Focus on new energy tracks, continue to benefit from high profits and high prosperity

From Mingyang New Energy Investment Holding Group, the founder has extensive management experience. Mingyang Group has been deeply involved in clean energy such as wind energy and solar energy for nearly 20 years, and is now a leading enterprise in the new energy equipment industry.

The company is engaged in power transmission and distribution equipment, focusing on new energy tracks. The company's products include box-type substations, complete switchgear and transformers, and the new energy sector accounted for 78% of revenue in '22.

Technological advantages are combined with product strength to consolidate the leading competitive position of new energy sources. The company's R&D team is led by experts subsidized by the State Council. Based on technical advantages, the company's orders in the new energy (wind power, photovoltaic) sector accounted for 15% of the new installed capacity in '21, which is at the forefront of the industry.

New energy circuit: 1) The product has high technical content, and the track is highly profitable. The industry comparison revealed that the average gross profit margin gap for box-type substations and transformers (new energy - traditional) in 2022 was 7 and 9 pcts, respectively; in the company comparison, the maximum gross margin gap for 2022 H1 transformers and complete switching equipment (new energy - other applications) was 20.4 and 21 pcts. 2) The policy side continues to be promoted, benefiting from the high level of downstream prosperity. Under the dual carbon target+14th Five-Year Plan, it is estimated that new energy generation will account for more than 50% of the installed capacity by the end of the 14th Five-Year Plan. The company's market share ratio is 27% and 15%, respectively, and continues to benefit from high downstream prosperity.

Core highlight 1: Imported substitution of seabreeze booster systems, rapid growth in volume and price, releasing flexibility. Offshore wind power boosting systems are growing fast but the level of localization is low. Domestic offshore wind power is expected to add 15 GW (yoy +50%) in 25 years. Overseas brands such as ABB, Siemens, and SGB are supplied mainly by overseas brands such as ABB, Siemens, and SGB, with a market share of 90% in 2021.

The company's marine wind booster system was imported and replaced, and the sharp rise in volume and price contributed to the performance. The company's offshore wind power boosting system products (offshore wind power step-up transformers, offshore wind power inflatable medium voltage ring network cabinets) are superior in performance to imported products, and the price is 5%-15% lower than overseas. The service response is faster, and import substitution may be achieved. The gross margin of Haifeng transformers is as high as 47%. We expect orders to gradually land, bringing flexibility in performance.

Core point 2: There is a shortage of overseas transformers, indirect outgoing+global layout, the two-wheel drive overseas transformer demand is growing, and the supply shortage problem may continue: the production capacity of transformers in the US and oriented silicon steel (an important raw material for transformers) can only meet 20% of domestic demand, and target silicon steel production capacity bottlenecks or limit transformer expansion, thus bringing export opportunities.

The company's indirect overseas market+global layout is two-wheel drive. In 2023, overseas markets will be the focus, and a two-wheel drive strategic model with indirect overseas going+global layout will be initially established. Through cooperation with well-known domestic leading new energy companies (such as Sunshine Power, Shangneng Electric, etc.), the company rapidly expands its popularity in the international market. At the same time, the company is promoting the global layout of its business in an orderly manner, and has been certified by a series of domestic and foreign authorities, such as China's CQC, US UL, EU CE, and European DNV-GL certification.

Profit forecasting

We expect the company to achieve revenue of 62/77/9.3 billion yuan in 24-26, and achieve net profit of 6.0/8.0/990 million yuan. According to the comparable valuation method, we selected Jinpan Technology and Igor as comparable companies, considering that while the company benefited from seabreeze import substitution, indirect overseas going+global two-wheel drive unleashed performance and profit flexibility. Therefore, the company was given a 25-year 20X PE with a target price of 51 yuan. For the first time, we gave it a “buy” rating.

Risk warning: Seafeng booster system order expansion falls short of expectations, production capacity expansion falls short of expectations, downstream new energy growth falls short of expectations, gross margin falls short of expectations, risk of fluctuations in raw material prices, risk of market competition risk, risk of loss of technical talent; estimates are subjective and are for reference only.