Summary of China Industrials 2026 Outlook Industry Overview - **Industry**: China Industrials - **Core Themes**: AI technology diffusion, industrial upgrades, and globalization are central to the industrial sector's recovery in 2026. The government is focused on enhancing productivity through equipment upgrades, particularly in high-end equipment [1][4]. Key Insights - **Industrial Cycle**: The industrial cycle is characterized by strong global demand for capital goods, driven by AI technology applications and supply chain security concerns. China's trend of localizing high-end equipment remains strong, with specific sectors like data centers, electronics, and robotics expected to show growth, while processing markets may experience muted demand [3][10]. - **AI Applications**: 2026 is anticipated to mark the beginning of significant capital expenditure on physical AI, which will benefit automation and robotics companies. The government is supporting this through initiatives aimed at increasing the deployment of AI-powered robotics [4][11][12]. - **Localization and Supply Chain**: The localization rates for automation and industrial robots are projected to rise, with expectations of reaching 60-70% by 2030. This trend is expected to benefit companies involved in automation and precision components [21][22][23]. Market Dynamics - **Overseas Expansion**: Equipment exports from China have grown significantly, outpacing overall export growth. Companies are motivated to expand into international markets to capture larger total addressable markets (TAM) and improve margins [24][25]. - **Margin Expansion**: The overall net margin for China's industrials is expected to increase from approximately 13.0% in 2025 to around 14.6% in 2027, driven by overseas growth and advancements in AI technology [26][27]. Stock Recommendations - **Preferred Stocks**: The report highlights several stocks that are expected to benefit from cyclical strength and structural tailwinds, including: - **Geekplus (2590.HK)**: OW - **Sany Heavy (600031.SS)**: OW - **Leaderdrive (688017.SS)**: OW - **Han's Laser (002008.SZ)**: OW - **Inovance (300124.SZ)**: OW - **Hengli (601100.SS)**: OW - **Wuxi Lead (300450.SZ)**: OW - **Envicool (002837.SZ)**: OW - **Underweight Stocks**: Stocks such as **CSCEC (601668.SS)**, **CRRC-H (1766.HK)**, and **Maxwell (300751.SZ)** are rated as underweight due to various market challenges [5][8][46]. Additional Considerations - **Geopolitical Factors**: The geopolitical landscape is influencing supply chain security, which is a critical factor for capital goods demand globally [3]. - **Investment in AI**: The anticipated investment in AI infrastructure is expected to redefine smart manufacturing and create new opportunities within the industrial sector [10][11]. - **Sector Performance**: The report indicates that most industrial stocks are trading at or above their historical five-year average P/E ratios, reflecting a positive outlook for continuous upgrades and AI-related demand [26][38]. This comprehensive analysis provides insights into the expected recovery and growth opportunities within the China Industrials sector for 2026, highlighting key themes, market dynamics, and stock recommendations.

Core Insights - Alstom has signed a contract worth approximately 500 million euros for the delivery of 26 additional Coradia Max double-decker trains to Landesanstalt Schienenfahrzeuge Baden-Württemberg (SFBW), including a long-term maintenance agreement until 2055 [1][2][3] Group 1: Contract Details - The new order is part of an option agreed in May 2022, which included a major order for 130 Coradia Max trains and the possibility of ordering up to 100 additional trains [2] - The total investment in 156 Coradia Max trains by the State of Baden-Württemberg amounts to around 3 billion euros, aimed at enhancing local and regional transport services [3] Group 2: Train Specifications - The Coradia Max trains will have a top speed of 200 km/h, featuring a four-car configuration with a total of 380 seats, and will be introduced gradually starting from December 2026 [4][5] - The trains are designed for passenger comfort, equipped with air conditioning, free Wi-Fi, charging facilities, and barrier-free access for travelers with mobility impairments [6][7] Group 3: Operational Impact - The expanded fleet will provide increased capacity, comfort, and speed for regional transport, particularly in light of the upcoming Stuttgart 21 railway hub [3][4] - Alstom's FlexCare Perform maintenance services will ensure reliable operation of the trains for decades, supporting over 36,000 vehicles worldwide [9]

Summary of National Railway (NR) Annual Working Conference Industry Overview - The conference focused on the railway equipment industry, specifically high-speed rail (HSR) and general railway operations in China. Key Highlights 1. **New Rail/HSR Completion Targets** - NR aims for total new rail/HSR completion of 3,000 km and 2,000 km per annum during 2026-30, which is a 20% reduction compared to the actual completion from 2021-25. This indicates a demand for approximately 140 standard trainsets of multiple units (MU) annually from new line completions [1][2][7]. 2. **Passenger and Freight Volume Growth** - NR projects rail passenger volumes to grow by 3.5% year-on-year and freight volumes by 1.5% year-on-year in 2026, which is a moderation from the previous year's growth rates of 4.2% and 2.1%, respectively [1][5]. 3. **Demand Stability for MUs** - The expected demand for new MUs is projected to remain stable at around 250 standard units annually from 2026 to 2030, considering both new line completions and replacement demand [1][6]. 4. **CR450 Model Development** - The new CR450 "Fuxin" MU is set to complete its model design and operational assessment in 2026, with initial orders expected in early 2027, marking a gradual replacement of the existing CRH "Harmony" MUs [1][6]. 5. **Financial Performance Metrics** - In 2025, total railway fixed asset investment (FAI) reached RMB 901.5 billion, a 6.0% increase from RMB 850.6 billion in 2024. New line additions were 3,109 km, slightly down by 0.1% from 2024 [4]. 6. **Historical High in Revenue** - Total railway transportation revenue achieved RMB 1.02 trillion, reflecting a 3.1% year-on-year increase, surpassing the target of RMB 1.01 trillion set at the beginning of the year [4]. Additional Insights - The dual-track ratio and electrified ratio are targeted to reach 64% and 78% respectively by 2030, compared to 60.8% and 75.8% in 2024 [7]. - The shift in powertrain regulations from diesel engines to power battery systems may influence the demand for new locomotives, potentially reducing tendering demand in 2026-27 [6]. Ratings and Recommendations - Neutral ratings are maintained for Times Electric A (688187.SS) and CRRC A (601766.SS), while Buy ratings are upheld for Times Electric H (3898.HK) and CRRC H (1766.HK) based on valuation and dividend yield considerations [1].

Core Viewpoint - The announcement details the transfer of a 19% stake in Hisense Microelectronics by Jiaotong Microelectronics, with a starting public listing price of 27.7752 million yuan, and the eventual sale to Guangdong Huazhiyuan for 25.08 million yuan, making them the controlling shareholder [1] Group 1 - Jiaotong Microelectronics will publicly list the 19% stake in Hisense Microelectronics on the Beijing Property Exchange starting from October 31, 2025, with an initial listing price of 27.7752 million yuan [1] - After the first price reduction on December 1, 2025, Guangdong Huazhiyuan was confirmed as the buyer on December 15, 2025, at a transaction price of 25.08 million yuan [1] - Jiaotong Microelectronics has signed relevant agreements with Guangdong Huazhiyuan, who has already made the payment [1] Group 2 - Guangdong Huazhiyuan will also acquire an additional 41% stake from another shareholder of Hisense Microelectronics, thereby becoming the controlling shareholder [1]

Group 1 - Alstom has released its half-year financial report as of September 30, 2025, which is now available on its website [1] - The company generated sales of €18.5 billion for the fiscal year ending March 31, 2025 [2] - Alstom operates in 63 countries and employs over 86,000 people from 184 nationalities, focusing on innovative and sustainable transportation solutions [2]

Core Insights - Alstom reports strong first-half performance driven by steady execution of its strategy and balanced growth across regions and product lines, with a focus on innovation and sustainability [1][2] - The company has a healthy backlog and anticipates continued momentum in the second half of the fiscal year [1][2] Orders - In the first half of fiscal year 2025/26, Alstom achieved an order intake of €10.5 billion, a 4% decrease from €10.9 billion in the same period of the previous fiscal year, attributed to the timing of several awards [7] - The order intake in Europe was €5.2 billion, down from €8.5 billion year-on-year [8] - Significant contracts in the Americas included €2.0 billion for 316 commuter rail cars and €1.0 billion for 200 Multilevel III commuter rail cars and locomotives [12] - The backlog as of 30 September 2025 stood at €96.1 billion, reflecting a solid book-to-bill ratio of 1.2x [16] Sales - Alstom's sales for the first half of fiscal year 2025/26 reached €9.1 billion, representing a 3% increase on a reported basis and an 8% increase on an organic basis compared to the previous year [17] - Rolling stock sales were €4,665 million, up 3% reported and 6% organic, driven by strong performances in France, the US, and Italy [18] - Services sales increased to €2,266 million, up 3% reported and 6% organic, with notable growth in Italy and Australia [19] Profitability - Adjusted EBIT for the first half reached €580 million, a 13% increase from €515 million in the previous year, with an adjusted EBIT margin of 6.4% [25][30] - EBIT before PPA was €443 million, a 16% increase compared to €382 million in the same period last year [27] - The net profit (Group share) for the first half was €220 million, compared to €53 million in the previous year [30] Free Cash Flow - The Group's Free Cash Flow for the first half was €(740) million, compared to €(138) million in the same period last year, reflecting expected working capital seasonality [31] - Funds from Operations stood at €411 million, up from €282 million in the previous year, driven by improved EBIT [32] Financial Structure - As of 30 September 2025, Alstom recorded a net debt position of €1,399 million, an increase from €434 million as of 31 March 2025, primarily due to Free Cash Flow consumption [34] - The Group had available cash and cash equivalents of €1,686 million, with undrawn Revolving Credit Facilities [35] Innovation and Sustainability - Alstom is committed to reducing its emissions and aims to use 100% renewable electricity in its operations by the end of 2025, with 87% already achieved [37] - The company is engaging with customers and suppliers to contribute to a Net Zero carbon trajectory in the mobility sector [38] - Alstom's Corporate Social Responsibility performance has improved significantly, achieving a score of 93/100 in the ECOVADIS evaluation [39]

Core Insights - Alstom plans to recruit nearly 120 new manufacturing employees at its Plattsburgh, New York facility to meet increased demand for rail cars, specifically for a contract to produce 374 commuter rail cars for NJ Transit [1][2] Group 1: Workforce Expansion - The recruitment will focus on individuals with skills in assembly, crane operations, welding, and industrial painting [1] - Currently, the Plattsburgh plant employs about 350 people, contributing to Alstom's global workforce of over 86,000 [2] Group 2: Production History and Contracts - Alstom has been operating in the Adirondack region since 1995, producing 4,000 cars for the New York City subway and over 1,000 for the San Francisco Bay Area Rapid Transit [3] - The company recently began producing ten additional trains for Transport for London's Elizabeth line at its facility in Derby, UK [3] - A £220.5 million ($293.9 million) contract for new Class 345 Aventra electric multiple units involves nearly 40 British companies and supports over 1,000 jobs [4]

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the **Asia and China Capital Goods** sector, focusing on various companies within the **Industrial Automation (IA)** and **Construction Machinery** industries [2][16]. Core Insights and Arguments - **Near-term Opportunities**: The trade war and China's stimulus measures are expected to drive opportunities in the near term [6][18]. - **Medium-term Growth**: The "China+1" strategy, post-war rebuilding efforts, and advancements in robotics are identified as key growth drivers [6][7]. - **Long-term Stability**: Structural growth drivers are anticipated to ensure long-term stability in the sector [7]. - **Company-Specific Insights**: - **Hengli Hydraulic**: Initiatives in factory automation and robotics are projected to boost future revenue [8]. - **Shenzhen Inovance**: Positioned to benefit from the inflection point in the IA cycle [9]. - **Weichai Power**: Expected to grow as China's heavy-duty truck (HDT) market enters an upcycle [9]. - **SANY and XCMG**: Anticipated to gain from increasing demand for construction machinery [9]. - **CRRC**: Set to benefit from high-speed train demand and the phase-out of diesel [9]. - **ST Engineering**: Expanding internationally amid geopolitical tensions [9]. Valuation Insights - A detailed valuation table for various companies in the **Industrial Automation** sector is provided, highlighting key metrics such as market capitalization, P/E ratios, and expected growth rates [10][12]. - **Inovance**: Market cap of $30.141 billion with a target price of $95, indicating a 19% upside [10]. - **Weichai Power**: Target price of $24, with a significant upside potential of 68% [12]. - **SANY Heavy**: Target price of $28, with a 22% upside [12]. Market Trends - The **China IA market** is projected to experience fluctuations, with a notable decline in 2023, followed by a slight recovery in 2024 and 2025 [20][21]. - **Factory Automation**: The OEM market is expected to see a decline in sales, with a projected market size of RMB 99 billion in 2025 [21]. - **Process Automation**: Expected to stabilize with a slight growth trajectory, reaching RMB 178.5 billion by 2025 [21]. Additional Important Insights - The call emphasizes the importance of innovation in the IA cycle and humanoid robotics, with companies like **Sanhua Intelligent**, **Inovance**, and **Leader Drive** highlighted as top picks [19]. - The impact of geopolitical tensions on international expansion strategies for companies like **ST Engineering** is noted, indicating a need for adaptive strategies in the current market environment [9]. This summary encapsulates the key points discussed in the conference call, providing a comprehensive overview of the industry dynamics, company-specific insights, and market trends.

Group 1 - Mitsubishi Electric Corporation announced that its energy- and resource-saving synchronous reluctance motor and inverter traction system (SynTRACS) has received a 2025 R&D 100 Award from R&D World [1] - This award marks the 28th R&D 100 Award that Mitsubishi Electric has won to date [1] - SynTRACS is equipped with the railway industry's first synchronous reluctance motor (SynRM) aimed at saving energy and resources in railcars [1]

Core Viewpoint - Knorr-Bremse has agreed to acquire Duagon Group for approximately €500 million ($586 million) to enhance its electronic and software solutions for rail vehicles, particularly in braking and entrance systems [1][2] Group 1: Acquisition Details - The acquisition price includes potential additional earn-out based on performance targets, and the transaction is subject to standard regulatory approvals [2] - Duagon, founded in 1995, employs around 750 people across eight countries and serves vehicle manufacturers, systems integrators, and infrastructure companies in the rail sector [2] Group 2: Strategic Intent - Knorr-Bremse aims to integrate Duagon's products and expertise into its business units, Selectron and KB Signaling, to strengthen its position in the rail market [3][4] - The integration is expected to enhance research and development cost efficiency and overall competitiveness [4] Group 3: Market Trends and Future Outlook - The increasing digitalization of trains and rail networks is driving demand for electronic and software-based solutions, including remote monitoring and diagnostics [5] - Knorr-Bremse's CEO emphasized that the acquisition will bolster the rail business and contribute to profitable growth [5] - The company is focusing on enhancing its technological expertise in railway electronics and signaling technology, aiming to increase the high-margin revenue share in rail vehicles [6]