Harbin Electric's 1H26 earnings preview exceeds expectations; UBS maintains Buy and sees a re-rating window

Overview

This report is UBS's earnings review of Harbin Electric Company (01133.HK). The company issued a positive 1H26 earnings preview, with net profit expected to reach Rmb1.7bn, up 62% from Rmb1.05bn in 1H25 and representing approximately 50% of UBS's and market consensus FY26E net profit forecast of Rmb3.4bn, above the seasonal first-half contribution of 39% in 1H25. UBS believes the investor response should be positive, particularly after the recent sharp share price pullback.

Core views

UBS maintains its positive view on Harbin Electric, believing the company is entering a structural earnings and return upcycle. Key supports include rising nuclear power capex and enhanced multi-year order visibility; the company's strong positioning amid recovering thermal power, hydropower and gas turbine demand; gross margin performance indicating that most low-margin coal-fired power orders have largely been digested; and continued improvement in margins and dividend payout metrics. UBS believes the earnings beat could prompt the market to raise FY26 earnings forecasts and considers the current valuation attractive.

Analysis framework

The report primarily uses comparisons between the earnings preview and full-year forecast trajectory, valuation multiple comparisons, order and industry cycle assessments, and short-term catalyst evaluation. UBS compares 1H26 net profit with the company's historical first-half profit contribution, UBS forecasts and market consensus, while assessing re-rating potential based on FY26E P/E, earnings CAGR, dividend yield and potential inclusion in Stock Connect.

Methodology notes

• Valuation methodologyPE multiple method

  Determining the target price using a price-to-earnings multiple

  UBS states that the target price is based on the PE multiple method, with reference to the company's historical trading range and regional peers to reflect earnings growth potential and industry positioning.

• Short-term factor assessmentQuantitative Research Review

  Quantitative scoring by analysts of the probability of short-term industry, regulatory, fundamental and earnings surprises

  The short-term scores disclosed in the report show that industry structure, recent fundamental trends and the direction of EPS revisions relative to consensus are all positive, although this assessment horizon differs from the 12-month stock rating.

Asset mapping & comparison

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

• 01133.HK

  Core covered stock; the report assigns a Buy rating and sets a 12-month target price of HK$45.00.

  Strengths

  Strong 1H26 net profit growth; rising nuclear power capex and improved multi-year order visibility; recovery in thermal power, hydropower and gas turbines; easing pressure from low-margin coal-fired power orders; improving margins and dividend payouts; low valuation and relatively high dividend yield.

  Weaknesses

  The business remains affected by the power equipment demand cycle, order mix and cost structure; the company's transition toward higher-value O&M services still requires execution validation.

  Comparison

  The report references historical trading ranges and regional peers for its valuation methodology; UBS considers the FY26E PE of approximately 7.6x attractive relative to a 28% earnings CAGR and approximately 7% dividend yield.

  Risks

  Power equipment demand recovers more slowly than expected; thermal power, hydropower and nuclear power demand falls short of expectations; unfavorable ASP or cost structure pressures gross margins; delays in the transition to O&M services; nuclear power technology development progresses more slowly than expected.

Key data

• 1H26 earnings previewRmb1.7bnUp 62% year-on-year, above Rmb1.05bn in 1H25.
• FY26E net profit coverage ratioApproximately 50%1H26 net profit represents approximately half of UBS's and market consensus FY26E net profit forecast of Rmb3.4bn, above the 39% first-half contribution in 1H25.
• 12-month ratingBuyUBS maintains its Buy rating.
• Target priceHK$45.0012-month target price.
• Current priceHK$13.10Price dated 20 July 2026.
• Forecast share price upside243.5%The table also lists a forecast dividend yield of 4.4% and forecast total shareholder return of 247.9%.
• FY26E PE7.6xUBS considers this attractive against a 28% earnings CAGR for 2026-2028 and a 7% dividend yield.
• 2026-2028 earnings CAGR28%Estimated from the report text.
• FY26E EPSRmb1.52UBS forecast; market consensus is Rmb1.53.
• FY27E EPSRmb2.02UBS forecast; market consensus is Rmb1.85.

Impact & implications

The report implies that short-term share price catalysts will come from earnings upgrades following the positive earnings preview and potential inclusion in Stock Connect, while the medium-term fundamental thesis is driven by recovering power equipment demand, the nuclear power/hydropower construction cycle, gross margin improvement and higher dividends. If the market accepts UBS's view that the company is entering a structural earnings upcycle, the low PE and high dividend yield could provide a basis for re-rating.

Risks

• Power equipment demand recovers more slowly than expected, particularly in the thermal power, hydropower and nuclear power segments.
• Lower-than-expected average selling prices or an unfavorable cost structure could weigh on gross margin performance.
• The company's transition toward higher-value operations and maintenance services progresses more slowly than expected.
• Nuclear power technology development progresses more slowly than expected, potentially affecting long-term order visibility.
• Research disclosures indicate that UBS holds an interest in the company's ordinary shares or a long position in its listed shares; investors should note the potential conflict-of-interest disclosure.

What to watch

• Whether FY26 market consensus earnings forecasts are upgraded following the positive 1H26 earnings preview.
• Whether potential inclusion in Stock Connect in August is implemented and its valuation catalyst effect.
• Changes in nuclear power capex and order backlog visibility.
• The pace of recovery in thermal power, hydropower and gas turbine demand, and changes in order gross margins.
• Whether the improvement in the company's dividend payout ratio and cash flow is sustained.