Note: On January 19, 2018, a news broadcast reported that China's first integrated offshore clean energy supply platform and pool-type low-temperature heating reactor project was launched in Yantai, Shandong. Our review on this is as follows: Comment: Who are the main participants in the project? Three major institutions participated in the signing of the project: China Nuclear Power, Taihai Group, and Yantai Blue Sky Investment. Blue Sky Investment is a state-owned investment company under the Yantai State-owned Assets Administration Commission that is mainly engaged in industrial investment and management, mainly in the fields of energy, finance, transportation, etc. The Taihai Group is the parent company of the listed company Taihai Nuclear Power, and is also the main supplier of nuclear power equipment in Yantai. This project is a strong alliance of industrial giants, local governments, and leading local enterprises. As the only equipment provider among them, Taihai Group is expected to receive significant incremental orders. What are the main elements of the project? The focus of this agreement is to launch China's first integrated offshore clean energy supply platform. The platform is an organic combination of a small nuclear reactor and a ship, and a reduced version of the nuclear power plant will be installed on the ship. The platform can combine water (seawater desalination), electricity (power supply), and heat (heating) from the sea to land and islands. Potential applications include coastal cities, offshore oil and gas extraction platforms, and offshore islands and reefs. The project will use the “Yanlong” pool-type low-temperature heating reactor independently developed by CNNC. A 400MW “Yanlong” reactor has a heating floor area of 20 million square meters, about 200,000 three-bedroom households, and an estimated operating life of 60 years. Compared to coal-fired heating, the cleanness of nuclear energy heating is its most important advantage. The total investment for a “Yanlong” pile is about 1.5 billion yuan. A comprehensive offshore clean energy supply platform is expected to include 2 reactors. What is the significance of the project for nuclear power in the Taiwan Strait? (1) It is expected to receive 1 billion incremental orders. Taihai Nuclear Power is the main undertaker of the parent company Taihai Group's nuclear power business. According to preliminary estimates, a comprehensive offshore clean energy supply platform corresponds to 1 billion nuclear power equipment orders, and Taihai Group, as one of the main participants in the project, is expected to clearly benefit. CNNC has predicted that nearly 20 integrated offshore clean energy supply platforms will be built domestically, and there is huge potential for incremental orders. (2) Realize the business extension logic. We have emphasized many times that the company's growth model is “based on the advantages of alloy materials, continuous development from the three dimensions of product extension, business extension, and market development, and eventually growing into a high-end equipment manufacturer with a diverse layout.” At a time when both onshore nuclear power and specialty products are in a downturn, the company is expected to successfully extend its business to the offshore nuclear power sector, which is expected to grow against the industry cycle. (3) Connect industry giants and local governments to participate in the construction of 100 billion industrial clusters. In the signing of the contract between CNNC and the Yantai government on this project, it was mentioned that “the construction of a national civil-military integration demonstration project in Yantai will help Yantai to build a 100-billion-level industrial cluster for nuclear power equipment.” As the most important nuclear power equipment company in the region, the Taihai Group is expected to benefit deeply. What do you think of the company's future performance? (1) The 2018 results have the potential to explode. The main reason why the company's stock price has been undervalued for a long time is that both the nuclear power equipment industry and the special equipment industry are highly uncertain. However, from another perspective, with both major downstream industries sluggish, the company is still expected to achieve a net profit increase of about 160% in 2017 (the company expects net profit of 1.0-1.05 billion yuan in 2017), and also received 3.65 billion orders in early 2018. If the sentiment of the nuclear power equipment and special equipment industry reverses in 2018, the company's performance has strong potential to explode. (2) The company moved frequently during the downturn in the industry to fully prepare for the recovery of the industry. In November, the company plans to raise no more than 3.95 billion yuan in capital to continue increasing the production capacity of nuclear power equipment and special equipment. At a time of general business setbacks and strategic contraction of competitors, the company not only achieved high growth in performance, but also prepared for industry recovery in terms of capital and production capacity. We expect Taihai Nuclear Power to grow into a new generation of major heavy equipment in the next major industry cycle. Risk factors: Project implementation progress falls short of expectations; nuclear power equipment bidding progress falls short of expectations; product line expansion is blocked. Investment advice: Maintain the 2017/18/19 net profit forecast of 10.1/14.2/1.94 billion yuan, corresponding EPS of 0.97/1.36/1.86 yuan (assuming that the number of additional shares issued is 20% of the original share capital), and PE corresponding to the closing price of 26.45 is 27/19/14 times. It is recommended to give the company a PE valuation of 35 times its 2018 performance, with a target price of 47.7 yuan to maintain the “buy” rating.