Investment logic

Fundamentals: Deeply cultivate new energy and new infrastructure transformation links, and accelerate the expansion of multiple scenarios.

The company's predecessor was founded in 2015. Its products cover the three major sectors of box transformers, complete equipment, and transformers. It has established long-term cooperative relationships with major customers such as Big Five and Six Elementary Schools, Guonan Network, two major EPC units, communication operators, and energy service providers. In '23, the company issued 78.05 million shares at a price of 38.1 yuan/share, raising a total capital of 2.98 billion yuan for power transmission and distribution R&D, manufacturing projects, production and construction projects of 20,000 sets of complete switchgear, etc. Benefiting from the boom in new energy and new infrastructure, we achieved net profit of 500 million yuan to mother in '23, +89% over the same period last year.

Recommended logic 1: The downstream capacity of wind and solar storage continues to expand, and new demand creates a new growth pole.

23 percent of revenue came from new energy sources, of which 42%/28%/14% came from photovoltaic/wind power/energy storage. 1) Sea breeze: The installed capacity is highly deterministic, and the project reserves are sufficient. It is predicted that 13/24 GW of new installed capacity will be added in 24/25, +78% compared to the same period last year. 2) Photovoltaics: Domestic reserve projects are sufficient, and various regions are taking a multi-pronged approach with large-scale storage allocation and market-based expansion, and consumption improvement flexibility is high. It is expected that 270/330 GW of new domestic installed capacity will be added in 24/25, +25%/22% compared to the same period last year. 3) Energy storage: Under consumption pressure, the storage ratio is expected to increase. The installed capacity is expected to reach 41.4 GW/95.2 GWh in 24, almost double the previous year. 4) Data center: Entering a new stage of development, the domestic scale is expected to be 304.8 billion yuan in 24 years, +27% over the same period. The company has established stable cooperative relationships with well-known customers.

Recommended logic 2: Expand the product to higher voltage levels, and Sea Breeze and Sea Light contribute new growth points.

The company has developed 66kV step-up transformers and 72.5kV gas-insulated switchgear. In addition, high-voltage main transformer products such as 110/220kV and 110kV voltage level GIS have been shipped in small quantities, and GIS with a voltage rating of 252kV has also begun to be put on the market. The company has launched a booster system solution suitable for Haiguang and won the bid for the world's first high-capacity Haiguang project.

Recommended logic 3: Going overseas for power equipment has ushered in opportunities, and domestic main distribution network tenders are expected to break through.

1) Going overseas: There is a tight balance between global transformer supply and demand, and the export of transformers is rising. In January-January '24, China's transformer exports reached US$830 million, +27% over the same period. The company will accelerate overseas business expansion. 2) Domestic grid investment is expected to remain high in 24-25. The CAGR is about 5-7%. Demand for main grid expansion and upgrade and distribution network transformation continues to be released, and the company's 110kVGIS products and 220kV to 500kV booster station main transformers are expected to achieve breakthroughs.

Profit forecasts, valuations, and ratings

Expected 24-26 revenue of 64.1/83.8/10.95 billion yuan, +30%/31% YoY, net profit to mother 660 million/88,000,000/1.15 billion yuan, +33%/32%/31% YoY. PE was given 24 times in 24 years, the target price was 51.2 yuan/share, and the first coverage was given a “buy” rating.

Risk warning

New energy installations fell short of expectations, raw material prices rose, power grid investment declined, and the ban was lifted in large quantities