Power equipment industry will continue to grow rapidly in the second half of the year

We are firmly of the power equipment especially new energy equipment industry long-term bullish. The new energy equipment industry complies with the national energy conservation and environmental protection policy. On the one hand, with the launch of China's emerging energy planning and the Twelfth Five-Year Plan in the second half of the year, there are trading opportunities on the whole; on the other hand, we have summarized the data of the power equipment industry in the first half of the year and we can also see that the industry as a whole remains In the boom cycle.

Maintain the economy

The revenue and profit growth rate of power generation equipment is accelerating. With the thermal power equipment industry bottoming out, the wind power equipment competition pattern becoming more and more stable, and the profitability of nuclear power equipment industry improving, the gross profit margin level has returned to normal level, and it is expected to be 2 to 3 years in the future. The power generation equipment industry will maintain its economy.

Companies in the field of power equipment are relatively different and have low homogeneity. However, the high growth rate of revenue and profits still reflects the promotion of the national energy-saving and emission-reduction policies on the development of the industry. It is expected that the government will promote energy conservation, emission reduction and environmental protection policies in the future. Continued intensive introduction will make this section more attractive.

Transmission and transformation equipment : Under the promotion of smart grid construction and economic recovery, the overall power transmission equipment industry revenue and profit growth are good, and secondary equipment is better than primary equipment. The revision of the smart meter bidding rules will help the meter industry maintain a stable profitability. Since 2009, the first batch of smart meter bidding, Business Standard Rules transition from "get out of the lowest" to "secondary price less all get out," and then transition to the "second average out, up and down price Are deducted points. " From this change trajectory, we can see that in order to maintain the stability of product quality and delivery, the bidding rules have been gradually rationalized, which is beneficial to the industry leaders with advantages in product technology and production capacity, and it also helps the meter industry to maintain stable profitability. At the level, we believe that the future gross profit margin of the smart meter industry will stabilize at a reasonable level of 25-30% .

Increased demand

Grid investment continues to recover. From January to July , with more 220kv and 500kv tenders, as well as the advancement of urban and rural distribution grids, the monthly average investment in grids has further increased. We have noticed that the monthly average investment of the power supply end has exceeded the level of 2009. With the investment in power supply, it is expected that the average monthly investment of the power grid will reach 23 billion yuan.

In the first half of the year, the high growth rate of the industry's mid-year report was mainly due to the low base of last year, and it is expected that the high growth will continue in the third quarter. In the first half of this year, the overall income growth of the industry has reached more than 20% , which is significantly higher than the same period of last year. From the perspective of sub-sectors, the performance of the power generation industry and the electricity industry was in line with expectations, and due to the drop in grid investment, the performance of the power transmission and transformation industry was lower than expected. We believe that due to the greater impact of the financial crisis, the overall industry revenue in the same period last year was relatively low. Therefore, the high growth rate in the first half of this year was mainly due to the low base.

The investment structure of the power supply is further optimized, and the construction of the “ Twelfth Five-Year Plan” for hydropower will enter a new round of climax. It can be seen that under the stimulation of a large increase in electricity consumption, new power supply construction has returned to normal levels, and the structure has been further optimized. The proportion of newly added wind power has reached 10.1% . Although the installed capacity of hydropower has decreased, we believe there are two main reasons: First, in the first half of 2010 , the climate was abnormal, and droughts, floods, and debris flows frequently occurred in the southwestern region where hydropower construction was concentrated, affecting hydropower construction to some extent; 2. Currently, hydropower installations that are put into operation are mostly planned or built earlier last year . During the “ Eleventh Five-Year Plan” period, hydropower construction was basically stagnant due to various factors such as environmental impact assessment. In the future, the construction of clean energy in the country is still a very important part of hydropower. The recent approval of hydropower projects has already shown positive signs. During the “ 12th Five-Year Plan” period, hydropower construction is expected to usher in a new round of climax.

We expect the performance of the power equipment industry will continue to grow at a high rate in the second half of the year when power grid investment recovery, smart grid construction start-up, and demand for power equipment increase.

Investment Advice

In terms of investment in each sector, our views are as follows:

New Energy : Grasp the structural opportunities of the industry, closely follow the progress of technology and reduce the cost, and look for wind power and nuclear power main equipment manufacturers and auxiliary accessories suppliers with potential for import substitution in solar energy, such as Dongfang Electric, Haitong Group, and Dongshan Precision.
Smart Grid: Different from the middle of the year, in addition to continuing to look at secondary equipment in the near future, we also believe that there is a trading opportunity for equipment in the second half of the year. We are optimistic about the related companies in the areas of flexible transmission, power grid monitoring, smart substations, and smart power applications. We will focus on the Rongxin Group, Kelu Electronics, State Power Nanrui, and TBEA.

Energy-saving and environmental protection: The energy-saving and environmental protection plan will provide sufficient power for the development of the industry. The promising sub-sectors include frequency conversion, reactive power compensation, waste heat boilers, and the denitrification industry of thermal power units. The focus is on Inventronics, Rongxin Group, Zhiguang Electric and Longyuan Technology.

In general, we believe that smart grids, emerging energy and new energy vehicles will remain the hot spots of the market. In addition, the recovery of grid investment in the second half of the year will bring transactional opportunities to the primary equipment manufacturers. Based on policy support, industry development, and company valuation considerations, we recommend focusing on: Dongfang Electric, Haitong Group, Dongshan Precision, Rongxin, Kelu Electronics, NARI, TBEA, Inventronics, Zhiguang Electric, Longyuan technology.