Zhenjiang Co., Ltd. is a leading domestic enterprise specializing in steel structural parts for new energy power generation equipment. Its products include but are not limited to wind power equipment (rotor room, stator (section), cabin cover, tower, etc.), photovoltaic/photothermal equipment parts, fasteners, and offshore wind power installation and operation and maintenance.
Wind power business: The company's products are mainly offshore wind power products and mainly exports, benefiting from the high demand for offshore wind power overseas
Demand for overseas offshore wind power is expected to increase after 2026: we expect 32% additional offshore wind CAGR capacity to be installed in 2023-2025.
Siemens Gamesa's business focus is shifting to offshore wind power: Driven by offshore wind power, Siemens Gamesa expects revenue growth in the second half of 2024 to greatly exceed the first half of the year. The most important task for the offshore wind power business is to expand production capacity.
Zhenjiang Co., Ltd. mainly exports offshore wind power products, and has established close cooperative relationships with leading customers such as Siemens Gamesa: the company's products in the field of wind power include but are not limited to rotor chambers, stators (sections), and fan assemblies, and have established cooperative relationships with world-renowned wind power companies such as Siemens Group (Siemens), General Electric (GE), Vestas, and Enercon. The company's product exports account for a relatively high proportion (more than 60%); they are mainly components for large megawatt offshore direct drive models.
There is a clear trend of large megawatts of offshore fans. The company's products meet the demand for large megawatts and further strengthen the assembly business: it plans to build a production base for offshore wind power products in Nantong, involving the offshore fan assembly business.
PV bracket business: demand for tracking brackets in the US/Middle East is growing rapidly, and Zhenjiang's US/Saudi expansion benefits from increased demand and high profitability in the local market
Utility PV installations in the US are growing rapidly, while North America is the largest market for tracking brackets:
US utility PV installations are expected to reach 45/53GW in 24/25, +90%/18% YoY; utility PV installations are expected to reach 53GW in '25; at the same time, according to WoodMackenzie statistics, North America will become the largest market for tracking brackets in 2020.
The US tracking bracket market is a high-profit market: the leading US NXT2024Q1 gross margin reached 30% (without considering IRA subsidies); at the same time, under IRA subsidies, the high profit attributes of the US market are more obvious, and the gross margin of NXT2024Q1 under IRA subsidies reached more than 46%.
Demand is also strong in the Middle East: in Saudi Arabia, the scale of the PIF1/Phase 2+3/Phase 4 project was 1.5 GW/6.6 GW/5.5 GW, and the SPPC Phase 4 and Phase 5 were 1.5/3.7 GW respectively, showing a rapid growth trend.
Zhenjiang Co., Ltd. has built a tracking bracket foundry in the US. The factory has been put into operation, fully benefiting from the high profitability of the local market. At the same time, Zhenjiang is also planning to invest in the construction of a factory in Saudi Arabia, which is expected to start operation in June 2024, and plans to initially reach 3GW of annual production capacity, which can be expanded to 5GW in the future.
Investment advice
I am optimistic that Zhenjiang Co., Ltd. will benefit from the high demand for offshore wind power from overseas, and at the same time benefit from the high demand for overseas tracking brackets, and the high profits of US/Saudi factory construction and sales. We expect that the company's net profit for 2024-2026 will be RMB 3.0/43/550 million yuan, respectively; EPS will be 2.12/3.03/3.87 yuan/share, respectively, giving 19 times PE within 24 years, with a target price of 40.3 yuan. The first coverage gives a “buy” rating.
Risk warning: Industry demand falls short of expectations; market competition risk; overseas business risk; production capacity falls short of expectations; estimates are subjective, and results are for reference only.