Key takeaway

The company is a domestic leader in industrial automation instruments and systems, with a comprehensive product portfolio and a solid core customer base. Revenue growth accelerated in 2Q26, while newly signed contracts returned to growth in 1H26. The company achieved breakthroughs in equipment supply, central state-owned enterprise customers, and overseas markets. Gross margin for core instruments increased, and net profit attributable to shareholders of the parent company excluding non-recurring gains and losses maintained growth. The operating quality of the core business improved steadily. Shareholder Yokogawa Electric reduced its stake, while the Industrial Machine Tool Fund participated in the stake transfer. This will help the company optimize its shareholder structure and create opportunities for collaboration in specialized fields and across the industry. It will also further support the domestic substitution of key components, industrial chain coordination, and industry consolidation.

Event

In 1H26, the company recorded revenue of RMB3.418bn, up 4.18% YoY; net profit attributable to shareholders of the parent company of RMB284mn, down 12.60% YoY; and net profit attributable to shareholders of the parent company excluding non-recurring gains and losses of RMB290mn, up 8.10% YoY.

In 2Q26, the company recorded revenue of RMB1.964bn, up 7.13% YoY; net profit attributable to shareholders of the parent company of RMB171mn, down 18.82% YoY; and net profit attributable to shareholders of the parent company excluding non-recurring gains and losses of RMB183mn, up 3.16% YoY.

Quick Take

Revenue growth accelerated in 2Q26, while earnings quality of core instruments improved steadily

Revenue growth accelerated in 2Q26, with rapid growth in the composite materials business. The company's revenue increased by 0.44% YoY in 1Q26 and 7.13% YoY in 2Q26, showing a notable strengthening of growth momentum in the second quarter. Net profit attributable to shareholders of the parent company excluding non-recurring gains and losses increased by 3.16% YoY in 2Q26, and profit from the core business maintained growth. In 1H26, the company's net profit attributable to shareholders of the parent company excluding non-recurring gains and losses increased by 8.10% YoY. The corresponding net margin rose by 0.31 pct YoY to 8.48%, reflecting continued improvement in operating quality. By business segment, industrial automation instruments and systems generated revenue of RMB2.714bn in 1H26, down 5.69% YoY and accounting for 79.40% of total revenue. Electronic information materials and devices generated revenue of RMB673mn, up 77.82% YoY and accounting for 19.68% of total revenue. The composite materials business grew rapidly and made a significant incremental contribution to the company's revenue expansion. As new contract value returns to growth, revenue from core instrumentation is expected to recover gradually as deliveries proceed.

Gross margin declined slightly YoY, while fluctuations in net profit attributable to shareholders of the parent company were mainly driven by changes in the fair value of equity assets. In 1H26, the company's overall gross margin was 33.21%, down 0.66 pct YoY. Gross margin for industrial automation instruments and systems rose by 1.57 pcts YoY to 36.17%, reflecting continuous improvements in product mix, order quality, and cost control; gross margin for electronic information materials and components was 20.35%, while the rapid expansion of this business further diversified the company's growth drivers. In 1H26, the company's total expense ratio declined by 0.97 pct YoY to 23.08%, as expense control and the reversal of share-based payment expenses jointly improved operating efficiency. In 1H26, the company recorded a loss of RMB15.9385mn from changes in fair value, compared with a gain of RMB36.1897mn in the same period last year, representing a YoY decrease of RMB52.1282mn, which exceeded the RMB40.8868mn YoY decrease in net profit attributable to shareholders of the parent company during the same period; net profit attributable to shareholders of the parent company excluding non-recurring gains and losses increased by 8.10% YoY, providing a clearer reflection of the operating performance of the company's core businesses. During the same period, the company's investment income reached RMB43.4435mn, up 4.75% YoY; investment income from associates and joint ventures was RMB38.2926mn, up 15.81% YoY, making a positive contribution to overall profit.

New contract value returns to growth, with multiple breakthroughs in equipment supply, central state-owned enterprise customers, and overseas markets

The company's new contract value increased by 9% YoY in 1H26, a marked improvement from the 9% YoY decline in 1H25. By industry, the chemical sector accounted for 28.4% of orders, broadly unchanged YoY; the equipment manufacturing sector accounted for 27.2%, up 7 pcts YoY; and the metallurgical sector accounted for approximately 12%, broadly unchanged YoY. The equipment supply business grew by more than 20% YoY and accounted for over 20% of total orders; the company's business mix is expanding from project-based operations into the more recurring equipment supply business, which should enhance order stability and customer loyalty. The company achieved notable results in expanding key customer relationships, while its overseas markets maintained rapid growth. By customer, orders from the 13 central state-owned enterprise customers prioritized by the company increased by 24% YoY in 1H26, while orders related to China's three major state-owned oil companies grew by nearly 20% YoY; the company won seven lots under centralized procurement frameworks from customers including PETROCHINA (601857.SH), China Baowu, PipeChina, and CNCEC (601117.SH), further expanding its coverage of leading customers and deepening framework-based cooperation. Recovering demand in coal chemicals, electric power, and other sectors, coupled with the expansion of centrally administered state-owned enterprise customers, supports domestic business growth. In terms of orders: In 1H26, the company’s newly signed overseas orders increased by 26% YoY, of which orders generated alongside domestic EPC contractors' overseas expansion grew by nearly 18% YoY and accounted for 68% of overseas orders; independently secured direct export orders rose by 47.6% YoY, with their share increasing to 32%. Most of the company’s core products have been approved for ADNOC’s vendor list, and the company continues to pursue vendor qualification with engineering companies in Saudi Arabia, Qatar, Europe, and South Korea. As its overseas vendor qualification system gradually improves, the company is expected to accelerate the expansion of its international business from project-led overseas expansion to independent market development. In addition to its traditionally strong industries, the company continues to foster growth drivers across five new fields: Gas, nuclear, computing, environmental protection, and aerospace and marine applications, covering hydrogen energy, specialty gases and air separation; nuclear power and nuclear fusion; data centers; environmental water services and waste-to-energy; and commercial spaceflight, ships, and offshore engineering. Expansion into these new fields is expected to broaden the application scope of high-end instruments and further enhance the company’s medium- to long-term growth potential.

Yokogawa Electric to reduce its stake, with the Industrial Machine Tool Fund to participate in the transfer

Yokogawa Electric to reduce its stake, with the Industrial Machine Tool Fund to participate in the transfer Yokogawa Electric plans to divest its 5.32% stake in the company, of which 5.01% will be transferred to Suzhou Heyi through an agreement, while the remaining 0.31% will be sold through block trades; Suzhou Heyi is jointly funded by Oriza Holdings, the Industrial Machine Tool Industry Investment Fund, and a Suzhou state-owned capital fund. Yokogawa Electric’s stake reduction is primarily driven by Japanese regulatory requirements and is a non-operating decision that will not affect the business cooperation between the two parties or their joint venture relationship in Yokogawa Sichuan Instrument.

This adjustment will help the company optimize its shareholder structure and create opportunities for expansion into specialized fields and industrial synergies. Following Yokogawa Electric’s exit, the company is expected to face fewer restrictions arising from its status as a Sino-foreign joint venture when applying for qualifications in fields such as nuclear power and defense; the Industrial Machine Tool Fund’s participation in the transfer through Suzhou Heyi reflects industrial capital’s recognition of the company’s strategic value. The company is expected to leverage the resources of SINOMACH, Oriza Holdings, and the Industrial Machine Tool Fund to gain further support in the localization of key components, industrial chain collaboration, and industria l consolidation through a “listed company + PE/VC” model.

Investment recommendation: We forecast net profit attributable to shareholders of the parent company of RMB654mn, RMB743mn, and RMB824mn for 2026-2028, up 1.84%, 13.55%, and 10.84% YoY, respectively. This implies forward P/E ratios of 14.56x, 12.82x, and 11.56x for 2026-2028, respectively, and we maintain our “Buy” rating.

Risks:

1) Risk of slowing investment growth in downstream petrochemical industries

The development of the company’s downstream markets, including petrochemicals, is closely linked to macroeconomic conditions. Uncertainty in the global economy is increasing, while China ’s economic development still faces challenges. Some downstream industries face weaker-than-expected demand recovery and insufficient internal growth momentum. Any further material deterioration in the macroeconomic environment could slow investment growth in downstream markets such as petrochemicals, thereby affecting the company’s operating performance.

2) Risk of underwhelming progress in import substitution

In recent years, the company’s earnings growth has outpaced the industry, mainly driven by the shift toward high-end instruments and the domestic substitution trend. As domestic substitution continues, the long-term potential for further localization will gradually narrow. If the company’s progress in domestic substitution falls short of expectations, it may face the risk of declining demand.