Sieyuan Electric's 1Q26 profit growth missed market expectations, but Citi reiterates Buy

Overview

This report is Citi's review of Sieyuan Electric's 1Q26 results. The company reported 1Q26 revenue of Rmb4.569bn, up 41.6% YoY, a pace above its full-year 2026 revenue target of 25% YoY growth to Rmb26.9bn; however, net profit was Rmb550m, up 23.2% YoY, with earnings growth below the full-year pace implied by market consensus expectations. On margins, gross margin fell 1.4 percentage points YoY to 29.0%, and net margin fell 1.8 percentage points YoY to 12.0%; the company explained this was mainly due to short-term changes in product mix during the quarter.

Core views

Citi's core view is that although 1Q26 earnings growth and gross margin were weak, the margin pressure is more likely due to short-term product mix factors rather than a deterioration in long-term competitiveness. The company delivered strong order growth, with new orders in 2025 up 34.6% YoY, a higher share of overseas orders and diversified geographies, and a 2026 new order target still calling for more than 30% growth. Based on orders, overseas expansion, and demand for power grid equipment, Citi maintains its Buy rating.

Analysis framework

The report analyzes earnings using 1Q26 income statement, cash flow, and order data, and evaluates the investment conclusion through product gross margin structure, sources of overseas orders, the company's 2026 operating targets, and a DCF valuation framework. It focuses on the divergence between revenue growth and margin changes, as well as whether increases in inventory and work in progress correspond to preparation for subsequent deliveries.

Methodology notes

• Valuation methodsDCF model

  Target price based on discounted cash flow

  Citi uses a DCF model to estimate the Rmb270 target price, believing the China power grid equipment industry has relatively stable cash flows and is well suited to a DCF approach; the model forecasts cash flow through 2030E, with a terminal growth rate of 4.0% and a cost of equity of 9.6%.

• Financial analysisMargin breakdown

  Linked analysis of revenue growth, gross margin, operating margin, and net margin

  The report compares changes in revenue, gross profit, operating profit, and net profit between 1Q25 and 1Q26, pointing out that gross margin declined while operating margin increased, and net margin declined due to multiple factors.

• Order analysisOrder and delivery outlook

  Using new orders, inventory, and work in progress to assess future delivery capability

  The report links 2025 new order growth, the 2026 order target, and increases in inventory and work in progress, concluding that the company is preparing for more product deliveries ahead.

Asset mapping & comparison

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

• Sieyuan Electric A-share 002028.SZ

  Core covered name

  Strengths

  Fast revenue growth, strong order growth, geographically diversified overseas orders, positive 2026 revenue and order targets, and a net cash position maintained.

  Weaknesses

  1Q26 net profit growth lagged the pace expected by the market, gross and net margins declined, and free cash flow was negative and widened.

  Comparison

  The Rmb270 target price implies 21.6% expected share price return versus the report price of Rmb222.130; valuation is equivalent to 45x 2026E P/E and 10.6x P/B.

  Risks

  China domestic power grid capex below expectations, overseas new orders below expectations, and raw material costs above expectations.

Key data

• 1Q26 revenueRmb4,569m, up 41.6% YoYRevenue growth was above the company's 2026E full-year revenue growth target of 25% YoY.
• 1Q26 net profitRmb550m, up 23.2% YoYBelow the pace implied by market consensus expectations for 38% YoY net profit growth in 2026E.
• 1Q26 recurring net profitRmb493m, up 12.8% YoYExcluding one-off items, earnings growth was clearly below reported net profit growth.
• 1Q26 gross margin29.0%, down 1.4 percentage points YoYThe company said this was mainly due to short-term product mix changes.
• 1Q26 operating margin15.4%, up 0.5 percentage points YoYOperating profit rose 46.7% YoY to Rmb704m.
• 1Q26 net margin12.0%, down 1.8 percentage points YoYNet margin was below 13.8% in 1Q25.
• 1Q26 inventoryRmb5,030m, up 23.3% QoQThe company is preparing for more product deliveries ahead.
• 1Q26 work in progressRmb576m, up 37.2%Also reflects preparation for deliveries.
• 1Q26 free cash flow-Rmb1,683m, widened 46.2% YoYInvesting cash outflow rose 102.7% YoY, but the company still maintained a net cash position.
• 2025 new ordersRmb28.89bn, up 34.6% YoYExceeded the company's prior target of 25% YoY growth to Rmb26.83bn.
• 2026E new order targetat least 30% YoY growth to Rmb37.56bnIncremental growth will come from new product launches and higher market penetration.
• Target priceRmb270Based on the DCF model, corresponding to 45x 2026E P/E and 10.6x P/B.

Impact & implications

The report has a positive investment implication: in the short term, weaker-than-expected 1Q26 earnings growth and lower gross margin may weigh on market sentiment; however, if the product mix impact proves temporary, order growth, overseas market expansion, and a recovery in power grid capital expenditure should continue to support medium-term earnings growth. The company's H-share listing roadshow may also increase attention from overseas investors.

Risks

• China power grid capital expenditure may come in below expectations.
• Overseas new orders may come in below expectations.
• Raw material costs may come in above expectations.
• If product mix changes persist, gross margin pressure may no longer be only a short-term factor.
• If higher inventory and work in progress do not convert into deliveries and revenue, working capital pressure may increase.

What to watch

• Whether gross margin recovers in subsequent quarters, validating whether the 1Q26 product mix drag was temporary.
• Progress toward achieving the 2026 revenue growth target of more than 25% YoY.
• Execution against the 2026 new order target of at least 30% YoY growth to Rmb37.56bn.
• Changes in the share of overseas orders, geographic diversification, and U.S. exposure.
• Whether higher inventory and work in progress are smoothly converted into revenue deliveries.
• H-share listing roadshow and changes in overseas investor holdings.
• The strength of recovery in China power grid capital expenditure and order demand from clean energy customers.