China Galaxy Securities said that domestic power grid investment is expected to maintain moderate growth throughout the year, and UHV and power grid digital intelligence are expected to welcome a high increase in structured investment. Investment in overseas power grids is expected to accelerate, and the overseas market for intelligent distribution of electricity is broad.
The Zhitong Finance App learned that China Galaxy Securities released a research report saying that on the evening of April 10, Pinggao Electric, China Xidian, Huaming Equipment, and Xu JiElectric disclosed their 2023 results. Revenue increased 19%, 12%, 15%, and 14%, respectively, higher than the growth rate of power grid investment by 5%. After deducting non-net profit, the year-on-year increase was 304%, 142%, 46%, and 22%, respectively, far higher than the revenue growth rate. According to China Galaxy Securities, the increase in revenue was mainly due to steady growth in online business, delays in delivery of some orders in '22, delivery delays for 23 years, off-grid new energy and other businesses and overseas revenue volumes. The increase in net profit was due to product structure optimization, good cost control, and falling prices of bulk raw materials.
Looking at the whole year, domestic power grid investment is expected to maintain moderate growth, and UHV and grid digital intelligence are expected to welcome a high increase in structural investment. Investment in overseas power grids is expected to accelerate, and the overseas market for intelligent distribution of electricity is broad.
Incident: On April 11, 801738SL in the power grid sector surged 3.2%; China Xidian and Xuji Electric rose 10.04% and 8.52% respectively; Huaming Equipment, Jinpan Technology, Pinggao Electric, Siyuan Electric, Sifang Co., Ltd., Samsung Healthcare, and Haixing Electric surged more than 6%.
The main views of China Galaxy Securities are as follows:
UHV continues to be booming; the 2024 government work report calls for strengthening the construction of large-scale wind power photovoltaic bases and delivery channels
The State Grid 2024 Work Conference proposed building a strong digital power grid, UHV and UHV backbone networks as an important foundation. In 2023, 4 UHVDC projects were started, the highest value in history. According to China Galaxy Securities, the policy guidelines are clear. Demand for new energy consumption is increasing, and it is expected that 4 or 4 DC UHV projects will be approved to start in 2024/2025; in addition, recent ocean winds have continued to catalyze, and the trend is clear. It is estimated that the total investment of Ru Zhi will reach 100 billion yuan during 2024-2025, and the investment in converter valves may be 60.3 billion/14.6 billion yuan.
Smart meters enjoy double dividends at home and abroad
Smart meter stations in the State Grid market are scattered. Xu Ji Electric, Guodian Nanrui, Samsung Healthcare, Haixing Electric, Weisheng, Linyang Energy, and Dongfang Electronics maintain the top 10 positions all year round, and their market share has stabilized at 2%-4%. We believe that the total number of tenders for State Grid electricity meters in 2024 is expected to reach 90 million to 100 million, and the tender amount is expected to exceed 25 billion yuan, an increase of 32% over the previous year. Domestic meters will reach a new peak in 2024-2025. China's electricity meter export market has reached 10 billion yuan, with a CAGR of 13.8% in 2013-2023. Asia, Africa and Europe are the main export markets for smart meters in China. According to MordorIntelligence data, the global smart meter market is expected to grow from 162 million units in 2024 to 236 million units in 2029, with a CAGR of 7.8% in 2024-2029.
Digitally intelligent and strong power grids nurture the blue ocean market
Digital technology is deeply empowering to help upgrade and transform the energy system. The smart energy internet is an important infrastructure for the digital economy. The energy internet upgrade leverages trillion-dollar infrastructure investment, and smart device upgrades have great potential. Strong digital intelligence power grids enhance interconnection and holographic sensing capabilities, and accelerate the digitization process of transmission networks in terms of state perception, diagnosis, and inspection. Due to the high certainty of downstream capital expenditure, the power equipment industry's performance delivery rate is high, and the investment value is outstanding. As new technologies such as big data, cloud computing, the Internet of Things, blockchain, and AI advance by leaps and bounds, digital technologies such as digital twins, machine learning, and blockchain have been commonly applied to China's power system. Strong digital grids have taken advantage of the trend of digitization of information, and “small but beautiful” blue ocean markets have emerged in some segments, such as virtual power plants, power forecasting, and digital twins.
Investment advice: Domestic and overseas power grid construction is booming, and it is recommended to grasp the three major areas of benefit
1) UHVDC is the basic market for grid investment, and the trend is clear. The focus is on Guodian Nanrui (600406.SH), Xuji Electric (000400.SZ), China Xidian (601179.SH), Pinggao Electric (600312.SH), TBEA (), and Sifang (US). 600089.SH 601126.SH
2) Smart meters enjoy double dividends at home and abroad. The focus is on Haixing Electric Power (603556.SH), Samsung Healthcare (601567.SH), Xu Ji Electric (000400.SZ), and Guodian Nanrui (600406.SH).
3) Strong digital intelligence power grids have sprung up a “small but beautiful” blue ocean market in some segments, such as virtual power plants, power forecasting, digital twins, etc. It is recommended to focus on Guodian Nanrui (600406.SH), State Grid ICT 600131.SH (), Dongfang Electronics (000682.SZ), and Jinzhi Technology (002090.SZ).
Risk warning: Risk of grid construction falling short of expectations; risk of declining profitability due to increased competition in the industry.