China International Capital Corporation: The overall performance of the power equipment industry will remain robust and upward in 2026. We are optimistic about the exceeding expectations in the approval of ultra-high voltage and the acceleration of investments in the distribution network.

CITIC published a research report stating that the overall performance of the power equipment industry will be robust and upward in 2026, urging investors to focus on structural opportunities. In terms of traditional power grids, the 14th Five-Year Plan new energy system clearly positions the grid to adapt to a high proportion of new energy, along with the release of the State Grids 14th Five-Year Plan investment plan, making long-term grid investment promising; in addition, the global AIDC infrastructure has been accelerating, leading to strong demand for related power equipment. Chinese power equipment companies are expected to secure orders due to their advantages of shorter delivery cycles, high cost-effectiveness, and sound after-sales service. Under the carbon peak goal, renewable energy will continue to develop, and high expectations can be seen for the accelerated approval of UHV projects and investment in distribution networks. The firm still believes the signs of a global power supercycle are beginning to emerge. The development of the new power system is a long-term, ongoing process, and its prosperity may continue until 2030. The orders, revenues, and profits of major listed companies are still in a solid upward channel. After adjustments, current valuations have entered the historically undervalued range, indicating that the sector holds long-term investment value. CITIC's key views are as follows: Investment line 1: Under the carbon peak goal, renewable energy will continue to develop, and high expectations can be seen for the accelerated approval of UHV projects and investment in distribution networks. The firm believes that during the 14th Five-Year Plan, domestic UHV projects are expected to enter an accelerated construction phase. The core logic has shifted from the past focus on achieving long-distance power transmission to a grand goal of supporting large-scale renewable energy dispatch, building a unified national power market, and enhancing grid resilience. Furthermore, renewable energy installations during the 14th Five-Year Plan period are likely to continue growing under the carbon peak goal, creating further demands for grid investment. There remains significant investment potential in both centralized large-scale base development and distributed energy connection within the UHV main network and distribution network segments. Investment line 2: Overseas power investment has a long cycle, and domestic gas turbine + transmission and transformation manufacturers are accelerating their overseas expansion. On one hand, the firm believes that the emphasis under the large load grid connection mechanism reform will focus more on the full lifecycle value of onsite power generation for data centers, benefiting demand for gas turbines and other backend power generation. On the other hand, the increase in capital expenditure planning for overseas grids, along with energy transitions on the power generation side, upgrades of aging grids, and changes in data centers on the consumption side, will continue to drive global power grid investments into a long cycle, spurring strong demand for power equipment. Foreign manufacturers maintain high order backlogs, and short-term supply bottlenecks are hard to resolve, presenting historic outbound opportunities for Chinese enterprises, which still have significant room for market share expansion overseas. Risk Warning: Grid investment may fall short of expectations; renewable energy installations may not meet expectations; risks from changes in international trade policies and exchange rate fluctuations.