The construction of a new power system promotes a high level of power grid investment: during the 14th five-year Plan, 670 billion yuan will be invested in power grid construction, an increase of more than 30 percent over the 13th five-year Plan period, of which 320 billion yuan will be spent on distribution network investment. National Power Grid proposed to invest US $350 billion to build a new power system during the 14th five-year Plan. We believe that investment will show the characteristics of structural growth, focusing on UHV, smart substations, distribution network upgrading, power grid energy conservation and other directions. The company continues to take root in the early stage, constantly tamp the foundation, and form a complete industrial chain covering switches, combined electrical appliances, distribution network equipment and EPC, which will achieve rapid development under the high boom of power grid investment.
The company is the national manufacturing champion of isolation switch grounding switch products. The company has been rooted in the product field of isolation switch and grounding switch for more than 20 years, and the product forms the coverage from medium voltage to UHV full voltage level, which provides products and services for almost all UHV engineering projects in China. Isolation switch grounding switch products are recognized as "national manufacturing single champion" by the Ministry of Industry and Information Technology. Under the new power system, UHV construction continues to advance, and the company is expected to have a solid share in UHV bidding.
Layout combination of electrical products rapid volume, product iterative upgrade contribution growth. Combined electrical apparatus (GIS) has the advantages of high reliability, low maintenance and small footprint, so it is replacing the traditional open switch. The company already has a combination of 110kV and 220kV electrical products, which has become the largest contributor to the company's revenue in 2020. The new product 550kVGIS is expected to complete the type test next year and launch in the second half of next year. The company is building a new GIS production plant, and it is also one of the private offering projects of the company this year. After completion, it is expected to reach a production capacity of 2.5 billion yuan.
With the gradual expansion of EPC projects, new energy projects are expected to become an important performance growth point of the company. The company has one of the few private Class A qualified design institutes in China, which can widely participate in the bidding of provincial power companies all over the country; at the same time, the company has the experience and ability of development, construction, operation and maintenance of new energy projects. it also has the ability to supply electrical equipment in the development of new energy projects. Under the dual-carbon goal, we believe that the company will accelerate the development model of new energy projects and look for power plant operators to jointly promote the development of new energy projects by taking advantage of channels, design and building capacity.
The distribution network equipment layout is comprehensive, and it is expected that the distribution network construction will continue to benefit. In terms of distribution network, the company already has vacuum circuit breakers, high voltage switchgear, high voltage ring network cabinets, box-type substations and other products, as well as 12kV amorphous alloy transformers, primary and secondary fusion column vacuum circuit breakers and other new products. The company not only continues to attach importance to the recruitment orders of the two networks, but also strengthens the construction of the sales team and strengthens the development of the secondary and tertiary markets. in the future, with the sinking of the sales channel, the distribution network business is expected to achieve high growth.
Profit forecast: during the 14th five-year Plan period, the power grid investment was booming, and the company laid out ahead of schedule to carry out technical iterations on the products, and it is expected that the capacity expansion projects of 550kVGIS products and combined electrical appliances will be launched next year; at the same time, the company will carry out channel reform, and the revenue of new energy EPC projects and distribution network equipment will also begin to show a high growth trend in 2020. From 2021 to 2023, we estimate that the operating income of the company will be 2.013 billion yuan, 2.49 billion yuan and 2.98 billion yuan respectively, and the net profit will be 279 million yuan, 357 million yuan and 474 million yuan respectively, and the corresponding EPS will be 0.45,0.58,0.77 respectively. The PE multiple of the corresponding stock price will be 23x, 18x and 14x, maintaining the buy rating of the company.
Risk tips: power grid investment is not as expected, price war, rising prices of raw materials, systemic risk.