According to Zhito Finance APP, Soochow released a research report stating that the investment in distribution networks increased positively in 2023, with a growth of 15-20% expected in 2025. The construction of new distribution systems is aimed at meeting the demand for distributed energy access; over the past two years, the overseas market has generally seen an increase in both volume and price. With the gradual release of overseas supply for distribution equipment, the market is expected to return to a volume expansion phase starting from the second half of 2024. In the industrial control sector, the trend of domestic replacement continues while domestic companies are increasing their overseas efforts, accelerating the establishment of overseas sales, research and development, and manufacturing systems. They are also positioning themselves in key components and assemblies for humanoid robots, which are expected to be industrialized and gradually contribute to performance growth starting in 2025. Additionally, AI is accelerating the empowerment of traditional industries, heralding the arrival of an era of humanoid intelligent embodiment, suggesting attention to opportunities for increased investment in power grids and industrial control.

The main points from Soochow's report are as follows:

Power Grid: Both the domestic Ultra High Pressure and distribution network are making efforts, while overseas demand is entering a phase of increasing volume.

Domestic: Both the main grid and distribution networks are key areas of planning focus. The existing lines for the Ultra High Pressure network will accelerate revenue recognition next year, and the financial performance of leading state-owned enterprises is expected to demonstrate elasticity. The 14th Five-Year Plan is worth anticipating: investments in Ultra High Pressure are expected to increase by over 50% year-on-year, with around 20 new Ultra Direct Current lines and over 15 new Ultra Alternating Current lines expected. The penetration rate of high-value soft direct current is optimistically expected to exceed 50%. The distribution network investment growth turned positive in 2023, with a 15-20% growth expected in 2025, focusing on building new distribution systems to accommodate the demand for distributed energy access. The directions are relatively diverse: for primary equipment, capacity expansion is promising (energy-saving transformers), while for secondary equipment, a variety of products are expected to penetrate faster (integration devices, syntax converters, and products like group control and distributed power prediction), with attention on breakthroughs in new technologies such as direct current distribution, virtual power plants, and flexible interconnections.

Overseas: In the past two years, there has generally been a rise in both volume and price. With the gradual release of overseas supply for distribution equipment, the market is expected to return to a volume expansion phase starting from the second half of 2024 (only the scarce high-voltage electrical equipment and its components can see price increases). For 2025, there remains optimism regarding the demand for electrical equipment from the USA's AI, main grid, and industrial sectors, followed by demand from the Middle East and Asia, Africa, and Latin America; as local production capacity in the USA is established, this is expected to mitigate the impact of tariffs.

Industrial Control: Domestic orders, inventory, and profitability are all at a low point; with foreign investment reducing inventory by the second quarter of 2025, there is optimism for a recovery across the industry next year, while overseas ventures and humanoid robots also provide long-term points of interest for industrial control companies.

On the demand side, the industry is still at a relatively low point. Traditional industries are expected to perform well in 2024 through indirect overseas expansion and trade-in programs. In 2025, internal demand is projected to recover, and new energy, which has been a drag, is expected to stabilize in 2025. In Q4, a positive trend in lithium battery CAPEX has been observed, and the decline in photovoltaics has also narrowed due to a low base. It is anticipated that in the coming year, industrial control demand may turn positive with a growth rate of 0-3%. On the supply side, the trend of domestic substitution continues, while domestic companies are increasing their pace of overseas expansion, accelerating the establishment of sales, R&D, and manufacturing systems abroad, while securing key positions in the core components and assemblies in humanoid robotics, waiting for industrialization to begin in 2025, gradually contributing to performance growth.

Humanoid robots & AI Electrical Equipment: AI accelerates the empowerment of traditional industries, and the era of embodied intelligence for humanoids is arriving, creating investment opportunities for incremental investments in power grids and industrial control.

Humanoid Robots: In 2024, domestic and foreign giants are all entering the market to accelerate the industry, with expectations for the T-chain to follow Tesla's release of Gen3 and pinpoint suppliers, entering a production year in 2025 with hopes of producing 3,000-5,000 units; the NV chain focuses on chip and robot development platforms, paying attention to opportunities among ecological chain partners; the HW chain may be in a nurturing period of the supply chain, and the intelligent selection model is expected to be replicated in humanoids. From a certainty perspective, the current stage prefers direct cooperation with industry leaders over Tier 1 sample provision and Tier 2 companies with corresponding component layouts.

AI Electrical Equipment: AI drives cabinets to evolve to the hundred kW-MW level, while increased power consumption promotes technological changes in energy conversion sectors, resulting in price increases and changes in the landscape for related equipment: changes in electric energy flow are transitioning UPS to HVDC direct current distribution and AC-DC high power appliances, which will indirectly cause price increases triggered by supply and demand tensions in front-end energy infrastructure of IDC. In terms of thermal energy flow, air cooling is shifting to cold plate liquid cooling, with future prospects toward immersion liquid cooling, while overseas leaders are accelerating acquisitions and layouts of liquid cooling components.

Investment Suggestions

Power Grid: Recommend Sieyuan Electric (002028.SZ), Ningbo Sanxing Medical Electric (601567.SH), Henan Pinggao Electric (600312.SH), China XD Electric (601179.SH), NARI Technology (600406.SH), Jinpan Technology (688676.SH), Xj Electric Co.,ltd. (000400.SZ), Hexing Electrical (603556.SH), Beijing Sifang Automation (601126.SH), Eaglerise Electric & Electronic (002922.SZ), Acrel Co., Ltd. (300286.SZ); pay attention to: Huaming Power Equipment (002270.SZ), Mingyang Electric (301291.SZ), Gold cup Electric Apparatus (002533.SZ), etc.

Industrial Control & Humanoid Robots: Recommend Shenzhen Inovance Technology (300124.SZ), Zhejiang Sanhua Intelligent Controls (002050.SZ), Hongfa Technology (600885.SH), Suzhou Veichi Electric (688698.SH), China Leadshine Technology (002979.SZ), Rujing Technology (301525.SZ), Shanghai Moons'Electric (603728.SH), Wuxi Xinje Electric (603416.SH); pay attention to Shanghai Beite Technology (603009.SH), Hecuan Technology (688320.SH), Silin Co., Ltd. (301550.SZ), Wuxi Best Precision Machinery (300580.SZ), Zhejiang XCC Group (603667.SH), Keli Sensing Technology (603662.SH), etc.

AI Electrical Equipment: Recommend Shenzhen Megmeet Electrical (002851.SZ); pay attention to Shenzhen Envicool Technology (002837.SZ), Shenzhen Honor Electronic (300870.SZ), Kehua Data Co.,Ltd. (002335.SZ), Hangzhou Zhongheng Electric (002364.SZ), Jiangsu Azure Corporation (002245.SZ), Guangzhou Goaland Energy Conservation Tech (300499.SZ), etc.

Risk Warning: Global investment in electrical utilities falling short of expectations, decline in macroeconomic prosperity, increase in raw material and freight costs exceeding expectations, intensifying competition, etc.