Amid a profound transformation of the global energy landscape, the power equipment sector is entering a cyclical boom driven by multiple macroeconomic factors. The recent positive profit alert for the 2026 first half from HARBIN ELECTRIC (01133) not only highlights the company's earnings recovery and growth but also reflects structural changes within the power equipment sector under the current macro environment. The announcement indicates that the company expects net profit attributable to parent company shareholders for the 2026 first half to reach approximately RMB 1.7 billion, a significant increase of about 61.9% from RMB 1.05 billion in the same period last year. From Zhitong Finance APP's perspective, this profit alert is not an isolated event but the result of the combined effects of two major factors: global grid upgrades and the growing demand for AI computing power. HARBIN ELECTRIC's performance realization serves as a sample for observing how industry prosperity is transmitted to leading enterprises.
Historical Expansion of Power Equipment Demand
To understand the macro background of HARBIN ELECTRIC's profit alert, one must first examine the generational shift underway in global power infrastructure. Grid assets in developed economies were generally built in the 1970s and 1980s, with transformers, switchgear, and transmission lines now operating near or beyond their design life. Aging issues not only create operational reliability risks but also hinder the large-scale integration and consumption of renewable energy. In recent years, Europe and the US have intensively introduced dedicated grid investment plans. The EU plans to invest hundreds of billions of euros in cross-border grid interconnection and smart distribution system upgrades by 2030, while the US has allocated tens of billions of dollars for grid resilience upgrades through the Bipartisan Infrastructure Law. These investments are gradually entering the bidding phase after 2025. Chinese power equipment companies, leveraging their technological advantages and cost competitiveness in areas like UHV and flexible DC transmission, are increasing their participation in overseas markets. HARBIN ELECTRIC's power station engineering segment has long been active in Southeast Asia, the Middle East, and Africa, with notable progress in overseas equipment exports in the past two years.
Domestically, policy support has also significantly intensified. Earlier this year, State Grid Corporation of China announced that fixed asset investment during the "15th Five-Year Plan" period is expected to reach RMB 4 trillion, a 40% increase from the "14th Five-Year Plan" period, setting a new historical high. Meanwhile, a BOCI research report indicates that China's "15th Five-Year Plan" for new power system development has raised the 2030 pumped storage installed capacity target from 120GW to 160GW, a positive adjustment benefiting leading hydropower equipment companies. As a major domestic supplier of hydropower equipment, HARBIN ELECTRIC is expected to achieve a compound annual growth rate of 20% in hydropower revenue between 2026 and 2028. The company holds a certain market position in thermal power, hydropower, and self-developed gas turbine models. The improvement in gross margin suggests that low-margin coal power orders have been largely digested, with overall gross margin and dividend payout ratio trending towards optimization. UBS has also noted in previous reports that rising nuclear power capital expenditure and improved multi-year order visibility support the company's entry into an upward earnings cycle.
Structural changes in domestic grid investment are also noteworthy. Unlike the past reliance on bidding for transmission and distribution equipment, this round of investment growth places more emphasis on distribution network intelligent upgrades, pumped storage access systems, and cross-regional power dispatch center construction. These niche areas require higher value-added complete sets of equipment and system integration services. HARBIN ELECTRIC's layout in power engineering, procurement, and construction (EPC) and power station auxiliary equipment positions it to benefit from the industry cycle. The company's new orders for power generation equipment in 2025 reached RMB 44 billion, a year-on-year increase of 26%, with coal power and nuclear power orders growing by 39.4% and 81.6% respectively. This sustained high order growth has laid the foundation for stable revenue growth and improved gross margins in the first half of the year.
AI Computing Power Boom Reshaping Power Supply and Demand
Beyond global grid upgrades, the rapid growth in demand for AI computing power is another key variable. The AI computing power boom is reshaping the global power supply and demand landscape. The US, as a core region for global AI data center construction, faces new supply pressures on its power system, which is expected to create spillover opportunities for the Chinese power equipment supply chain. The electricity consumption of data center clusters supporting large model training and inference can no longer be ignored. More importantly, data centers have stringent requirements for power quality. GPU servers are sensitive to voltage sags, harmonic distortion, and instantaneous interruptions. Power disturbances can lead to training task interruptions, requiring data center operators to set higher dynamic response standards for power equipment.
A BOCI research report points out that HARBIN ELECTRIC can leverage the expansion of AI data centers in Southeast Asia, using its accumulated expertise in thermal power, hydropower, and self-developed gas turbine models to capture demand for base-load power equipment. Additionally, overseas expansion is expected to partially offset the contraction of the domestic coal power business. Although HARBIN ELECTRIC has not directly ventured into the low-voltage distribution equipment market for data centers on a large scale, its accumulation in large generator sets and high-voltage transmission can enable it to participate by providing core equipment for dedicated substations and captive power plants supporting data centers. Gas turbine combined cycle units and waste heat boiler systems, known for their quick start-stop and peak-shaving capabilities, are considered by the industry as one of the power supply options for large data center parks. Given the rapid expansion trend of AI data centers in Southeast Asia and other regions, the company's relevant supporting business, leveraging its technical accumulation in gas turbines, is expected to become a new growth point in the future.
From a longer-term industry perspective, the impact of AI computing power on the power system may change the evaluation criteria for the power equipment industry. The weight of factors like power supply reliability, equipment response speed, and lifecycle maintenance costs will increase. Leading companies with technological advantages, brand reputation, and engineering experience are expected to command a premium. Against the backdrop of better-than-expected performance, multiple brokerages have issued varying valuation assessments for HARBIN ELECTRIC. Huatai Securities believes that high-margin order growth is driving performance realization, combined with effective internal cost reduction, maintaining a "Buy" rating with a target price of HKD 24.94, corresponding to a 13.6 times P/E ratio for 2026. UBS is more optimistic, pointing out that the company's first-half net profit has already reached about 50% of its full-year forecast, expecting the market to raise its full-year 2026 earnings forecast. It also notes the potential inclusion into the Stock Connect program in August as an additional valuation catalyst, giving a "Buy" rating and a target price of HKD 45.
Risk Factors Not to Be Ignored
On the other side of the optimistic narrative, several risk factors also warrant attention. In overseas markets, escalating geopolitical tensions may lead some countries to impose restrictions on the import of power equipment from China. Project approval processes and capital recovery cycles in core markets like the Middle East and Southeast Asia carry uncertainties, potentially affecting the actual delivery pace and profit margin realization of overseas orders. On the domestic front, the annual implementation pace of "15th Five-Year Plan" grid investments may be affected by macroeconomic fluctuations or shifts in policy priorities. If actual bidding progress or investment amounts fall short of planned expectations, it will directly impact the company's acquisition of new orders. Furthermore, within the company's domestic business structure, traditional thermal power equipment still accounts for a significant portion. Under the long-term energy transition trend, the continued contraction of this segment could drag down overall revenue. It is also worth noting that as more domestic power equipment companies ramp up their overseas expansion, competition in the international market is intensifying, which may also put pressure on future product pricing and gross margin levels.
In summary, HARBIN ELECTRIC's profit alert provides a micro-level perspective for observing the transmission of prosperity in the global power equipment industry. At the industry level, the dual-driver logic of grid upgrades and AI computing power demand has medium-to-long-term industrial support. At the company level, the improvement trend in order structure and gross margin still requires continuous verification in subsequent quarters. For market participants, the actual pace of the optimistic narrative's realization, the progress of overseas market expansion, and the final outcome of the Stock Connect inclusion will be key variables affecting the stock's subsequent performance and are worth continuous monitoring. Whether the power equipment industry can achieve a transformation from traditional manufacturing to high-value-added services in this cycle is not only related to the valuation direction of HARBIN ELECTRIC but also to the long-term competitiveness reconstruction of the entire Chinese power equipment industry in the global energy transformation.
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