1Q26 results beat expectations, with increased 1000kV GIS deliveries supporting profit and gross margin

Overview

This report is Morgan Stanley's review of Henan Pinggao Electric's (600312.SS) 1Q26 results. The company's first-quarter profit growth was mainly driven by increased 1000kV GIS deliveries and operating cost control; although revenue declined slightly year over year due to fewer 750kV GIS deliveries, improvements in gross margin and expense ratio supported earnings performance.

Core views

The core view is that the company has seen a favorable change in its UHV GIS equipment delivery mix, with increased deliveries of high-margin 1000kV GIS driving gross margin improvement; at the same time, better expense control lifted net profit by 15.8% year over year. Morgan Stanley maintains its Overweight rating and assigns a target price of Rmb27.85, implying about 32% upside.

Analysis framework

The report mainly breaks down quarterly results, comparing 1Q26 with 1Q25 in terms of revenue, net profit, gross margin, expense ratio, and deliveries of 1000kV/750kV GIS units, and further derives the target price using a DCF valuation framework.

Methodology notes

• Valuation MethodDiscounted Cash Flow (DCF)

  Base-case valuation

  The target price is based on the DCF method. The model covers long-term cash flows from 2027 to 2036 and assumes a WACC of 8.2%, cost of equity of 9.5%, after-tax cost of debt of 5.0%, target debt-to-capital ratio of 40%, and perpetual growth rate of 2%.

• Research ModelMorgan Stanley ModelWare

  Financial forecasting framework

  Unless otherwise specified, the financial metrics in the report are based on the Morgan Stanley ModelWare framework, including forecasts for EPS, revenue, EBITDA, net profit, valuation multiples, and ROE.

• Consensus ExpectationsRefinitiv Estimates

  Market consensus data

  Data marked in the report as consensus methodology or S comes from Refinitiv Estimates and is used for comparison with Morgan Stanley's own forecasts.

Asset mapping & comparison

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

• Henan Pinggao Electric (600312.SS)

  Covered company

  Strengths

  1Q26 net profit rose 15.8% year over year, deliveries of high-margin 1000kV GIS increased, and expense control improved.

  Weaknesses

  Revenue declined slightly by 2.6% year over year, and 750kV GIS deliveries fell notably from the same period last year.

  Comparison

  Compared with 1Q25, 1000kV GIS deliveries increased from 3 units to 5 units, while 750kV GIS deliveries fell from 23 units to 9 units.

  Risks

  Slower UHV tendering, intensified competition pressuring gross margin, and weaker cost control.

• 1000kV GIS

  Core profit-driving business

  Strengths

  The report believes it has relatively strong margins, and the increase in delivered units explains the gross margin improvement.

  Weaknesses

  Demand and delivery pace depend on UHV line tendering and project execution.

  Comparison

  1Q26 deliveries were 5 units, above 3 units in 1Q25.

  Risks

  If subsequent tendering or deliveries fall short of expectations, profit elasticity may weaken.

• 750kV GIS

  Business related to revenue volatility

  Strengths

  It remains part of the company's GIS delivery mix.

  Weaknesses

  The number of delivered units in 1Q26 fell sharply year over year, dragging on revenue performance.

  Comparison

  1Q26 deliveries were 9 units, below 23 units in 1Q25.

  Risks

  Fewer deliveries may continue to affect revenue growth.

Key data

• 1Q26 net profitRmb415mnUp 15.8% year over year.
• 1Q26 revenueRmb2,426mnDown 2.6% year over year; the report believes this was mainly affected by fewer 750kV GIS deliveries.
• 1Q26 gross margin28.7%Up 0.5 percentage points year over year, supported by increased deliveries of high-margin 1000kV GIS.
• Expense ratio9.7%SG&A and R&D expenses as a share of revenue declined by 1.9 percentage points year over year.
• 1000kV GIS deliveries5 units1Q25 was 3 units; more deliveries are seen as the main driver of earnings growth and gross margin improvement.
• 750kV GIS deliveries9 units1Q25 was 23 units; fewer deliveries are seen as the main reason for the slight decline in revenue.
• Target priceRmb27.85Based on DCF base-case valuation.
• Current share priceRmb21.17As of the close on April 21, 2026.
• Upside to target price32%The upside implied by the report's target price relative to the current share price.

Impact & implications

The investment implication conveyed by the report is that Henan Pinggao Electric's earnings quality is benefiting from an improved delivery mix and expense control; if the tendering pace for UHV AC and DC lines continues, high-margin businesses such as 1000kV GIS may continue to support profit elasticity.

Risks

• The tendering process for UHV AC and DC lines is slower than expected.
• Intensified competition leads to weaker-than-expected gross margin.
• Operating cost control falls short of expectations.
• The research institution discloses potential conflicts of interest, and investors should not rely solely on ratings or target prices to make decisions.

What to watch

• Whether the subsequent tendering pace for UHV AC and DC lines accelerates.
• Whether the number and pace of 1000kV GIS deliveries continue to improve.
• The recovery in 750kV GIS deliveries and its impact on revenue growth.
• Whether gross margin can maintain its improvement and whether the competitive landscape changes.
• Whether the SG&A and R&D expense ratio can continue to decline or remain stable.