The current situation of the company

Since the beginning of the year, Dongfang Electric Abank H shares have risen 28% and 40% respectively. Under the big wave of capital going south, Dongfang Electric as the leader of electrical equipment, the prosperity of the beneficiary plate has rebounded, the fundamentals of wind power and nuclear power business have improved, the valuation is lower than that of the same industry, and the investment value is prominent.

Comment

The research and development capability of large megawatt wind power models is gradually emerging, and the share of Dongqi city has the potential to increase.

The company currently has mass production of onshore fan 3-5MW and offshore fan 7-10MW 16MW 2021 is expected to achieve offshore 13-fan hoisting. During the 14th five-year Plan period, we believe that the company will continue to take the leading route of wind power technology, relying on the advantages of heavy, fine and high-power products to expand market share and increase market share. The current bidding for large megawatt models accounts for a boost, and we expect the company's shipments to exceed 3 million kilowatts in 2021, an increase of about 50% over the same period last year to enhance the contribution of sector revenue.

The approval of nuclear power is unsealed to support the sustainability of equipment sales revenue. In 2020, nuclear power examination and approval ushered in a breakthrough, and four Taihualong No. 1 reactor nuclear power units were approved for construction, which is a positive signal for the development of the industry. We believe that nuclear power, as an important base load energy, has the characteristics of cleanliness, safety and high utilization hours of power generation, which is an indispensable part of "carbon neutralization" and has long-term sustainable development potential. With the smooth commissioning of Hualong No.1 and the further determination of the technical route, we expect that 6-8 units may be approved each year during the 14th five-year Plan period. According to the calculation of 6 sets per year, it will bring income of 3 billion yuan and performance flexibility of about 20%.

The hydropower business has obvious advantages, and it continues to benefit from the development of the lower reaches of the Yajiang River and the increased demand for pumped storage.

Dongfang Electric has an absolute advantage in the field of high-efficiency hydroelectric power generation, with the development capacity of millions of large-capacity hydropower units (the right bank of the three Gorges, Xiluodu, Baihetan, etc.), and reaches the world's leading level in pumped storage technology. During the 14th five-year Plan period, we believe that hydropower equipment will continue to bring stable income: 1) the research and development of the Brahmaputra River is about to begin, 2) new energy peak regulation and nuclear power development give rise to pumped storage demand, pump shipments also have the potential to rise 3) power grid peak regulation brings a boost to the demand for equipment such as tuners.

Valuation proposal

Due to our more optimistic forecast for the company's wind power equipment shipments, we raised the 2020Universe profit forecast by 5% to 1.73 trillion yuan in 2021, and introduced the 2022 revenue and profit forecast of 47.87 percent and 2.25 billion yuan.

The company's current A share price corresponds to the price-to-earnings ratio of 19.9 times and 17.7 times of the 22-year price-to-earnings ratio of 21amp, while the share price of H shares corresponds to 11.0 and 9.8 times of the 22-year price-to-earnings ratio of the company.

We maintain the company's A shares and H shares outperform industry ratings. Due to the more optimistic about the company's wind power business and the improvement of the industry boom, we have raised the company A share price by 32.0% to 15.29 yuan, which is 20.0% higher than the current share price; the H share price has been raised by 49.9% to 10.89 Hong Kong dollars, which is 37.5% higher than the current stock price.

Risk.

The new demand for domestic wind power is lower than expected; the approval of nuclear power projects is slow.