Key takeaway

The company's revenue maintained steady growth in 1H26, with revenue growth accelerating further in 2Q26 versus 1Q26; net profit attributable to shareholders of the parent company continued to decline, but the decline narrowed in 2Q26 compared with 1Q26. By business, industrial services revenue recovered sharply and became the main driver of revenue growth in 1H26; energy conversion equipment revenue came under temporary pressure, but gross margin improved significantly, while orders from overseas and chemical markets grew rapidly, supporting future revenue conversion; Qinfeng Gas achieved record-high revenue for the period, but its net profit and net margin declined, while the company accelerated its expansion into specialty gases and advanced the acquisition of minority interests in Qinfeng Gas, which is expected to further strengthen synergies within its gas business.

Event

In 1H26, the company recorded revenue of RMB4.988bn, up 44% YoY; net profit attributable to shareholders of the parent company was RMB331mn, down 19.94% YoY; net profit attributable to shareholders of the parent excluding non-recurring gains and losses was RMB304mn, down 23.01% YoY.

In 2Q26, the company recorded revenue of RMB2.400bn, up 3.90% YoY; net profit attributable to shareholders of the parent company was RMB140mn, down 15.96% YoY; net profit attributable to shareholders of the parent excluding non-recurring gains and losses was RMB126mn, down 20.98% YoY.

Quick Take

Revenue grows steadily in 1H26, with operating cash flow improving significantly

Revenue achieved steady growth, while gross margin improved YoY. The company's revenue grew 2.44% YoY in 1H26, while revenue increased 3.90% YoY in 2Q26, accelerating further from 1.13% in 1Q26; net profit attributable to shareholders of the parent company declined 15.96% YoY in 2Q26, narrowing from the 22.61% decline in 1Q26. Overall gross margin rose 1.60 pcts YoY to 22.26% in 1H26, including a 2.39-pct YoY increase to 23.24% in 2Q26.

Profit was mainly affected by higher impairment provisions, lower financial income, and increased R&D investment. In 1H26, the company's combined credit impairment losses and asset impairment losses totaled RMB175mn, compared with RMB22mn in 1H25, representing a YoY increase of approximately RMB154mn; the company prudently recognized provisions for accounts receivable, prepayments, inventories, and other assets to strengthen asset quality. During the same period, the financial expense ratio rose 0.92 pct YoY to -1.40%, mainly due to lower interest income and increased foreign exchange losses; R&D expense increased 15.21% YoY to RMB184mn, while the R&D expense ratio rose 0.41 pct YoY to 3.69%. In 1H26, the total expense ratio increased by 1.17 pcts YoY to 9.16%, while the net margin decreased by 2.01 pcts YoY to 7.76%.

Both cash flow and operating assets improved. In 1H26, net cash flow from operating activities increased by 109.95% YoY to RMB509mn. This was mainly due to the company's optimized payment terms in sales contracts, stronger collection of receivables, and the release of funds frozen following litigation settlement. As of the end of 1H26, the company's accounts receivable, inventories, and contract assets decreased by 3.72%, 10.31%, and 18.10%, respectively, from the end of 2025. Both cash flow and operating assets improved.

Strong recovery in industrial services revenue and significant improvement in equipment gross margin

Industrial services revenue grew substantially and became the main driver of revenue growth in the first half. In 1H26, revenue from energy conversion equipment, industrial services, and energy infrastructure operations changed by -22.88%, +142.66%, and +2.14% YoY to RMB1.729bn, RMB995mn, and RMB2.255bn, respectively. They accounted for 34.73%, 19.98%, and 45.29% of core business revenue, respectively. Industrial services revenue grew substantially, likely driven mainly by faster revenue recognition for EPC and service projects, and became the main source of revenue growth in the first half. Revenue from energy conversion equipment declined temporarily due to the production, delivery, and revenue recognition cycles of orders.

Profitability: The gross margin of equipment improved significantly. In 1H26, the gross margin of energy conversion equipment increased by 5.05 pcts YoY to 29.92%, while the gross margins of industrial services and energy infrastructure operations decreased by 1.36 pcts and 0.81 pct YoY to 27.80% and 13.88%, respectively. Although the revenue contribution from high-margin equipment declined, the improvement in the equipment segment's gross margin and the recovery in industrial services revenue jointly boosted the overall gross margin. This reflected continued improvements in the company's business mix and project quality.

Equipment orders outpace revenue growth, while overseas markets, the chemical sector, and compressed-air energy storage unlock incremental growth

Orders have already shown strong momentum, supporting future earnings realization. In 1H26, the value of sales contracts in overseas markets increased by 95.67% YoY, while the value of sales contracts in the chemicals market rose by 123.46% YoY. Centrifugal compressor orders doubled YoY, and the value of sales contracts in Xinjiang increased severalfold YoY. The company continued to secure first-of-a-kind equipment orders and major project breakthroughs in new markets, including coal-to-ethylene glycol, green hydrogen, ammonia and methanol, nitric acid, butanol and octanol, mechanical vapor recompression, and compressed-air energy storage. In particular, it signed a contract for a 350 MW compressed-air energy storage project under construction at the world's highest altitude, further consolidating its leading position in core compression equipment for long-duration energy storage. Equipment revenue recognition is currently weak, but orders have shown strong momentum, supporting future earnings realization.

The company continues to increase investment in R&D and high-end manufacturing. In 1H26, R&D investment reached RMB184mn, and 53 research projects were initiated; key technological breakthroughs were achieved for the AVH150, the world’s largest axial-flow compressor, while the technology for high-efficiency compressor units used in 300MW-class non-supplementary-fired compressed air energy storage reached an internationally advanced level, with some technologies reaching an internationally leading level. Phase I of the lights-out blade production line entered full operation, shortening the delivery cycle for complete units by more than 15% and potentially further enhancing the delivery capacity for large high-end equipment.

Gas revenue reached a record high for the period, short-term profitability remained under pressure, and specialty gases and capital operations opened up long-term growth potential

The gas business continued to expand. In 1H26, Qinfeng Gas recorded operating revenue of RMB2.258bn, up 2.17% YoY and reaching a record high for the period; net profit was RMB151mn, down 11.01% YoY, while the net margin declined by 0.99 pct YoY to 6.70%. In 1H26, cumulative oxygen and nitrogen supply reached 6.4bn Nm3, up 8.6% YoY; liquid output reached 618,800 tonnes, up 26% YoY.

Specialty gases and capital operations open up long-term growth potential. The company established a specialty gas business division and now has the capacity to produce and sell krypton, xenon, and food-grade nitrogen, while production lines for neon, helium, and high-purity gases are under construction and certification and market development for medical oxygen are advancing, marking the gas business’s expansion from bulk gases into high-value-added specialty gases. Meanwhile, the company plans to acquire the 36.06% equity interest in Qinfeng Gas held by minority shareholders through a share issuance; successful completion of the transaction would help strengthen strategic synergies in the gas business and increase increase the proportion of Qinfeng Gas's earnings attributable to the listed company.

Interim dividends continue, supported by ample cash for shareholder returns

The company plans to distribute an interim cash dividend of RMB0.10 per share for 2026, totaling RMB172mn and representing 52.03% of net profit attributable to shareholders of the parent company in 1H26. As of end-1H26, the company held RMB8.675bn in cash and cash equivalents, indicating that cash reserves remained ample; while balancing project construction and capital operations, the company continued to reward shareholders through interim dividends.

Investment recommendation: We forecast that the company will achieve net profit attributable to shareholders of the parent company of RMB767mn, RMB942mn, and RMB1.121bn in 2026–2028, up 2.50%, 22.83%, and 19.05% YoY, respectively, corresponding to forward P/E ratios of 19.18x, 15.61x, and 13.11x for 2026–2028, respectively. We maintain our “Buy” rating.

Risks:

1) Gas project progress may fall short of expectations

The company's gas operations business has maintained rapid growth in recent years and has a sufficient backlog of contracts. However, if the construction of contracted gas projects falls short of expectations, the conversion of contracts into revenue and earnings from gas operations may also fall short of expectations, thereby affecting the company's overall growth rate.

2) Risk of declining demand from traditional downstream industries

The company's principal downstream markets are traditional industries such as metallurgy and petrochemicals. Due to economic cycles and uncertainties as well as national macroeconomic policy adjustments, the markets for the company's traditional products face slower growth in downstream demand, excess capacity, and slower growth in new investment in major equipment, which may have a certain impact on revenue from the company's traditional businesses.