Futu Securities released a research report stating that the overall growth of China and the US's power demand remains strong, with obvious support for traditional energy generation. With the expectation of the US presidential election, the team believes that the incremental demand for overseas natural gas power equipment will continue to increase. China's power grid investment data is strong, and the annual power grid investment growth rate is expected to reach 10%+, while overseas power grid investment centers continue to benefit from power demand and infrastructure and continue to grow at a high rate. In terms of structure, demand for power grids is currently stronger in the European and American markets than in non-power grid markets. Downstream, we are bullish on transformer and electrical equipment export companies in core regions of the Middle East, North Africa, and Europe, while the sustainability of downstream growth to power grid customers will be more stable; we are also bullish on ultra-high voltage and distribution network investments in the overall high growth of power grid investments.

China: Power demand maintains high growth, power grid investment accelerates.

In the first half of 2024, China's cumulative electricity consumption was 4.66 trillion kWh, a year-on-year increase of 8.2%. Among them, the primary/secondary/tertiary industries increased by 7.8%/7.4%/11.7%, respectively. In June, China's electricity consumption was 820.5 billion kWh, a year-on-year increase of 5.9%, and the growth rate fell slightly compared to May. In the first half of 2024, the growth rate of China's power grid investment was significantly higher than that of power source investment, forming a strong contrast with the trend in 2023. In the first half of 2024, China's power grid investment was 254 billion yuan, a year-on-year increase of 24%, while power source investment was 344.1 billion yuan, a year-on-year increase of 4%. The growth rate of power grid investment is also the highest half-year value since 2018. The power grid investment in June alone was 83.7 billion yuan, a year-on-year increase of 28%, an increase of 77% compared to the previous month, and the monthly data continued to show high growth. The team believes that the total electricity grid investment for the year is expected to reach more than 10%.

US: US power generation exceeds expectations, and the expectations of Trump's election victory affect energy prices and electricity prices.

In terms of electricity demand and supply, US electricity consumption in the first half of the year increased by 3.8% compared to the same period last year, exceeding the expectations of the EIA. The EIA's July power consumption forecast for 2024/2025 was raised by 0.3%/0.1% compared to the June forecast. US power generation in the first half of the year increased by 5.3%, with an incremental increase of 100.2 billion kWh, which was close to the expected annual incremental increase at the beginning of the year. The EIA's forecast for the annual power generation increment has gradually increased from 106 billion kWh in February to 146 billion kWh in July. Natural gas dominates the power generation increment structure, with natural gas power generation increasing by 45.45 billion kWh in the first half of 2024, accounting for 46% of the total increase, while photovoltaics and wind power account for 37% of the increase. Traditional energy is still an important support for power demand exceeding expectations.

In terms of electricity prices and energy prices, the team believes that the expectation of the release of traditional energy supply driven by expectations of Trump's election victory has led to a sharp drop in natural gas prices, with the weekly NYMEX natural gas contract price falling by 24% compared to the same period last month and down 9% from the previous week. Combined with the expectations of relaxed approval of traditional power generation energy and environmental requirements, the far-term price of US electricity quickly dropped. The weekly ERCOT North Hub 25/26/27/28-year forward prices fell by 9%/7%/12%/13% compared to the same period last month, and fell by 4%/4%/7%/7% compared to the previous week. The team believes that overall US power demand is higher than expected, and the expected increase in supply and electricity and energy prices has turned.

Electrical equipment exports: overseas demand is strong, and Europe and North Africa are high-growth areas for China's exports.

China and South Korea's transformer exports continue the upward trend, and the export growth rates of oil-immersed transformers in China and South Korea are significantly higher than that of dry-type transformers. China's actual export growth rate is the highest, and the regions that contribute the most absolute value are Europe, the Gulf Cooperation Council (GCC) countries and North Africa. In the first half of 2024, China's exports were USD 2.8 billion, a year-on-year increase of 24%, and exports in June were USD 0.52 billion, a year-on-year increase of 23%. Among them, the main transformer and distribution oil-immersed transformers increased by 53%/49% compared to the same period last year, while dry-type transformers fell by 4%. In terms of regions, the growth rates of the GCC, North Africa, Europe, and North America were 304%, 57%, and 33%, respectively. The growth in export volume to the GCC and North Africa and Europe accounted for 66% of the actual growth in China's transformer exports, which is the main area of growth.

Risk warning: China's power grid investment is lower than expected, US power demand is lower than expected. The companies mentioned in this research report are compared based on publicly available industry information and do not constitute a recommendation.