Introduction to this report:

The company focuses on R&D and manufacturing of power transmission, distribution and control equipment, building strong product technical advantages in the field of new energy and new infrastructure, achieving stable business development, and benefiting from the future boom in the industry. The first coverage gives an increase in holdings rating.

Key points of investment:

Covered for the first time, a “gain” rating was given. The company is one of the leading enterprises in the transformer industry, fully enjoying the industry development opportunities brought by the expansion of the installed capacity of new energy power generation and the acceleration of global grid-side investment. We expect the company's revenue for 2024-2026 to be 6.512/7.933/9.377 billion yuan, respectively, with growth rates of 31.6%/21.8%/18.2%; the net profit to mother for 24-26 is 0.653/0.792/0.953 billion yuan, respectively, with growth rates of 31.3%/21.2%/20.4% respectively; corresponding EPS for 24-26 is 2.09/2.54/3.05 yuan, respectively.

Combining the two valuation methods of PE and PB, the average value of the reasonable valuation of the above two methods is taken. Based on the principle of prudence and considering that the company is in a period of accelerated growth, the company was given a target price of 42.21 yuan in 2025, corresponding to a 25-year valuation of about 16.64x PE. It was covered for the first time, and a “gain” rating was given.

The company is deeply involved in the field of new energy and new infrastructure, and has multiple businesses to help the company develop. The company is a holding subsidiary of the fan manufacturer Mingyang Group in the field of power transmission and transformation. The predecessor was founded in 2015.

The company's main business covers three major sectors: box-type substations, complete equipment, and transformers. In 2019-2023, the company's revenue achieved five consecutive years of year-on-year growth. In the past three years, the company's net profit to mother maintained a rapid growth trend, and the downstream new energy scenario provided solid and strong profit support.

The industry maintained a high level of prosperity, and demand for transformers accelerated. The global trend of new energy installations, mainly wind power and photovoltaics, is showing a strong growth trend. The connection of new energy sources to the grid is driving demand for transformers to accelerate; in addition, China's investment in distribution grids accelerated during the “14th Five-Year Plan” period, and the continuous upgrading of the energy structure and access to new energy sources further promoted the growth in demand for distribution transformers; the mismatch between overseas transformer supply and demand also brought new opportunities for transformers to go overseas. Generally speaking, the expansion of multiple downstream application scenarios for transformers continues to bring growth to the industry.

The company has clear advantages, and domestic demand plus overseas two-wheel drive business development. The company has established long-term cooperative relationships with the “Big Five and Six Small” power generation groups and leading companies in the industry in the domestic market, laying a solid foundation for its new energy business. In addition, the company and Mingyang Group have unique advantages in the field of ocean wind. Combined with its offshore transformer technology reserves, the company is expected to benefit from a high increase in offshore wind power installations. The company has adopted a two-track expansion in overseas markets, including following core customers overseas to build brand reputation, enhance its overseas sales capacity, and promote a global layout.

Risk warning: New energy installed capacity falls short of expectations; raw material prices rise; competition in the transformer industry intensifies