03 Feb 2026 11:18:42 ET │ 19 pages Vi e w p o i n t | China Diversified Utilities Higher Grid Capex Growth in 2026E; Lifting Solar & Wind Installations CITI'S TAKE PRC electricity demand growth in 2025 was +5.0% y/y, a deceleration of 1.8ppts from the previous year due to a warmer-than-usual winter in 1Q25. We expect electricity demand growth to accelerate to 6.5% y/y in 2026 based on a 1.3x multiple for annual electricity demand growth versus annual GDP growth, similar to those in 2020-24. Meanwhile, 2025 ...

Summary of Huaming Power Equipment (002270.SZ) Conference Call Company Overview - **Company**: Huaming Power Equipment - **Ticker**: 002270.SZ - **Industry**: Power Grid Equipment Key Financial Highlights - **2025 Preliminary Results**: - Net profit increased by **15.3%** year-over-year (yoy) to **Rmb 708 million** - 4Q25 net profit rose by **5.6%** yoy to **Rmb 127 million** - Adjusted net profit (excluding employee incentive scheme) increased by **21.5%** yoy to **Rmb 746 million** in 2025, with **26.1%** growth in 4Q25 to **Rmb 152 million** - Recurrent net profit grew by **22.7%** yoy to **Rmb 714 million** in 2025, with **23.4%** growth in 4Q25 to **Rmb 135 million** - Results exceeded consensus estimates by **2-3%** [1][2][3] Revenue Breakdown - **Tap Changer Revenue**: - Total revenue from tap changers increased by **16%** yoy to **Rmb 2,100 million** in 2025 - Overseas sales accounted for **34%** of tap changer revenue, totaling **Rmb 713 million** (+47% yoy) - Domestic sales made up **66%**, totaling **Rmb 1,387 million** (+5% yoy) - 4Q25 tap changer revenue rose by **14%** yoy to **Rmb 565 million**, with overseas sales up **50%** yoy to **Rmb 227 million** [2][11] Margin and Cost Analysis - **Net Margin**: Expanded by **1.5 percentage points** yoy to **20.9%** in 4Q25 due to increased overseas sales and reduced electrical engineering sales - **CNC Machines Revenue**: Increased by **40%** yoy to **Rmb 244 million**, with export revenue surging by **233%** yoy - **Electrical Engineering Revenue**: Declined by **90%** yoy to **Rmb 29 million** as the company downsizes this low-margin segment [2][3] Market and Industry Insights - **State Grid Capex**: - State Grid plans to increase its capital expenditure to **Rmb 4 trillion** for the 15th five-year period (2026-2030), which is **40%** higher than the previous period - This growth is expected to exceed the overall PRC power grid capex growth of **5.9%** yoy [4][8] - **Domestic Revenue Contribution**: Huaming's domestic grid-related revenue accounted for **30%** of its total tap changer revenue in 2025 [8] Investment Outlook - **Rating**: Buy - **Target Price**: **Rmb 29.00/share**, based on a DCF model with a terminal growth rate of **4.0%** - **Expected Share Price Return**: **-9.2%** with a dividend yield of **1.8%** - **Market Capitalization**: **Rmb 28,616 million** (approximately **US$ 4,109 million**) [6][9][13] Risks - Key risks include: - Lower-than-expected overseas new orders - Lower-than-expected China grid capex - Higher-than-expected raw material costs [14] Conclusion - Huaming Power Equipment shows strong financial performance with significant growth in overseas sales and improved margins. The positive outlook from State Grid's increased capex and the company's strategic focus on high-margin products position it well for future growth. However, potential risks related to market conditions and operational costs should be monitored closely.

Summary of State Grid's Capex Plan for the 15th FYP Industry Overview - **Industry**: China Utilities - **Company**: State Grid Corporation of China Key Points 1. **Capex Plan Confirmation**: State Grid has confirmed a capital expenditure (capex) plan of Rmb4 trillion for the 15th Five-Year Plan (FYP), which is a 40% increase compared to the 14th FYP, aligning with previous estimates [2][3] 2. **Investment Breakdown**: The total investment during the 14th FYP was approximately Rmb2.8 trillion, with annual investments increasing from Rmb488 billion in 2021 to Rmb650 billion in 2025 [2] 3. **Growth Projections**: The proposed capex indicates a compound annual growth rate (CAGR) of over 7% from 2026 to 2030, as annual grid capex growth is expected to outpace power demand during the 15th FYP [3] 4. **Key Initiatives**: Major initiatives include: - Investment in Ultra High Voltage (UHV), backbone, and distribution networks, with allocations of Rmb490 billion, Rmb985 billion, and Rmb2,484 billion respectively [2] - A focus on enhancing grid resiliency and reliability due to increasing renewable energy connections [2] 5. **Beneficiaries**: Companies expected to benefit from this capex plan include NARI Technology, Pinggao Electric, and XJ Electric, due to their significant exposure to State Grid [3] 6. **Infrastructure Enhancements**: The plan aims to accelerate UHV build-outs and improve inter-regional power transmission capacity by over 30% compared to the 14th FYP [7][8] 7. **Distribution Network Expansion**: There will be an emphasis on accelerating the construction of distribution networks in both urban and rural areas to support the growing demand for electricity [8] Additional Insights - **Investment Risks**: Potential risks include delays in the tendering process for new UHV lines and lower-than-expected investments in the grid distribution network, which could impact revenue recognition [13][16] - **Market Outlook**: The overall industry view remains attractive, indicating positive sentiment towards investments in the utilities sector [5] This summary encapsulates the essential details regarding State Grid's capex plan and its implications for the utilities industry in China.

Investment in China's Energy Sector - State Grid announced a record investment plan of 4 trillion yuan (US$574 billion) over the next five years, a 40% increase from its previous plan, aimed at upgrading power networks and building a new type of power system to meet rising demand driven by the global AI race [2] - The investment targets adding 200 million kilowatts of renewable energy capacity annually and aims to increase the share of non-fossil fuel consumption to 25% by 2030, with a focus on improving grid transmission in western China [2] - Following the announcement, shares of Chinese electricity and grid equipment manufacturers surged, with Baoding Tianwei Baobian Electric and Power Construction Corp of China gaining 10%, Henan Pinggao Electric rising 7.4%, and Suzhou Electrical Apparatus Science Academy increasing by 20% [2] Mitsubishi Corp's Acquisition Plans - Mitsubishi Corp is in advanced negotiations to acquire U.S. shale production and pipeline assets from Aethon Energy Management for approximately $8 billion, marking its largest deal to date [3] - The acquisition aims to secure long-term natural gas supplies and strengthen Mitsubishi's presence near the growing U.S. Gulf Coast LNG export terminals [3] - While discussions are advanced, Mitsubishi has indicated that no final decision has been made, leaving the transaction's completion uncertain [3] Precious Metals Market Trends - Palladium prices fell over 3%, closing at $1,735.75 per ounce, despite trading near a three-year peak recently [4] - The price decline is influenced by supply and demand dynamics, with expectations that the market may shift from a deficit to a surplus by 2026 [4] Medical Device Company Rating Adjustment - Truist downgraded medical device company Penumbra (PEN) from "Buy" to "Hold," while simultaneously increasing its price target to $374 [5] U.S.-Mexico Border Security Tensions - The U.S. has communicated to the Mexican Foreign Minister that the current pace of gains in border security is insufficient, highlighting ongoing tensions and demands for more decisive action from Mexico [6]

Summary of Conference Call Notes on Greater China Electrical Equipment Sector Industry Overview - The conference call discusses the Greater China Electrical Equipment sector, focusing on the State Grid's capital expenditure (capex) plans for the 15th Five-Year Plan (2026-2030E) [1][2]. Key Points State Grid Capex Plans - State Grid has budgeted its capex to reach Rmb4 trillion in the 15th Five-Year Plan, which is approximately 40% higher than the Rmb2.8 trillion allocated in the 14th Five-Year Plan (2021-2025) [1][2][9]. - This increase in capex is expected to facilitate the development of a new power grid platform aimed at enhancing clean energy usage [1][3]. Growth Projections - The projected capex translates to a compound annual growth rate (CAGR) of 7% over the next five years, which is higher than the 5.9% year-on-year growth of PRC power grid capex reported in the first eleven months of 2025 [1][9]. - The capex increase is anticipated to boost non-fossil energy consumption in China to 25% by 2030, up from 16% in 2020 and 20% in 2025 [3]. Infrastructure Development - The capex will be allocated towards building a new power grid platform that integrates main, distribution, and micro-grids, along with enhancing ultra-high voltage (UHV) DC transmission lines to improve inter-regional and inter-provincial power transmission capacity by over 30% compared to the end of the 14th FYP [4]. - There will also be a focus on accelerating the construction of distribution networks and off-grid micro-grid models, as well as developing digital and intelligent infrastructure [4]. Company Feedback - NARI Technology Co. and Pinggao Electric expressed that the Rmb4 trillion capex exceeds their previous estimates, indicating a positive outlook for new orders from State Grid [7][8]. - Both companies expect increased demand for high voltage and power distribution equipment over the next five years due to the capex increase [8]. Investment Recommendations - The report maintains a positive outlook on the PRC power grid equipment sector, identifying it as a preferred sub-sector within the renewable, utility, and power grid equipment space in PRC/HK [1]. - Buy ratings are reiterated for companies including Sieyuan, Pinggao, XJ Electric, and NARI, based on their expected benefits from the increased capex [1]. Risks - Key risks identified for Pinggao include potential delays in the approval process for UHV transmission line projects, lower-than-expected raw material cost reductions, and lower-than-expected PRC grid capex [12]. - For NARI, risks include lower-than-expected market demand and delays in project schedules [14]. - Sieyuan faces similar risks, including lower-than-expected PRC grid capex and higher raw material costs [16]. Conclusion - The significant increase in State Grid's capex is expected to drive growth in the electrical equipment sector, particularly benefiting companies closely tied to State Grid. The focus on clean energy and infrastructure development aligns with China's broader energy transition goals.

Summary of Key Points from the China Charging Ecosystem Research Industry Overview - The report focuses on the **China Charging Ecosystem**, specifically the development of electric vehicle (EV) charging infrastructure as of November 2025. Key Observations 1. **Charging Pile Count**: - China's total charging pile count reached **19.3 million** by the end of November 2025, representing a **56% year-over-year (yoy)** increase and a **51% increase** compared to December 2024 [1][2]. 2. **EV-to-Charging Pile Ratio**: - The ratio of EVs to charging piles decreased to **2.2x** by the end of November 2025, down from **2.4x** at the end of December 2024, indicating a growing infrastructure relative to EV population [2]. 3. **Public Charging Volume**: - Public charging volume in the first eleven months of 2025 grew by **54% yoy**, reaching **76,710 GWh**, which accounted for **0.81%** of total electricity consumption in China. Notably, in November 2025, public charging volume exceeded **1%** of total electricity consumption for the first time [5]. 4. **Public Charging Piles**: - Approximately **1,046,000** public charging piles were added in the first eleven months of 2025, marking a **42% yoy** increase. The total public charging pile population reached **4.6 million** by the end of November 2025, up **34% yoy** [3]. 5. **Private Charging Piles**: - New installations of private charging piles reached approximately **5,459,000** units in the first eleven months of 2025, which is **0.44x** the EV sales during the same period. The total number of private charging piles reached **14.7 million**, growing **65% yoy** [4]. 6. **Battery-Swapping Stations**: - By the end of November 2025, the number of battery-swapping stations for EVs in China reached **5,086**, a **21% yoy** increase. However, the growth rate of new additions slowed to **3%** in November 2025 [6]. Market Share Insights 1. **Market Share of Charging Pile Operators**: - Among the top five charging operators, only **Xiaoju** increased its market share month-over-month in terms of the number of charging piles owned. Other operators like **TELD** and **Weijingyun** maintained their positions, while **Star Charge** and **YKC** lost market share [7]. 2. **Market Share in Charging Volume**: - In terms of charging volumes, **TELD** and **Star Charge** gained market shares of **0.8ppt** and **0.5ppt** respectively in November 2025. Conversely, **Xiaoju** lost **1.1%** of its market share [8]. 3. **Utilization Rates**: - The average utilization rate of the top ten charging pile operators ranged from **2.8% to 8.5%** in the first eleven months of 2025, showing slight improvements for some operators [9][10]. Comparative Analysis - **US and EU Charging Infrastructure**: - As of November 2025, the US had **265,000** charging outlets, a **23% yoy** increase, while the EU had over **1 million** public charging points, up **18% yoy**. The EV sales to charging outlet new installations ratio in the US was **28x**, compared to **21x** in the EU [11][12]. Conclusion - The data indicates a robust growth trajectory for China's EV charging infrastructure, with significant increases in both public and private charging piles, as well as public charging volume. However, market share dynamics among key players suggest competitive pressures that could impact future growth and profitability in the sector.

Summary of Key Points from the Conference Call Industry Overview - **Industry**: China State-Owned Enterprises (SOEs) - **Market Dynamics**: The sector has experienced strong compression due to a widening offshore/onshore yield differential, leading to increased demand for China USD bonds and reduced supply from Chinese issuers turning to cheaper onshore funding [1][4][20]. Core Insights - **Credit Ratings**: China SOEs' credit ratings are anchored to China's sovereign rating, which is rated A1/A+/A by Moody's/S&P/Fitch. The outlooks are negative/stable/stable, respectively. The improving fundamentals from SOE reforms provide comfort against fallen angel risks [1][4][39][45]. - **US Sanctions Risk**: The primary risk for China SOEs remains US sanctions, particularly for companies like CNOOC and ChemChina. However, strong demand from Chinese investors is expected to absorb any potential spread widening due to sanctions [1][4][57][63]. - **Investment Recommendations**: J.P. Morgan recommends selective investments in COSL '30s, SINOCH '31s, and CNOOC '32s, highlighting their suitability for investors seeking low-beta exposure to Asia credit [1][4][26]. Financial Metrics - **Spread Compression**: The JACI China single-A Corporate Index has seen its z-spread tighten from z+220 in late 2022 to z+109, indicating strong technical support in the market [4][26]. - **Yield Differential**: The yield differential between offshore and onshore bonds has widened to approximately 290 basis points as of September 2025, influencing demand dynamics [14][20]. - **Profitability Metrics**: The average net profit margin for China SOEs improved from 11% to 13% from 2021 to 2024, while return on equity (ROE) rose from 6% to 8% during the same period, reflecting improving fundamentals [48][50][55]. Additional Insights - **Supply and Demand Imbalance**: The demand for China USD credit has increased, particularly from Chinese banks, while supply has decreased due to higher offshore borrowing costs. This has led to a significant reduction in dollar bond issuance by Chinese issuers [15][20]. - **Regulatory Focus**: The Chinese government is emphasizing SOE efficiency, with new assessment criteria focusing on stable profit growth and improvements in R&D expenditure intensity and labor productivity [48][49]. - **Sanction Lists**: The US has established multiple sanction lists relevant to China SOEs, including the NS-CMIC and CMC lists, which impose various restrictions on investment and business operations [58][61]. Conclusion - The China SOE sector presents a complex landscape characterized by improving fundamentals, strong technical support, and significant risks from US sanctions. Investors are advised to approach the sector selectively, focusing on specific bonds that offer better relative value while being mindful of the broader geopolitical context.