 2027; nuclear power orders are stable; power station services target Rmb10bn by 2030.

  Weaknesses

  Domestic thermal power deliveries are expected to decline after 2028; overseas nuclear power exports are constrained by safety considerations and SOE distribution channels; fixed-price backlog makes it sensitive to rising steel prices.

  Comparison

  Compared with Harbin Electric, Dongfang Electric has stronger overseas gas turbine upside; compared with Shanghai Electric, its order quality and growth path are clearer.

  Risks

  Rising steel prices, declining average selling prices, weaker-than-expected new order flow, and weaker-than-expected conversion of overseas gas turbine orders.

• Harbin Electric (1133.HK)

  Positive on valuation recovery, Maintain Buy

  Strengths

  Attractive valuation; thermal power equipment is running at full capacity and can stabilize margins through more in-house production; demand for nuclear and hydropower equipment is solid; hydropower equipment capacity is planned to double within three years.

  Weaknesses

  Its proprietary 16MW gas turbine is still at an early commercialization stage and currently has no international orders; sales of gas turbines in cooperation with GE VERNOVA are limited by overseas authorization; downside cycle risk in coal power equipment is relatively high.

  Comparison

  Compared with Dongfang Electric, Harbin Electric has weaker overseas gas turbine upside but trades at a larger valuation discount; it has a stable demand base in thermal power and hydropower equipment.

  Risks

  Rising steel prices, falling average selling prices, weakening new order flow, annual coal power tender volume declining to around 30GW, and volatile nuclear power equipment margins due to R&D expenses and product mix.

• Shanghai Electric Group (2727.HK)

  Stronger thematic upside, Maintain Buy

  Strengths

  Has gas turbine capacity of 30 units; higher margins on overseas OEM and Southeast Asia orders; clear nuclear power equipment capacity; participates in fusion-related equipment supply for CRAFT, BEST, and China Fusion Energy.

  Weaknesses

  Net profit is highly volatile, and the target price uses pb rather than earnings valuation; a relatively large number of EPC projects creates impairment pressure, and uncertainty remains.

  Comparison

  Compared with Dongfang Electric and Harbin Electric, Shanghai Electric has a more prominent fusion theme, but lower certainty due to earnings quality and impairment risk.

  Risks

  Order flow below expectations, rising raw material prices compressing gross margins, lower-than-expected returns from potential acquisitions, and continued EPC project impairments.

Key data

• Dongfang Electric G50 orders5 domestic orders; 15 overseas ordersOverseas orders include an order for 10 units from Canada's Synapse Data Center.
• Dongfang Electric overseas gas turbine inquiriesMore than 100 unitsAbout half are from North American customers, with additional demand from South America and Europe.
• G50 pricing and gross marginKazakhstan order at Rmb90m/unit, 15-20% GPM; Canada order at Rmb150m/unit, at least 30% GPMHigh-margin overseas customers are a key investment highlight for Dongfang Electric.
• Dongfang Electric capacity expansion plan30 G50 units by end-2027; another 10 G50 units and 10 large gas turbines by end-2029Capital expenditure for the two phases is Rmb739m and Rmb860m, respectively.
• China thermal power equipment tenderingNearly 70GW in 2025; estimated 50GW in 2026Dongfang Electric believes revenue and gross margin from thermal power equipment will remain solid through 2027.
• Dongfang Electric nuclear power business2025 orders of Rmb8bn; revenue of Rmb5.7bnThe company expects this level to be sustainable, with overseas exports mainly dependent on CGN Power and CNNP.
• Dongfang Electric power station service targetRmb10bn revenue by 2030; Rmb5.8bn in 2025Gross margin for thermal power after-sales service is about 40%, and gas turbine after-sales service accounts for a relatively high share of value.
• Harbin Electric thermal power tender outlook40-50GW annually in 2026-2028; below 40GW in 2029-2030If it falls to 30GW annually, it would significantly affect the profitability of the three major equipment manufacturers.
• Harbin Electric hydropower equipment capacityExpand from 10GW to 20GW within three yearsHydropower equipment production lines have remained busy since 2022.
• Harbin Electric hydropower equipment pricingConventional hydropower Rmb500/KW; pumped storage Rmb800/KWChina's hydropower unit tender volume was 30GW in 2025 and is expected to be 15-20GW annually over the next five years.
• Shanghai Electric gas turbine capacity30 unitsGross margins on Ansaldo overseas OEM orders and Southeast Asia orders are higher than on domestic orders.
• Shanghai Electric nuclear power capacity10 sets of in-core components and 6 pressure vessels per yearThe company also participates in fusion-related equipment such as CRAFT and BEST.

Impact & implications

For investors, this report reinforces the logic of China's power equipment sector extending from traditional thermal power equipment into higher-margin overseas gas turbines, nuclear/hydropower equipment, and after-sales services. Dongfang Electric's overseas gas turbine orders and service business offer clearer upside elasticity; Harbin Electric's valuation and hydropower capacity expansion provide defensiveness and recovery potential; Shanghai Electric has nuclear power and fusion themes, but profit volatility and EPC impairments make its earnings visibility relatively weaker.

Risks

• Rising steel prices may compress margins on fixed-price backlog orders.
• Falling average selling prices may drag both revenue and gross margins.
• Weaker-than-expected new order flow would affect achievement of target prices.
• If annual tender volume for China's thermal power equipment falls to around 30GW, it would significantly affect the profitability of major equipment manufacturers.
• Harbin Electric's nuclear power equipment gross margins are highly volatile due to R&D expenses and product delivery mix.
• It remains uncertain whether the scale of EPC project impairments at Shanghai Electric will decline.
• Overseas gas turbine, nuclear power, or hydropower orders may be affected by approvals, technical validation, customer capex, and geopolitical factors.

What to watch

• The conversion pace of Dongfang Electric's G50 overseas orders, especially follow-up progress with North American customers and Canadian projects.
• Whether Dongfang Electric's two-phase gas turbine capacity expansion proceeds on schedule for the 2027 and 2029 milestones.
• Whether annual tender volume for China's thermal power equipment in 2026-2028 remains at 40-50GW.
• Commercial operation of Harbin Electric's proprietary 16MW gas turbine in 2026 and potential overseas orders in 2028.
• Execution progress of Harbin Electric's hydropower equipment capacity expansion from 10GW to 20GW.
• Progress of Shanghai Electric's Southeast Asia gas turbine orders, nuclear power export bids, and fusion equipment deliveries.
• Changes in raw material costs, ASP, order gross margins, and after-sales service revenue mix for all three companies.