WEDGE CORPORATION(000534)：IT TAKES 10 YEARS TO FORGE A PERFECT SWORD：GAS TURBINE + AERO ENGINE BLADES ARE ABOUT TO SEE A DEMAND SURGE

Key takeaway:

The surge in AI-driven power demand in North America has triggered a once-in-30-years global order cycle for gas turbines. The technical barriers for hot gas path blades are extremely high, with supply monopolized by a few overseas industry leaders. However, their capex growth is slow with cautious approach to capacity expansion, making hot gas path blades the core bottleneck in gas turbine supply and capacity expansion. After ten years of technological accumulation, the company has overcome bottleneck processes such as single crystal blade manufacturing, integrated into the supply chains of leading overseas companies such as Siemens Energy and secured long-term agreements, achieving mass production and supply in a high-barrier industry. From a mid-term perspective, the company leverages domestic equipment to overcome overseas supply constraints, and plans to increase yield to achieve an output value of RMB5bn by 2030. Supported by certifications and orders from multiple core customers across various aircraft models, the company is well-positioned to effectively absorb its planned capacity expansion. From a long-term perspective, benchmarked against the global leader HWM, the company’s 2030 target of RMB5bn in output value is only about 8% of its estimated blade revenue, far from reaching the industry ceiling, leaving ample room for long-term growth.

Key Point 1: The company has spent ten years honing its expertise, advancing the certification and introduction of hot gas path blades for leading domestic and international gas turbine manufacturers. In the current once-in-thirty-years global gas turbine demand cycle, it is expected to see a large influx of orders.

1. The company achieved a technological breakthrough in hot gas path turbine blades, successfully entering the high-barrier gas turbine supply chain.

The hot gas path blades of a gas turbine are the core hot gas path components with the highest technical barriers and the greatest added value in a gas turbine. Their manufacturing involves extremely complex processes such as high-temperature alloy materials, precision casting, and directional solidification, with a very high threshold. About 70% of global blade supply has long been dominated by two U.S. giants, PCC and HWM. In 2014, the company achieved a technological breakthrough by introducing technical personnel with overseas R&D experience, successfully entering the supply chain of leading overseas equipment manufacturers.

2. Along with this gas turbine cycle, blades have become the bottleneck for gas turbine supply and overall capacity expansion . This historic opportunity will help the company secure mass production orders.

Considering the visibility and sustainability of North American AI demand, 2025 orders have already approached the peak levels seen in 2000. We believe that global gas turbine orders still have upward momentum in 2026 and could rise above 100 GW. By 1H/late 2026, we estimate that global gas turbine production scheduling will extend to 2029/2030, with relatively high visibility.

The urgent need to expand capacity across the industry chain opens a window for the integration of domestically manufactured blades: Since 4Q25, leading gas turbine companies’ capacity expansion plans have been implemented. This year’s surge in orders continues to drive Mitsubishi and Siemens to ramp up capacity. Upstream component demand is still growing, while PCC and HWM’s latest capex growth rates are centered at 5% and 3.75%, far lower than the more than 75% YoY growth of global orders in 2025. Blade demand is spilling over to domestic suppliers.

Key Point 2: The source of the companys valuation gap lies in: capacity expansion exceeding expectations, effective absorption of new capacity through multi-customer and multi-model certifications in both gas turbines and aero-engines, and a high industry ceiling that supports long-term growth.

Expectation gap 1. Based on domestic equipment and yield improvement, the company’s new capacity from 2025–2026 with a CAGR of 33% can support a total capacity of RMB5bn by 2030, with shipment CAGR expected to exceed 65%.

Domestic equipment: By relying on domestically produced single-crystal furnaces, the company can effectively expand capacity, overcoming the limitations imposed by imported equipment, both in terms of long lead times and insufficient supply.

Yield improvement: Currently, domestic companies’ blade production yield is about 50–60%, significantly lower than the over 85% level achieved by leading overseas companies. We expect that through technological iteration and as existing products move from small-batch to mass production, the yield is likely to gradually increase to 80%.

Production capacity: Based on the company’s current output of RMB1.2bn, we estimate that with yield improvement and the addition of domestically produced equipment, it will achieve a total output of RMB5bn by 2030. The production capacity CAGR from 2025 to 2030 is projected to be around 33%.

Shipment: We estimate the capacity utilization rate in 2025 is about 30–35%. Assuming the company achieves full capacity utilization and full sales by 2030, the implied CAGR in shipments would be c. 65-70%, significantly higher than the growth rate of its production capacity. Expectation gap 2: Key customer certifications are progressing in an orderly manner, and order growth has high visibility.

Gas turbine: The company has secured orders for certain series of Siemens Energy products; certification with Ansaldo is progressi ng rapidly, with completion expected in the 2H25 and orders secured for 2027; the company has entered the post-repair market for turbine blades and plans to build a factory in Saudi Arabia.

Aero engines: In terms of domestic commercial aviation engine, we expect the company’s order volume to double in 2026, and capacity expansion in 2028 may bring order demand of RMB1–1.5bn.

Expectation gap 3: The 2030 capacity plan is merely a starting point. The industry ceiling is high, positioning the company for substantial longterm growth.

Benchmarking against the global blade leader Howmet Aerospace, even if WEDGE CORPORATION (000534.SZ) achieves an output value of 5 billion yuan in 2030, it would only be about 8% of HWM’s estimated blade revenue at that time. Considering the price differences between domestic and international products, the proportion would still be only around 16%. The company has broad long-term growth potential, and its current plan is far from hitting the industry ceiling.

    Profit Forecast:

The company is expected to achieve operating revenues of RMB1.321bn, RMB1.691bn, and RMB2.191bn in 2025, 2026, and 2027, respectively, and net profits attributable to the parent company of RMB239mn, RMB397mn, and RMB501mn, respectively; implying P/E ratios of 83x, 50x, and 40x. With gas turbine orders booked out through 2028, and based on the current pace of order intake, we expect major gas turbine OEMs to sell out their 2029 and 2030 capacity by 1H2026 and end of 2026, respectively. This implies high visibility for gas turbine orders extending through 2030 by 2026. Considering the companys estimated shipment CAGR of c. 65-70% from 2025 to 2030, we initiate coverage on the company with a "Buy" rating.

    Risks

1) Demand: Changes in national infrastructure policies may make power supply investment scale fall short of expectations; power grid investment scale falls short of expectations; data center capex falls short of expectations.

2) Supply: Commodities prices of such as copper and steel rise; the supply of power electronic components is tight, affecting the pace of infrastructure construction. We assume that the pharmaceutical sector’s profits remain stable, while the high-temperature alloy business sees a profit decline of 1–5 pcts due to rising supply-side costs. The impact on the company’s performance is estimated at RMB4mn–RMB54mn for 2025–2027.

3) Policy: The support for the new power market is less than expected; the pace of infrastructure construction is slower than expected.

4) International situation: The energy crisis eases quickly, energy prices falls quickly; international trade barriers deepen.

5) Market: Significant changes in the competitive landscape; intensified competition leading to lower-than-expected profitability across various segments of power equipment; rising costs for transportation and other expenses.