Leading energy equipment manufacturing enterprises are constructing a new development pattern of “six electricity and six industries”. Dongfang Electric is one of the world's largest energy equipment manufacturing enterprise groups. It has accelerated the transformation of “green intelligent manufacturing” in the context of dual carbon, and has formed an industrial pattern of “six electricity combined, six industries collaborated” (“six electricity”: wind power, solar energy, hydropower, nuclear power, gas power, coal power; “six industries”: high-end petrochemical equipment industry, energy saving and environmental protection industry, engineering and international trade industry, modern manufacturing services industry, power electronics and control industry, and emerging industries).

During the construction of the new power system, the company's various businesses have benefited deeply:

Coal and electricity: The “ballast stone” of the power system, has entered a period of acceleration of new construction. In the construction of new power systems, coal power has always played the role of a “ballast stone”, and has played an important role in securing peak supply and mitigating consumption. Currently, coal power has entered a period of acceleration of new construction: according to incomplete statistics from the Polaris Power Grid, 240 thermal power projects obtained significant progress such as approval, commencement, and signing of contracts from 2023 to the end of March 2024. The competitive pattern in the coal power equipment industry is relatively stable. The company is in a leading position and will fully benefit from the rapid development of the coal power industry as a whole.

Gas and electricity: High quality regulated power supply, new operation is significantly accelerated. Gas generators are high-quality peak-shaving power supplies and play an important role in new power systems. New gas and electricity operations accelerated markedly in 2023. According to China Telecommunication Union data, 10 GW of gas and electricity installed capacity was added in 2023, +60% compared to the same period last year. At present, the company has successfully tested and ignited the entire F-class 50MW heavy gas engine. The no-load test has reached the rated speed and achieved stable operation, and is in a leading position in the domestic field of electromechanical equipment.

Nuclear power: There is plenty of room for growth in new installations of nuclear power. According to the “Research on China's Electricity Carbon Peak and Carbon Neutrality Path” (Shu Yinbiao, etc.), the average annual construction of nuclear power plants will be 6 to 8 units by 2030, and the installed capacity of nuclear power will be about 120 million kilowatts in 2030, and there is plenty of room for growth. The competitive landscape for nuclear power equipment is relatively stable, and the company is in a leading position.

In the field of nuclear island equipment, Dongfang Electric and Shanghai Electric are leading the country in technical strength, and Dongfang Electric, Shanghai Electric, and Harbin Electric Group are tripartite in the field of conventional island equipment.

The first coverage gave A/H shares a “buy” rating: We expect the company to achieve operating income of 706/815/93 billion yuan in 2024-26, net profit to mother of 44/55/ 62 billion yuan, respectively. The current stock price corresponds to 12/7 times the PE of A/H shares in 24, respectively. Under the rapid growth in the scale of new energy installations, thermal power units will still have room to grow on a certain scale as a “power ballast stone”. As a leading thermal power equipment company, the company is expected to maintain an increase in orders and revenue; in addition, the pumped energy storage and nuclear power business will also achieve steady growth in performance as project construction progress continues to advance. Comprehensive considerations gave the company A shares 17 times the 2024 reasonable valuation level (PE), corresponding to the target price of $24.00; the company's H shares were given 9 times the 2024 reasonable valuation level, corresponding to the target price of HK$13.99, which covered the “buy” rating of the company's A/H shares for the first time.

Risk warning: The promotion and construction of domestic thermal power projects fell short of expectations, the promotion and construction of domestic nuclear power projects and pumped energy storage projects fell short of expectations, and increased competition in the industry caused large losses in the company's wind power business.