A global energy equipment core enterprise, technological innovation leads the business to keep up with energy transformation. The company is the core listing platform of Dongfang Electric Group. It has many core asset sectors such as power supply equipment manufacturing, engineering contracting, power plant services, trade, and finance. Since starting the hydropower and thermal power business in the 1960s of the last century, the company has always served China's power system construction. Adhering to the corporate genes of scientific and technological innovation, the company has gradually constructed a six-power combination pattern of “water, fire, nuclear, wind, light, and gas”. Over the past 10 years, in the context of the low-carbon transformation of the energy structure and construction of new power systems, the company has gradually developed emerging business fields such as energy storage and hydrogen energy, laying a solid layout for the future. In 2022 and 2023, the company achieved revenue of 55.364 billion yuan and 60.677 billion yuan, an increase of 15.78% and 9.6% year-on-year; net profit to mother of 2,858 billion yuan and 3.55 billion yuan, respectively, an increase of 24.85% and 24.23% year-on-year.

The load continues to grow, and a high proportion of the catalytic load of new energy sources is at its peak and supply is in conflict. From the power system level, the value of stability and flexibility of the various power supplies in the company's layout is even more prominent. There are fluctuations and uncertainties in the output of new energy sources. The impact of a high proportion of new energy on the power system is mainly reflected in: 1) the effective capacity of new energy sources is insufficient during peak loads. As the load continues to grow, the power system's demand for traditional power supplies as basic backup capacity continues to rise; 2) Consumption contradictions are prominent during peak periods of new energy generation, requiring other power sources to reduce their own capacity or cooperate with energy storage facilities; 3) The power grid system is highly electronic, leading to insufficient inertia and poor grid stability. New contradictions create new value. A pricing mechanism centered on capacity electricity prices, electricity markets, etc. will reasonably price the flexible value of gas, electricity, savings, and coal power, the energy time value of energy storage and hydrogen energy, and the stability of nuclear power.

The reliability and flexibility values of thermal power, hydropower, and nuclear power are highlighted: in terms of gas and electricity, the peak shifting capacity of single-cycle gas turbines can reach 100%, and the peak shaving capacity of combined cycle units can reach 70-100%, which is the highest quality peak-shaving power source; in terms of coal power, through flexibility transformation, the minimum output level of coal power is further reduced from the traditional 60% to 30%, and “three-change linkage” will drive the existing coal power unit transformation market; in addition to focusing on the development opportunities of independent pumping and storage power stations Other than that, the existing hydropower plant is upgraded with pumps Projects for hybrid power storage plants are also increasing.

Clean energy transformation has a long way to go. The company's wind power business space is vast: in terms of wind power, the growth rate of new wind power installations reached 20.7% in 2023. Early wind farm upgrades opened up the “big generation, small, new exchange” market. At the same time, preliminary work and project bidding for the Shenyuanhai wind power project are already underway.

Energy storage, hydrogen energy, supporters of energy transformation: In terms of energy storage, the company's technology has migrated to compressed air energy storage. With the commencement of many domestic signed projects, business growth is expected to accelerate. In terms of hydrogen energy, the company focuses on fuel cells and vehicle products in the transportation sector. With policy support, promotion is expected to be accelerated.

Profit prediction and rating: Under the dual carbon target, energy transformation brings broad development space to upstream equipment companies with technological advantages. We expect the company's net profit for 2024-2026 to be 4.17 billion, 4.99 billion, and 5.69 billion, respectively, with year-on-year growth rates of 17.6%, 19.5%, and 14.1%, respectively. The company's current stock price corresponds to PE 13 times, 11 times, and 9 times, respectively. Considering the company's expansion in emerging fields such as energy storage and hydrogen energy, we will maintain a “buy” rating.

Risk warning: the growth of social electricity consumption falls short of expectations; the risk of increased competition for renewable energy equipment; the scale expansion of emerging growth industries falls short of expectations