Huaming is a top-three global player and China’s sole independent manufacturer of tap changers – the “heart” of power transformers. Compared with its downstream transformer manufacturing, tap changer features higher entry barriers and a significantly more consolidated market, with a global CR3 exceeding 80%. Driven by these three long-term positives, we expect Huaming’ EPS to grow at 16% CAGR in 2026-2028E.
Capturing Global Electrification and Gird Replacement Tailwinds
We expect the current global power transformer supercycle to persist beyond 2030, driven by the convergence of three structural tailwinds: 1) Europe and US grid obsolescence, 2) US manufacturing reshoring, 3) hyperscale AIDC boom. As the vital voltage-regulating component and sole moving part in power transformers, on-load tap changer (OLTC) typically accounts 10% of the transformer BOM. Customers have high requirements for product stability and safety, therefore company enjoys high profitability.
Grid Volatility Multiplier: Renewables Require 2x More Tap Changers
Renewable generation is inherently more volatile, intermittent and geographically fragmented than traditional thermal and nuclear power. This requires 2x~3x more step-up substations and transformer capacity per unit of generation. Transformers also need to regulate output far more frequently to buffer rapid fluctuations in wind and solar output. As a result, the extra stress accelerate tap changer maintenance and transformer replacement.
Dual-Engine Share Expansion: Direct OEM Penetration Meets China Transformer Export Momentum
We forecast Huaming’s global market share to steadily increase from 19% in 2025 to 25% in 2030, driven by 1) direct penetration across global transformer OEMs, 2) indirect market share gain through China’s major power transformer manufacturers.
Attractive Valuation: P/E multiple back to historical average with improved growth profile and new upside catalyst
Our TP of RMB25.46 implies a 2027 P/E of 24x. We expect strong overseas growth over the long run as company’s overseas capacity expansion and client verification begins to pay off. Backed by high-quality, seasoned management, the company deserves a valuation premium over its peers.