Capex Cycle Drives Strong Industrial Equipment Demand; Multi-sub-sector Orders & Growth Accelerate
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Capex Cycle Drives Strong Industrial Equipment Demand; Multi-sub-sector Orders & Growth Accelerate
China's industrial capex cycle is robust with strong demand in core sub-sectors such as AI data centers, lithium batteries, and construction machinery. 1Q26 results verify fundamental recovery; price increases offset cost pressures, and 2Q26 is expected to accelerate further.
- Approximately 75% of covered companies achieved double-digit revenue growth in 1Q26; over 50% saw gross margin expansion
- Strong order momentum in AI data centers, lithium batteries, and construction machinery; multiple companies revised 2026 guidance upward
- Lithium battery equipment benefits from explosive global energy storage demand and commercialization of new battery technologies; 2026 orders expected to grow over 50%
- AI data center equipment demand rises with accelerated global AI capex; Chinese enterprises continue to expand market share
- Multiple sub-sectors implemented price increases of 5-20% to pass on cost pressure; gross margins are expected to recover sequentially
- Foreign exchange losses are the main drag; operating performance remains solid excluding FX impact; 2Q26 impact expected to narrow further
Report interpretation
Overview
This report focuses on the drivers of China's industrial capital expenditure cycle and its impact on growth in core sub-sectors. Based on 1Q26 earnings verification, it believes industrial capital goods demand represented by AI data center equipment, lithium battery manufacturing equipment, construction machinery, and automation/robots is in a strong rising cycle. The report points out that industrial upgrading, AI technology diffusion, domestic replacement cycles, and overseas expansion are the four major engines driving growth. Crucially, this cycle manifests in旺盛 orders, enterprises proactively raising prices to offset costs, and improved profit quality. The report suggests focusing on leading enterprises in these segments and believes AI, energy security, and re-industrialization in developed countries will support the strength of the medium-term industrial cycle.
Core views
The report considers China's industrial capital goods fundamentals to be recovering. 1Q26 data shows that approximately 75% of covered companies achieved double-digit revenue growth, and over 50% of companies saw sequential gross margin expansion. This recovery benefits both from improved profitability of industrial enterprises (industrial profits grew 15.5% YoY Jan-Mar) and reflects four structural drivers: industrial upgrade/renovation, AI technology diffusion, domestic equipment obsolescence replacement, and corporate overseas capacity layout. Specifically in sub-sectors, lithium battery equipment suppliers maintained strong order growth. Wuxi Huishan new orders in 1Q26 were approx. 9.6 billion CNY, growing over 60% YoY. Adding confirmed unbooked orders of approx. 4 billion CNY, full-year growth is expected to reach 50%, exceeding the company's original guidance of 30%. Global energy storage system demand grew 51% YoY in 1H26 to 142GWh, and global new energy storage plans increased by 16GWh (up 13 percentage points) in the past two months, driven mainly by the US and China. Energy storage upgrades will also push battery formats from approx. 300Ah to 600Ah and even 900-1000Ah, continuously creating equipment demand. Regarding new battery technologies, CATL sodium battery has started, targeting mass production in 4Q26, while solid-state battery demand is becoming substantive. In the AI data center equipment sector, major cloud computing enterprises globally (Google, Microsoft, Meta, etc.) announced after 1Q26 earnings to continue adding billions of dollars in AI investment for 2026. Weiba Dynamics' diesel generator shipments related to AI data centers grew sequentially to over 500 units in 1Q26 (annual target 3.5k-4k); management targets global market share to reach 30% within the next 2-3 years. Energy transition and system architecture innovation also expanded the application scope of industrial capital goods, such as Han's Laser laser drilling applications in 1.6T optical modules and liquid cooling, Weiba developing new air engines, and Innovation Qizhi expanding AIDC power and solid-state transformers. These high-value businesses lifted overall marginal returns. Construction machinery maintains an upward cycle. Domestic excavator sales rose 19% sequentially in 1Q26; wheeled loaders rose 25%; road machinery rose 15%. The domestic cycle is expected to continue for another 2-3 years, supported by replacement demand, infrastructure subsidies, and '15th Five-Year Plan' projects. Overseas, SANY Heavy Industry and Hengli Hydraulic strengthened localization strategies (rather than simple exports), investing service networks and local manufacturing facilities in emerging markets like Africa, Europe, and Latin America with resulting success. Although facing exchange losses in 1Q26 (Sany FX loss 80.9 million, Zoomlion FX loss 46.0 million, Hengli FX loss 20.5 million), fundamentals remain healthy excluding FX impact. Automation & robotics exhibit dual characteristics of market share concentration and product upgrading. Leading enterprises such as Innovation Qizhi, Leadership Drive, Hongfa, and Bochu showed solid double-digit revenue growth in 1Q26. Improving industrial enterprise profitability, traditional downstream industry recovery, and strong tech sector growth combined form the basis for order回暖。Key enterprises possess cost-passing capabilities; Innovation Qizhi, Hongfa, Estun, etc. implemented price hikes of 5-20% in 1Q26, achieving market share expansion while protecting marginal profits.
Analysis framework
The analysis approach taken in the report starts with macro prosperity environment, then drills down to specific sub-sector supply/demand dynamics. First, it emphasizes the importance of improving industrial enterprise profits as a leading indicator—Jan-Mar above-scale industrial profits grew 15.5% YoY, enhancing corporate capex willingness and purchasing power. Second, it tracks the evolution of four structural demand drivers: AI compute demand clarified through continued investment by hyperscale cloud firms; global energy transition quantified through upward revision of energy storage installation plans; domestic replacement demand concrete through aging equipment approaching scrappage phase; overseas expansion realized through localization investments by leading firms. Finally, the report verifies simultaneous improvement in orders, prices, and gross margins across industries by reviewing 1Q26 earnings, eliminating concerns about the cycle top. The key methodology is validation of the causal chain 'orders leading, price transmission, profit improvement', giving reliable support to the judgment of accelerated growth in 2Q26 and full year.
Methodology notes
Judge industry prosperity direction and sustainability by comparing demand side (cloud computing, energy storage, replacement, etc.) with supply side (leading firm capacity utilization, market share concentration).
The report focuses on verifying demand-side indicators like global new energy storage planning YoY growth to 142GWh (+51%) and continuous spending increases by cloud enterprises, alongside supply-side responses like fully booked orders and price hikes by leading firms, inferring this cycle has sustainability and structural support.
Track efficiency of cost, price, and profit transmission across supply chain links to judge pricing power and marginal improvement space for leading firms.
The report tracked the transmission path from raw material cost increases -> enterprise implementing 5-20% price hikes -> sequential gross margin recovery, indicating leading firms possess pricing power and can effectively protect profits.
Decompose revenue growth into sales volume growth and average selling price increase components to assess growth sustainability.
1Q26 data shows most companies achieved both double-digit order volume growth and price hikes, indicating growth comes from both demand recovery and product end upgrades, having dual support.
Confirm whether cyclical upward turning point has formed via simultaneous improvement of leading indicators (industrial profits, orders, price behavior) and synchronized indicators (revenue, profits).
The report argues downstream industrial capital goods demand entered upward turning point stage via parallel progress in industrial profits, booming orders, proactive price hikes by enterprises, and gross margin expansion.
Assess real profitability at operational level through adjusted profits excluding one-off items (e.g., FX losses).
The report emphasizes 1Q26 FX loss was the main drag, but excluding it, operating performance was good, isolating FX fluctuation interference for more accurate fundamental assessment.
Focus on competitive advantage reinforcement signals such as market share expansion in global markets, product portfolio expansion, and localization strategy promotion by leading firms.
The report tracks rapidly increasing market share of Weiba in global AI data center generator market and localization advancement of Chinese construction machinery firms in overseas markets, indicating competitive advantages are consolidating rather than weakening.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Wuxi Huishan (300450.SZ)Lithium battery equipment leader, benefiting from global energy storage explosion, battery new technology commercialization, capacity concentration trends
- Strengths
- 1Q26 orders grew YoY over 60%; global ESS order ratio shifted from 3:7 in 2025 to 5:5 in 2026; sodium battery, solid-state battery other new tech demands becoming substantive, orders expected to double; product upgrades drive client unit price rise
- Weaknesses
- Intensifying domestic energy storage competition may depress pricing; downstream overseas expansion faces FX and geopolitical risks
- Comparison
- Superior to Hangke in product diversification and global layout, but comparable in new battery technology response speed
- Risks
- Global energy storage demand weaker than expected; high downstream customer concentration risk; entry of overseas competitors
- Weiba Dynamics (2338.HK / 000338.SZ)Benefiting from acceleration of global AI data center capex, steady traditional diesel engine business, high marginal contribution AIDC new business rapid expansion
- Strengths
- AI data center diesel generators 1Q26 shipments sequentially surged to 500+ units/quarter; global market share rapidly increased towards target 30%; new gas engines and SOFC products mid-term expected to contribute considerable revenue; traditional HDT business虽 steady but proportion declining, overall profit contribution increased
- Weaknesses
- International orders sensitive to US policies and supply chain risks; intensifying AI data center competition, global players like Cummins also vying for market
- Comparison
- Compared to Cummins, Weiba stronger in China cost advantage and APAC customization response; compared to domestic competitors, Weiba excels in global supply chain and brand influence
- Risks
- If US AIDC orders miss expectations; sustained FX fluctuations; technical catch-up by competitors like Ocean Electronics
- Han's Laser (002008.SZ)Benefiting from sustained strong PCB equipment demand, 3C and new energy application expansion, Apple 3D printing innovation drive
- Strengths
- 1Q26 PCB and 3C businesses both beat expectations; revenue grew high single digits YoY; 2026 PCB and 3C revenue expectations growth respectively 80% and 60% YoY; Apple innovation (foldable screens, 3D printing) opens new growth points; Han's CNC (PCB subsidiary) market demand robust, future potential as value creation new engine
- Weaknesses
- High valuation (51x 2026e PE) limits upside space; new energy business bears impairment risk; high PCB customer concentration (mainly SK Hynix, TSMC, etc.)
- Comparison
- More competitive than Maxam Laser in high-end PCB and 3C applications; superior cost and localization service compared to international players like Coherent
- Risks
- If PCB manufacturer capex slows; Apple innovation orders miss expectations; high valuation downward correction risk
- SANY Heavy Industry (600031.SS)Construction machinery leader, benefiting from domestic replacement demand, overseas market share expansion, US tariffs and trade policy improvements
- Strengths
- 1Q26 revenue +14% YoY beating expectations; overseas order ratio rising; 1Q26 FX loss 80.9 million already peak; excluding it operating profit +0% reflects fundamental resilience; overseas localization strategy investment effective (Africa, Europe, Latin America market share steadily rising)
- Weaknesses
- FX volatility eased in 2Q26 but pressure remains; domestic competitor Zoomlion market share competition fierce; US trade policy still uncertain
- Comparison
- Better than Zoomlion in overseas localization and cost control; superior cost and price-performance ratio compared to Komatsu, Caterpillar等国际竞争对手
- Risks
- Domestic cycle shorter than expected; overseas market orders miss expectations; raw material cost rebound; currency fluctuation resuming
- Innovation Qizhi (300124.SZ)Industrial automation and AI solutions enterprise, benefiting from industrial digitalization upgrading and AI tech application acceleration
- Strengths
- 1Q26 embodied-AI income grew YoY over 200%; AI income ratio target raised to 30%; developed industrial smart platform iFG, future 3-5 year industrial AI income expected to exceed early industrial software income by 2x; leading enterprise with strong cost passing capability (already implemented price hikes); gross margins expected to recover sequentially
- Weaknesses
- AI business still in early commercialization stage, profit contribution not obvious yet; traditional industrial software market competition fierce; AI application landing speed still uncertain
- Comparison
- Compared to peers, Innovation Qizhi AI strategy most aggressive; deep cooperation with downstream customers advancing applications; compared to pure hardware manufacturers, its software and AI integrated solution more sticky
- Risks
- AI application landing misses expectations; industrial software market squeezed by international players; intensifying price competition
- Leadership Drive (688017.SS)Robotics and automation enterprise, benefiting from dual drive of industrial upgrading and AI application penetration
- Strengths
- 1Q26 revenue +43% YoY reflecting strong growth; robotics business in fast growth channel; 2026 target intelligent welding robot shipments 2500 sets (+80% YoY); 2027-28 CAGR target 50%+; gross margin and profit margin both industry leading, reflecting pricing power and operational efficiency
- Weaknesses
- High growth period valuation relatively high (20x 2026e PE); many domestic competitors like Estun; overseas expansion still in early stage
- Comparison
- Stronger than Estun in robot integration and AI applications; superior localization customization and cost advantage compared to international players ABB, KUKA
- Risks
- Growth rate slowdown; competitor technical catch-up; overseas expansion stalls; demand fluctuation
- Hongfa (600885.SS)Relay and NEV supplier, benefiting from high-end relay upgrading and AIDC new demand
- Strengths
- 1Q26 revenue +28% YoY beat expectations; gross margin sequentially beat expectations reflecting pricing power; developing HVDC (800V) relays for AI data center architecture; traditional NEV business steady, high-end product proportion rising; implemented price hike
- Weaknesses
- NEV business competition intensifies, landscape differentiation; AIDC new business scale small, contribution limited; high voltage product yield control
- Comparison
- More competitive than Titan Electronics and peers in auto supply chain and new energy products; distinct cost and delivery cycle advantage compared to international competitors
- Risks
- NEV demand misses expectations; HVDC product commercialization不顺; raw material costs rise again
- GeekPlus Unlimited (2590.HK)Robotics and logistics automation solutions enterprise, benefiting from E-commerce, new energy and other industries automation upgrading and AI enabled transformation
- Strengths
- 2H25 net profit grew YoY; 2026 focus on promoting embodied AI commercialization; overseas business expansion active; high gross margin level (57.7% NPM) reflects product premium capability
- Weaknesses
- 2H25 missed performance peak; new growth drivers need verification; AI-enabled robot commercialization prospect and timeline uncertain; overseas market expansion faces local competition and customization needs
- Comparison
- More specialized in warehousing logistics niche compared to domestic AGV/AMR leaders like Hikrobot, Snowbot; outstanding cost and localization advantage compared to international peers like Teradyne, Locus
- Risks
- AI-enabled income misses expectations; competitor catch-up; overseas market expansion obstructed; downward valuation pressure
Key data
- 1Q26 Industrial Enterprise Revenue GrowthApprox 75% covered companies achieved double-digit growthAmong covered industrial capital goods enterprises, the vast majority achieved revenue growth rates above 10% in Q1, higher than historical averages
- 1Q26 Gross Margin ExpansionOver 50% of companies experienced sequential gross margin improvementRevenue growth accompanied by cost structure optimization and demonstration of pricing power; profit quality trending positive
- Global New Energy Storage Planning (1H26)142GWh, 51% YoY growthIncreased by 16GWh (up 13ppt) in past two months, driven mainly by US and China; energy storage equipment demand exceeded expectations
- Wuxi Huishan 1Q26 New OrdersApprox 9.6 billion CNY, growing over 60% YoYAdding approx 4 billion CNY confirmed unbooked orders, full-year order growth expectation 50%, exceeding company 30% guidance
- Weiba AI Data Center Diesel Generator 1Q26 ShipmentsOver 500 units, significant sequential growthAnnual target 3.5-4k units; management targets global market share to reach 30% in next 2-3 years
- Construction Machinery 1Q26 Sales GrowthExcavators +19% YoY, Wheeled Loaders +25% YoY, Road Machinery +15% YoYDomestic cycle expected to continue 2-3 years; dual support from infrastructure subsidies and replacement demand
- SANY Heavy Industry 1Q26 FX Loss809 Million CNYFX is main drag, but fundamentals remain healthy excluding it; 2Q26 FX loss expected to narrow further
- 1Q26 Price Increase MagnitudeInnovation Qizhi, Hongfa, Estun, etc. implemented 5-20% price hikesEnterprises in multiple sub-sectors simultaneously implemented price hikes to pass on cost pressure, predicting strengthening pricing power and 2Q26 gross margin sequential recovery
Impact & implications
The report believes this capex cycle is significant and lasting for covered companies. First, synchronous upward revisions in orders and guidance eliminated market concerns about cycle peak, supporting valuation repair—target prices for companies like Weiba, Han's Laser, Wuxi Huishan were raised. Second, long-term growth logic in strategic channels like AI data centers, energy storage, and new energy is reinforced; increasing proportion of high-value businesses is expected to lift overall ROE and marginal returns. Third, leading firms consolidate competitive advantages through pricing power, product upgrades, and overseas localization; market concentration trends positively. Fourth, although FX losses remain a short-term profit drag, with enhanced enterprise risk management measures (hedging, accelerated RMB conversion) and expected reduction in 2Q26 impact, this risk can be gradually digested. Therefore, the report expects 2026 industrial capital goods leading firms will enter an accelerated growth period for revenue and profits, supporting buy ratings and valuation uplift for these companies.
Risks
- If global AI compute investment slows or strategy adjusts, AIDC equipment demand may face pressure
- Energy storage policy changes or intensifying competition may suppress lithium battery equipment prices
- RMB appreciation leading to reduced export competitiveness, overseas market share may shrink
- If domestic construction machinery market cycle shorter than expected (less than 2-3 years), demand will decline faster
- If raw material costs rise rapidly again, enterprise pricing power may face pressure
- Geopolitics and trade policy uncertainty (US tariffs, China trade policy) may disrupt overseas expansion rhythm
- New tech (e.g., solid-state battery, HVDC architecture) commercialization progress missing expectations may delay new business contribution
- Technical progress and cost reduction pressure from competitors (international and domestic firms)
What to watch
- Whether 2Q26 orders and guidance continue to accelerate to judge cycle sustainability
- Whether gross margins recover sequentially as expected to validate effectiveness of price pass-through
- Whether FX loss size continues to narrow in 2Q26 to promote operating profit improvement excluding FX noise
- Actual deployment rhythm and scale of AI capital expenditure by global cloud computing enterprises in 2026
- Commercialization progress and equipment demand conversion speed of lithium battery new tech (sodium, solid-state)
- Localization investment effectiveness and market share changes of overseas construction machinery firms (Zoomlion, Hengli, etc.)
- Whether domestic industrial enterprise profit growth rate sustains or accelerates, supporting capex motivation
- Tech and commercial progress of competitors in new sectors like AI, energy storage, robotics