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 Key Takeaways from Sieyuan and Huaming Conference Call Industry Overview - The conference focused on the AI Robotics and Power sector, specifically the companies Sieyuan and Huaming, highlighting their performance and outlook in the context of the domestic and overseas markets [1][2]. Core Insights 1. **Domestic Revenue Resilience**: - Sieyuan and Huaming expect stable domestic revenue growth driven by grid-led demand, with a projected 40% cumulative investment growth in the 15th Five-Year Plan compared to the 14th, translating to a 6% CAGR from 2025 to 2030 [1]. - Off-grid investment is anticipated to decline, particularly affecting Huaming, which expects a drop in off-grid revenue in 2026 [1][2]. 2. **Overseas Market Dynamics**: - Both companies benefit from better pricing structures in overseas markets due to higher entry barriers and tighter supply conditions, which support their product mix [1][5]. - Sieyuan's overseas strategy includes expanding into renewable energy sectors and enhancing market share among industrial customers [2]. 3. **Margin Pressures**: - Both companies face slight margin pressures due to rising raw material costs, particularly copper, which constitutes about 10% of tap changers' COGS and approximately 30% of transformer COGS [1][6]. - The impact of raw material price hikes is considered manageable through design optimization and material substitution rather than price increases [1][6]. 4. **Capital Expenditure Plans**: - Sieyuan has completed recent investments in new plants and production lines, focusing on ramping up production and improving yield and utilization [7]. - Future capital expenditures will primarily be for maintenance and efficiency upgrades, with potential capacity expansion in Saudi Arabia driven by local content requirements [7]. 5. **Competitive Advantages**: - Sieyuan maintains its competitive edge through early overseas expansion and cumulative execution capabilities, including local sales networks and service teams [8]. Additional Important Points 1. **Pricing Stability**: - Price increases are not expected in the domestic market due to competitive pressures, while overseas pricing remains higher due to supply constraints [3][5][13]. 2. **Raw Material Management**: - Huaming has secured a year’s supply of copper, mitigating short-term price fluctuations, and is exploring aluminum substitution for copper in transformers [14]. 3. **Capacity Management**: - Current growth can be achieved through incremental measures rather than new construction, with potential to increase capacity by 10-20% through extended working hours [15]. 4. **Market Outlook**: - The outlook for the 15th Five-Year Plan is slightly better than previous expectations, with grid investment seen as a key area for broader infrastructure and industrial investment [9][10]. 5. **Geographic Diversification**: - Huaming has expanded its reach to around 130 countries, with Europe being the largest market, driven by energy transition investments [11][12]. Risks and Methodology - Sieyuan's target price is based on a 2028E P/E of 25x, with risks including overseas execution challenges and potential margin declines [16]. - Huaming's target price is based on a 2028E P/E of 22x, with risks related to share gains and domestic revenue growth [17].