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# NARI Technology(600406.SH): Profit Up Only 4% and Cash Flow Down 79% — Yet Orders Surged 28.79%
- URL: https://gawinresearch.com/nari-technology-unpacking-the-gap-1003-en/
- Published: 2026-10-03T05:37:23.000Z
- Updated: 2026-10-03T05:37:23.000Z
- Description: NARI Technology posted 1H2026 profit +4.08% and cash flow -78.95%, sparking peak-growth fears. But new orders +28.79%, overseas +196.61%, and a UHV backlog over RMB 8bn point to an accelerating order book, with storage margins, FX, and impairments compressing profit.
- Author: Gawin
- Tags: Guodian Nari-technology (600406.SH), Unpacking the Gap

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Equity Research — Power Grid Automation / UHV / Overseas Storage | Data as of 1H2026

This report is part of a perception-gap (cognitive-gap) research series. It provides general information and an analytical framework only, and does not constitute investment advice, a solicitation, or an offer to buy or sell any security.  
  
The author and the publisher are not registered investment advisers under the U.S. Investment Advisers Act of 1940, nor are they registered as commodity trading advisors. This communication is intended solely for informational purposes and is directed at sophisticated institutional investors and high-net-worth individuals who are capable of independently evaluating investment risks.  
  
As of the publication date, the author(s) and the publisher do not hold a position in the securities discussed herein, including NARI Technology Co., Ltd. (600406.SH), options, or derivatives. No compensation has been received from the issuer, underwriter, or any third party for the preparation or dissemination of this report.  
  
All financial data and projections are based on publicly available company filings (e.g., annual and interim reports, announcements, investor relations materials) and third-party data providers such as Tencent Stock (westock) and public financial media. Figures are presented in RMB (CNY) unless otherwise noted. Cross-market accounting treatments (e.g., PRC GAAP vs. IFRS vs. US GAAP) may result in material restatements.  
  
Forward-looking statements reflect current expectations and involve known and unknown risks; actual results may differ materially. No guarantee is given that any projection will be realized. This report does not provide price targets or trading triggers.  
  
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## Executive Summary

In summary, NARI Technology Co., Ltd. (600406.SH), the undisputed leader in power grid automation and relay protection and State Grid's core listed platform, delivered 1H2026 net profit growth of only +4.08% y/y and an operating cash flow down 78.95% y/y — prompting market concerns of a "grid-investment dividend peaking" and a "revenue-profit gap."

Notably, however, the same report contained three forward indicators that most observers glossed over: new orders of RMB 45.63bn (+28.79% y/y), overseas revenue of RMB 5.89bn (+196.61% y/y), and a UHV backlog exceeding RMB 8bn.

The profit deceleration is decomposable into three reversible factors — low-margin energy-storage scaling, FX losses of RMB 100-200mn, and credit impairments of RMB 80-90mn — while the order book is in fact accelerating. The income statement is a rear-view mirror; the order book is the windshield. Whether the forward indicators translate into profit remains a point of market divergence, and the ultimate outcome is subject to uncertainty.

## Key Charts & Data

| Metric                                  | 1H2026   | Nature                        |
| --------------------------------------- | -------- | ----------------------------- |
| Revenue                                 | +14.54%  | Steady growth                 |
| Net profit attributable to shareholders | +4.08%   | Compressed by three factors   |
| New orders                              | +28.79%  | Forward momentum accelerating |
| Overseas revenue                        | +196.61% | Second curve surging          |
| Operating cash flow                     | \-78.95% | Higher procurement payments   |

Table 1: Current profit vs. forward orders, 1H2026 (Source: Company filings)

- 1H2026 revenue: RMB 27.77bn (+14.54% y/y)
- 1H2026 net profit attributable to shareholders: RMB 3.07bn (+4.08% y/y)
- 1H2026 new orders: RMB 45.63bn (+28.79% y/y)
- 1H2026 overseas revenue: RMB 5.89bn (+196.61% y/y)
- UHV backlog: over RMB 8bn
- Gross margin: 25.34% (-1.11pct); power-grid-intelligence segment margin: 29.90%
- Operating cash flow: RMB 591mn (-78.95% y/y)

## Detailed Analysis

#### What Is Already Priced In: The Market Consensus

The market has reached broad consensus on three points. First, NARI is the absolute leader in grid dispatch, relay protection, substation automation, and UHV/flexible-DC transmission, holding persistently top-tier State Grid headquarters share. Second, 1H2026 delivered "revenue growth without profit growth" — revenue +14.54% but net profit +4.08%, with operating cash flow down 78.95% and gross margin down 1.11pct. Third, the decelerating profit growth, deteriorating cash flow, and a slight domestic revenue decline (-1.89%) have raised concerns that the grid-investment dividend is receding.

#### The Core Perception Gap

The market broadly assumes that profit growth of +4% and an operating-cash-flow decline of 79% are evidence of a peaking grid-investment dividend. This assessment appears intuitively reasonable, but it conflates "current profit" with "forward orders" — two fundamentally different things.

Three accounts of a different nature explain why profit lagged revenue. First, energy storage is an active, low-margin strategy: the energy & low-carbon segment grew +46.98% on storage scaling, but storage margins of only 15%-20% diluted the blended gross margin (25.34%, -1.11pct) — deliberate positioning in integrated grid-plus-storage, not capability erosion. Second, FX losses are passive and potentially reversible: with overseas revenue surging +196.61%, exchange-rate fluctuations produced roughly RMB 100-200mn of FX losses. Third, credit impairments of roughly RMB 80-90mn are a one-off cost of expanding beyond the grid system.

Meanwhile, the forward indicators are accelerating. New orders of +28.79% provide revenue certainty for the next two to three years; overseas growth of +196.61% opens a second curve; and a UHV backlog exceeding RMB 8bn — with 1H UHV revenue roughly doubling y/y — represents the hardest certainty of the "15th Five-Year" UHV build-out.

There is also a signal that is easy to overlook: a central-SOE subsidiary using real money to express conviction. NARI executed two rounds of buybacks in 2026 and has maintained a 60% dividend payout ratio for three consecutive years, with 1H dividends and buybacks exceeding 40% of net profit. Management does not buy back shares repeatedly, nor hold the payout at 60%, for a company whose growth has peaked.

In other words, NARI's 1H2026 report reflects not "peaked growth" but "current profit temporarily compressed by three reversible factors, with order-book momentum actually accelerating." The income statement is a rear-view mirror; the order book is the windshield — the market stared at the mirror and called a peak while missing the accelerating orders ahead. Whether the forward indicators translate into profit remains a point of market divergence.

> **Key Analytical Takeaway**  
> To distinguish "peaked growth" from "current-period mismatch" when a company grows revenue without growing profit, examine the divergence between current profit and forward orders. If profit growth decelerates while new orders and backlog accelerate, the more likely explanation is current profit compressed by reversible factors rather than peaked growth. The income statement is a rear-view mirror describing what has already happened; the order book is the windshield describing what is yet to come. Any profit depressed by reversible factors must be decomposed before the growth trajectory can be judged.

## Risks & Disclaimers

#### Three Under-Appreciated Risks

1. A sharp operating-cash-flow deterioration. 1H2026 operating cash flow fell 78.95% y/y on higher procurement payments; if the collection cadence stays slow and working-capital absorption rises, whether "high orders" translate into "cash inflows" is a genuine question — orders are on paper, cash is real.
2. Low-margin storage may persist. With storage margins at only 15%-20%, continued scaling under industry price competition would keep diluting overall profitability; whether "trading margin for scale" converts into "margin recovery" is the key variable.
3. Domestic softness and overseas dependency. Domestic revenue edged down 1.89%, with growth almost entirely driven by overseas (+196.61%) and energy & low-carbon (+46.98%). The sustainability of overseas growth, exchange-rate swings, and geopolitical and execution risks of overseas projects all amplify earnings volatility.

> **Key Risks**: Grid-investment shortfalls, a sustained storage price war, overseas operating and geopolitical risks, exchange-rate fluctuations, a continued operating-cash-flow deterioration, and expanding credit impairments could each materially impact results and share price.

#### What to Watch

1. New-order conversion — whether the +28.79% order growth converts into revenue and profit in coming quarters.
2. Storage margin and the reversal of FX/impairment drags — whether the three compression factors reverse, allowing profit growth to reconverge with revenue growth.
3. Operating-cash-flow repair — whether the collection cadence and working-capital management normalize, converting high orders into cash inflows.

## Footnotes

Data sources: Financial data from NARI Technology's annual report (FY2025) and interim report (1H2026); business developments from official company announcements, earnings-call minutes, and publicly available investor relations activity records. All information is compiled from public sources.

**B2a — Data Sources.** This analysis is based on publicly available information from NARI Technology Co., Ltd.'s filings (FY2025 annual report, 2026 interim report, and stock exchange announcements), supplemented by data from Tencent Stock (westock) and public financial media. All figures have been cross-checked against original filings where possible. The author assumes no responsibility for the accuracy of third-party data.  
  
**B2b — Conflicts of Interest & Holdings.** As of the last trading day prior to publication, the author(s) and the publisher do not hold a long or short position in the securities discussed. Neither the author nor the publisher has received any direct or indirect compensation from the issuer, its affiliates, or any underwriter for the production of this report. The publisher does not accept payment for coverage or favorable analysis. If any material conflict arises in the future, it will be prominently disclosed in an updated version of this article.  
  
**B2c — Forward-Looking Statements.** Certain statements constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including but not limited to management guidance, capacity expansion plans, technology adoption timelines, market share projections, and financial targets. Such statements are subject to significant business, economic, regulatory, and competitive uncertainties. Actual outcomes may differ materially. The author and the publisher undertake no obligation to update any forward-looking statement except as required by applicable law.  
  
**B2d — Scenario Valuation Boundaries.** The scenario analysis (base, bull, bear) presented herein is intended solely as an illustrative framework for understanding key value drivers. It does not represent a price target, fair value estimate, or recommendation to buy, sell, or hold any security. Input assumptions — including revenue growth, margin trajectory, discount rate, terminal value, and foreign exchange rates — are inherently uncertain. Small changes in these inputs can produce large variations in output. Investors should conduct their own independent analysis before making any investment decision.  
  
**B2e — Cross-Market & Jurisdictional Notes.** This report discusses securities listed on multiple exchanges (e.g., Shanghai Stock Exchange, Hong Kong Stock Exchange, OTC markets). Differences in listing rules, trading hours, settlement cycles, currency (CNY vs. HKD vs. USD), dividend taxation, short-selling regulations, and stock connect mechanisms may materially affect investment outcomes. For EU/UK readers: this content is classified as "non-independent research" and is provided for professional clients / eligible counterparties only; it does not meet MiFID II independence requirements. For US readers: distributed as a general publication under the publisher's investment-adviser registration exemption; not tailored to any individual's financial situation. Always consult a qualified financial advisor before acting on any information herein.