Priced for Fear, Built for Growth

Research evidence excerpt

Priced for Fear, Built for Growth

mean? Maschinenfabrik Reinhausen ModelWare net inc 709.7 785.3 938.9 1,110.4

(Rmb mn)

(MR), Huaming's key competitor with 50% global market share, plans to double P/E 31.7 22.7 19.0 16.0

production capacity by 2028-30. The market believes this will intensify competition, P/BV 7.1 5.3 4.8 4.4

RNOA (%) 29.4 28.2 28.0 31.2

but we think it may also indicate unexpected TAM expansion, for which we see some ROE (%) 22.4 25.0 27.8 30.1

clues from the recent EU Electricfication Action Plan. EU targets an electrification EV/EBITDA 25.8 18.7 15.8 13.3

Div yld (%) 2.2 3.1 3.5 4.2

rate of 46% by 2040, compared to a stagnant 23% over the past decade. This FCF yld ratio (%)** 2.1 3.5 4.0 4.8

should come with more renewable and EV adoption, making installation of low-to- Leverage (EOP) (%) (27.5) (17.2) (19.1) (21.1)

medium voltage tap changers in the distribution networks more imminent to secure Unlessframeworkotherwise noted, all metrics are based on Morgan Stanley ModelWare

grid stability, and thus creating a greater TAM than the current >35kV tap changer §**==ConsensusBased on consensusdata is providedmethodologyby Refinitiv Estimates

market. e = Morgan Stanley Research estimates

Has Huaming changed its overseas strategy? We reiterate our bullish view on

Huaming's overseas expansion, which is not driven by shortages but rather cost

attractiveness and customers' improved willingness to diversify the supply chain,

especially against a backdrop of China's transformer exports. US business

development is subject to product testing, which we view as a catalyst for 4Q26.

Morgan Stanley does and seeks to do business with

We expect Huaming's power equipment export revenue to increase at a ~30% CAGR companies covered in Morgan Stanley Research. As a result,