Financial Services Association, July 14 (Reporter Luo Yichen) Under the impact of a round of trade protection incidents, overseas concept stocks, which had already had impressive gains, experienced a collective correction, and market sentiment was repeatedly disturbed. A group of power grid companies that were the first to reap the dividends of going overseas began to be asked frequently: Will the overseas business be affected? How to deal with the risk of trade barriers?

“The recent rise in international trade protection concerns in the market has a potential impact on traditional export trading companies, but the opposite is true for overseas companies. Trade protection has raised the market entry threshold, and overseas enterprises have been able to circumvent trade barriers by setting up local chemical plants, and have become very few winners who can participate in the local market and obtain market dividends.” During the research activity, Jin Yi, secretary of the board of directors of Haixing Electric Power (603556.SH), said that the market should not confuse traditional “export trade” with this round of “going overseas.”

“However, the future is not about building factories overseas, and you can rest easy by shipping all spare parts from China to overseas for simple assembly. If you cannot deeply integrate into the local community and form an ecosystem surrounding your own industrial chain, there may still be certain risks.” Jin claims that the company is prepared for potential risks in the medium to long term.

Facing rising trade barriers, Haixing Electric Power has clearly proposed in its strategy to “be deeply integrated into the local supply chain system”. In the future, in addition to developing overseas markets through continuous construction of overseas factories, it will also promote localized procurement of some non-core components from overseas factories, thereby building a localized industrial ecological alliance and adding a safety cushion for its own development.

A Financial Services Association reporter noticed that the electricity usage process for power equipment started early in terms of going overseas. Compared to industries such as electric vehicles, lithium batteries, and photovoltaics, which have only begun to go overseas intensively in recent years, Haixing Electric Power set up separate factories in Indonesia and Brazil from 2009 to 2020, and manufacturers in industries such as Samsung Healthcare (601567.SH) and Weisheng Holdings (03393.HK) all set up overseas production capacity before 2019. Currently, about 66% of Haixing Electric Power's revenue comes from overseas, and Samsung Healthcare and Weisheng Holdings account for about 17% and 25% of overseas revenue, respectively.

Leading manufacturers are mining for gold overseas

In recent years, the boom in the power equipment industry has risen markedly, and the performance of leading manufacturers has risen sharply. In 2023, Haixing Electric Power achieved revenue of 4.2 billion yuan and net profit of 0.982 billion yuan to mother, both of which reached record highs. In the same period, leading manufacturers in the industry such as Samsung Healthcare and Weisheng Holdings also ushered in a performance explosion and continued their growth until this year.

Entering this year, tenders for the State Grid have exploded, and the performance growth of electricity meter manufacturers has definitely improved. However, for leading manufacturers, there is more market space and opportunities overseas, and the energy transition is driving the acceleration of global power grid investment. According to BNEF statistics, the compound annual growth rate of global power grid investment can reach 12% between 2022 and 2030.

Among the major manufacturers, Haixing Electric Power was the earliest to go overseas. In 2010, Haixing Electric Power took the lead in setting up a factory in Brazil. After years of intensive cultivation, by 2022, its smart electricity products ranked first in the Brazilian market. Following in its footsteps, Samsung Healthcare and Weisheng Holdings invested in the construction of factories in Brazil in 2015 and 2019, respectively, while other local competitors gradually lost in competition with Chinese companies.

Today, similar stories are expected to be played in more markets. Jin Yi said, “With the accelerated expansion of overseas production capacity and market layout, the share of leading domestic companies in the global market will continue to increase.”

Will increasing market share lead to more intense competition? A Financial Services Association reporter noticed that some investors are beginning to worry about how long this round of overseas gold rush will last.

“Going overseas is not an easy thing. Only the best companies in an industry can succeed overseas, and some excellent companies have not been successful in going overseas.” Speaking about development prospects in the next few years, Jin Yi's expectations are relatively optimistic. “It can be said that at a time when many domestic industries are currently looking for opportunities to reverse the bottom, our industry is still continuously setting new highs, and the capital market can pay more attention to the future development of the overseas sector, especially the overseas power equipment sector.”

The core of the meter is iterative upgrading

In many popular overseas industries, power equipment is often compared to new energy sources. The latter's rollercoaster development trend in recent years has also made some investors skeptical about the former's future.

In fact, the development logic of the power equipment industry and the new energy industry is very different. Previously, the new energy industry mainly relied on continuous cost reduction to form an alternative to traditional energy sources and drive an explosion in market demand, while power equipment enjoyed a continuous rise in unit prices due to continuous iterative upgrades.

“In the domestic market, with the upgrade from ordinary watches to smart meters in 2009, and the introduction of the 2013 standard, 2020 standard, and IoT meter one after another, each upgrade of electric meter products is accompanied by an increase in unit prices, driving the continuous increase in the domestic smart meter market space.” Kim Yee said.

A number of brokerage agencies believe that the domestic market is in a metering cycle, that the promotion of intelligent power grids is driving electricity meter upgrades, and electricity form prices are expected to rise. At the same time, the voltage level involved in electricity meters is low, and the main business model is grid bidding, so product standardization, barriers on the manufacturing side are relatively low, and the pattern of smart meters is also relatively scattered. It is expected that all companies can benefit from this.

In contrast, due to differences in regional development, some overseas markets are still in the process of increasing penetration rates, while others have already begun to upgrade and iterate. According to Jin Yi, the penetration rate of smart meters in Asia, Africa, and Latin America is less than 10%, and customer demand for products including software, communications, smart meters, and general engineering contracts is expected to continue to increase in the future; the European market is advancing the smart grid 2.0 plan, and there will be more demand for iterative upgrades of smart meters and systems.

In his view, in the context of the acceleration of digitalization and intelligent transformation of power grids, the global market size of electric meters and related products will continue to grow, while the leading domestic companies that go overseas will have more and more potential for growth.