Chapter 2

The Grid Franchise

TBEA's polysilicon subsidiary earned almost nothing in FY2025. The company still made ¥6.0bn because a second business kept working underneath it: the power-transmission franchise — transformers, cables and turnkey grid projects. That franchise nearly doubled its revenue over four years, widened its margin while polysilicon collapsed, and, with the coal-and-power engine, supplied roughly four-fifths of group gross profit. Its durability is the reason the down-cycle is survivable — and where a buyer's due diligence should start.

Two engines carried the year

In FY2025 the group's ¥18.4bn of gross profit came from almost everywhere except the business that once defined it. The transmission-and-distribution franchise and the coal-and-power engine together produced about ¥15.1bn — 82% of the total — while new energy, mostly polysilicon, contributed ¥0.08bn, or four-tenths of one percent.

Source: FY2025 Annual Report, main-business segment table (revenue × segment gross margin) [1]; group gross profit per reported financials.

The point is not that polysilicon is small — its ¥13.6bn of revenue is a fifth of the top line. The point is that at a 0.59% gross margin it converts almost none of that revenue into profit, so the earnings the group actually keeps are made elsewhere. The Grid and Polysilicon chapter established the collapse; the question that follows is whether the businesses absorbing it are worth owning. For the grid franchise, the four-year record answers most of it.

A core that grew while the cycle broke

The transformer line — reported as "transformer products" through FY2023 and as the slightly broader "electrical equipment" from FY2024 — grew revenue in every one of the last four years, from ¥13.5bn in FY2022 to ¥26.8bn in FY2025 [2]. Over the same window its gross margin recovered from 15.9% to 19.8% [3]. That is the mirror image of the new-energy line, which went the other way to 0.59% over the same three years.

Source: FY2021–FY2025 Annual Reports, main-business product tables [4] [5] [6] [7] [8].

Source: FY2021–FY2025 Annual Reports, main-business product tables (as above) [9].

The demand behind the growth is visible in the order book. Domestic grid contract signings rose from about ¥26.6bn in FY2021 to ¥40.5bn in FY2023 to ¥56.2bn in FY2025 — the last figure up 14.5% year-on-year, which implies roughly ¥49bn of signings in FY2024 [10] [11] [12].

Source: FY2021, FY2023 and FY2025 Annual Reports, management-discussion domestic-market sections [13] [14] [15]. FY2024 (~¥49bn) derived from the disclosed FY2025 growth rate; the FY2024 report's printed figure appears mis-scanned.

This is not a company-specific miracle so much as a company well-placed in a rising tide. China's grid construction investment reached ¥639.5bn in FY2025, up 5.1%, with ultra-high-voltage (UHV) direct-current project investment alone up 25.7% as wind-and-solar mega-bases in the west need long-distance transmission to demand centres in the east [16]. Global transformer prices have risen 40–60% since early 2022 on tight capacity and extended lead times (industry research), which helps explain how TBEA lifted margin and volume at once rather than trading one for the other.

The moat: scale and UHV, not the fattest margins

TBEA's advantage in transmission is real, but it is a scale-and-capability advantage, not a pricing one. Its electrical-equipment line alone booked ¥26.8bn of revenue in FY2025 — more than the entire turnover of China XD Electric (¥23.8bn) or Sieyuan Electric (¥21.5bn), the two nearest listed grid-equipment peers [17]. Add cables (¥15.6bn) and turnkey grid engineering (¥4.9bn) and the franchise is close to half of group revenue. It ranks first in China's electrical-industry Top 100 and runs three overseas manufacturing bases [18]; its annual transformer output, reported by the company at roughly 240 million kVA, is among the largest of any single maker.

Capability shows up in the products it is first to build: TBEA has developed China's ±1100kV UHV DC converter transformer and ±800kV flexible-DC converter valve as domestic first-of-kind equipment, backed by ¥4.79bn of research spending in FY2025 — 4.92% of revenue [19] [20]. In FY2025 it won the sending- and receiving-end converter stations for the State Grid and China Southern Grid Tibet–Guangdong DC line, a marker of standing at the top voltage classes where the field of qualified suppliers is smallest [21].

What the scale does not buy is superior profitability. TBEA's electrical-equipment gross margin of 19.8% sits below all three focused peers — and well below Sieyuan, which earns a 30.8% gross margin and a 14.6% net margin, roughly double TBEA's group-level returns.

Sources: TBEA electrical-equipment segment, FY2025 Annual Report [22]; peer figures derived from reported financials (China XD 601179, Pinggao 600312, Sieyuan 002028, FY2025). TBEA's is a segment gross margin; peer figures are company-level, so the comparison is directional. TBEA net margin is not shown at segment level.

Two things pull TBEA's blended franchise margin down. Cables — ¥15.6bn of revenue at an 8.3% gross margin — are a largely commodity product bundled into the franchise total [23]. And Sieyuan's mix skews to higher-value switching, monitoring and reactive-power gear where specification, not tonnage, sets the price. The honest read: TBEA is the volume and UHV-capability leader of Chinese grid equipment, and a beneficiary of a genuine multi-year buildout, but a focused competitor can and does earn more per yuan of sales. Scale is the moat here; margin premium is not.

The export leg is bigger than it looks

The part of the franchise least visible from the headline numbers is international. Overseas revenue doubled from ¥6.3bn in FY2022 to ¥12.7bn in FY2025, at gross margins in the mid-teens comparable to the domestic book [24] [25].

Source: FY2022 and FY2025 Annual Reports, main-business geographic tables [26] [27].

Behind that revenue is a turnkey engineering business — substations, transmission lines and power plants built as complete projects across Asia, Africa and the Middle East. TBEA signed roughly US$2.0bn of international orders in FY2025 and reported an international turnkey backlog — contracts in execution but not yet recognised, plus contracts still to be performed — of over US$5.0bn [28]. The scale of the footprint is easy to underappreciate: the FY2024 accounts carry foreign-currency working-capital balances in dozens of currencies — from Indian rupee and Pakistani rupee to a long tail of African and Central Asian units — evidence of a genuinely global project book rather than opportunistic exports [29]. That book is a real asset; it also carries the receivable and country risk that comes with building in frontier markets, which a later chapter on working capital should size.

What would change this read

The bull case for owning TBEA through the polysilicon trough leans on this franchise being durable, and the evidence supports that: rising revenue, recovering margin, a growing order book, and a demand backdrop — grid electrification and UHV — with years to run. The read would weaken on three fronts, each checkable in future filings: domestic signings turning down (they have compounded, but China grid capex is policy-set, not contracted), the margin gap to focused peers widening rather than closing, or the international backlog converting into impairments and slow-paying receivables instead of cash. None of those is visible yet. The franchise is doing the job the thesis needs it to do.