According to the securities company, in 2025, there are three types of assets worth focusing on - sustained prosperity, turnaround from adversity, and technological innovation. It is expected that these three types of assets will continue to perform in 2025, driving the electrical utilities equipment new energy sector out of the bottom haze. Upon comprehensive comparison, the institution expressed the most optimism towards the energy storage sector, especially the energy storage components segment (PCS, etc.), which is expected to receive high prosperity validation in 2025, and the leading companies in the sector are expected to continue to exceed market expectations.

Main viewpoints of Zhongxin Jiandao are as follows:

In this year's strategic report, China Securities Co., Ltd. has established a new research framework for sector stock selection, combining the industry situation in 2024. Firstly, the institution uses the indicator of "newly constructed projects + new fixed assets" to measure the scale of each company's new fixed assets one year ahead, and to simulate and forecast the growth rate of fixed assets in each sector in the coming year. It is found that the overall growth rate of fixed assets such as ultra high pressure electrical equipment, Contemporary Amperex Technology, household energy storage, wind power, lithium battery positive electrode, lithium battery structural components, and lithium battery copper foil is relatively low, and the growth rate of fixed assets in industries like photovoltaics will significantly decrease after 2025.

Considering industry demand, it is expected that the lithium battery electrolyte segment will achieve supply-demand balance in 2025; offshore wind power, global household energy storage (excluding Europe), large storage facilities, electrical equipment-ultra high pressure, Landwind, lithium battery positive electrode, and electrical equipment - overseas demand are significantly higher than supply, showing a net growth in supply and demand trends. Whereas industries like photovoltaics, lithium battery separators, electrical equipment-domestic grid external, and electrical equipment-domestic grid internal (excluding ultra high pressure) will have demand growth rates higher than supply growth rates. Without significant supply control, there will continue to be a contraction in net supply and demand.

Introducing the current sector valuation/industry space ratio, combined with the above supply and demand factors, to comprehensively determine the current position reflected by the sector stock price's expectations and fundamentals. Considering the significant impact of industry space on sector valuation, comparing the demand growth space from 2024 to 2030 of various segmented industries and the current valuation levels of each sector, the conclusion shows that in terms of long-term demand growth rate/valuation, energy storage, offshore wind power, and lithium battery leading companies rank high at the current time point.

Taking all of the above factors into consideration, China Securities Co., Ltd. is most bullish on energy storage in the new energy sector of the electrical utilities equipment sector. The company also believes that the three types of assets will at least have quarterly upward trend opportunities in 2025. The first type is high prosperity (positive supply-demand situation) with high sustained stable assets at electrical utilities superior companies. The second type of asset is strong offensive varieties, not constrained by valuation, represented by the offshore wind industry chain, flexible direct current industry chain, and lithium battery solar power new technologies. The third type of asset is the turnaround from adversity category, as observed by the current low levels of ROE for wind power industry chain, lithium battery industry chain, and main photovoltaic industry chain in the past five years. Combining the certainty of demand and the trend of supply contraction, they are expected to turn around from adversity since 2025, and of course, considering the valuation of current stocks and the position of future expectations.

Electrical utilities equipment: the increase in domestic demand is highly certain, gradually entering the range where orders and performance resonate; overseas market demand remains strong, with high elasticity in prosperity. 1) Domestic power grid investment has been raised to over 600 billion yuan, with a growth rate exceeding double digits in 2024: 2) Overseas industry chain: global new energy installation growth; power grid upgrade and construction; manufacturing returning and data centers and other user side increments, overseas demand will maintain high prosperity (export growth of transformers exceeds 20%); overall supply remains tight. The electrical utilities equipment sector is still the most certain direction in the new electrical industry, and is expected to be the first to switch valuation under strong certainty. The electrical utilities equipment sector is still the most certain direction in the new electrical industry.

Energy storage: Energy storage is one of the fastest-growing segments in the new electrical sector. China Securities Co., Ltd. is most bullish on energy storage and believes that the current valuation of the energy storage sector does not reflect this premium beyond the industry. Large-scale energy storage is erupting regionally, with frequent appearances of major projects in the Middle East, entering the rush installation rhythm in the US market, major projects in Europe moving from planning to implementation phase, and GWh-level projects starting to tender in Latin America and Australia. On the household storage side, countries with certain economic foundations such as Pakistan, Ukraine, Nigeria, Indonesia, South Africa, facing power supply shortages, are experiencing sequential bursts of demand. In terms of profitability, overseas markets still offer high gross profit margins, with unit prices 0.2-0.6 yuan/Wh higher than domestic prices. It is expected that the "quantity-for-profit" model in emerging markets will continue to contribute significantly to the performance of listed companies; household storage will depend on cost control, product iteration capabilities, and the ability to develop segmented markets continuously, discovering new demands and creating high gross profits.

Wind power: (1) Short to medium term: Wind power fundamentals are highly prosperous by 2025; (2) Long term: The proportion of wind power installations is expected to continue to increase, and has not been fully anticipated by the market. In the future, wind power is expected to continue to increase its share in new energy installations, and has not been fully anticipated by the market: Wind power's advantage lies in more dispersed output distribution, while solar power output is concentrated at noon, leading to a significant time difference in supply and demand matching. The power system can better adapt to the characteristics of wind power generation, providing greater system security. Wind power benefits from the dual impact of increasing demand for new energy installations and the proportion of its structure, with both offshore and onshore wind having good growth potential.

Lithium batteries: The lithium battery industry is expected to see the first reversal of supply and demand in three years in Q2 of 2025. In terms of electric vehicles, domestic demand is better than expected, with an estimated 13 million units to be sold domestically in 2024, a year-on-year increase of +36%, driven by subsidies for replacing old vehicles. It is predicted that the domestic electric vehicle sales will reach 15.6 million units in 2025, a year-on-year increase of +20%; the US is expected to sell 1.6 million units in 2024, a year-on-year increase of +8%, with policies for 2025 currently ambiguous and the US market likely to remain stable; in Europe, sales are expected to reach 2.95 million units in 2024, remaining flat year-on-year, with a consideration that with no fines across the industry in 2025, sales may reach 3.52 million units, under conservative expectations targeting 3.4 million units, a year-on-year increase of +15%-20%. With the push from the nearly 50% growth in energy storage, the demand for lithium battery installations is estimated to be 1814GWh in 2025, a year-on-year increase of +22%. After two years of price declines, the supply and demand situation in the industry is believed to have bottomed out. Calculations suggest that by the end of the year and by the end of Q2 in 2025, the industry's supply and demand situation will effectively turn around, entering a phase of price recovery.

Photovoltaics: Policy changes might reverse the supply and demand situation, with BC increasing in certainty, while focusing on the direction of TOPCon upgrades such as grid stacking, copper paste, and other cost-effective methods. In terms of supply and demand, the photovoltaic industry is currently experiencing a phase of temporary oversupply. If naturally phased out, the industry's supply and demand turning point, represented by silicon materials, will most likely occur post-2026. Since mid-October, industry associations have been actively guiding the industry's phase-out. Subsequent attention will be given to the effectiveness of industry self-regulation and production reduction. If progress is smooth, the expected turnaround in industry supply and demand may be advanced to 2025. Regarding new technologies, BC cell mass production has the highest certainty currently, recommending focus on BC cell components and supporting technologies like grid stacking, copper paste, and 0BB.

Hydrogen energy: Choosing directions based on demand elasticity and certainty, focus on the value distribution advantages of gasifiers and electrolyzers. The hydrogen production industry shows short-term growth and long-term potential. Following the main line of hydrogen demand guided by policies, electrolyzer's short-term growth rate is between 60-70%. Considering the future global equipment and operational market scale growing from current billions to trillions, the domestic equipment and operational market scale are expected to reach trillion/billion levels respectively. Tracking the key to the industry's prosperity is crucial, with a focus on green hydrogen demand elasticity in different development stages of the industry. Looking ahead 1-3 years, green ethanol, green ammonia, and the offshore chain are promising. Link selection: The value determines the target elasticity, and China Securities Co., Ltd. believes that the core focus should be on electrolyzers and gasifiers in the green ethanol industry chain, and on electrolyzers, bipolar plates, and power equipment in the equipment segment, showing the best valuation elasticity after demand kicks in.