China Power Equipment: Downgrading the sector on trade concerns and looser supply

UBS downgrades the China Power Equipment sector on trade concerns and looser supply, cutting 2026-28E earnings by 3-66% and price targets by 38-67% across the sector. The sector has fallen 30-50% from this year's highs, driven by positioning as the short leg of the AI trade and by fundamentals, as the global transformer and gas turbine shortage has eased faster than expected. Exporters face share and margin pressure from 2028-29E on more Western capacity and rising EU procurement/trade risk (China's share of EU liquid transformer supply could approach the 40-50% restriction threshold by 2028-29E). Domestically, the sudden grid capex slowdown is a concern, but coal-fired equipment demand could hold up better than the market fears, with around 50GW a year expected in 2026-30E. UBS downgrades Sieyuan, Huaming, Yingliu, Sanxing and Willfar from Buy to Neutral; keeps Buy on Harbin, Dongfang and NARI;