The leading dry-type transformer company has developed the energy storage business as the second growth curve. The company is one of the few domestic and foreign companies that can produce wind power dry-type transformers in the field of wind energy. Its products are mainly aimed at the middle and high-end markets. The company is one of the main suppliers of wind power dry-type transformers for the top five fan manufacturers in the world, such as VESTAS, GE, and SIEMENS Gamesa. In terms of production capacity, the company has a total production capacity of 3.9 GWh at its two energy storage bases in Wuhan and Guilin; in terms of products, the focus is on medium and high voltage direct hanging (cascade) energy storage systems, which have the two major advantages of cost and performance, and are technically the same as the company's original core technology. The company's new energy storage system orders in 2023 reached 0.641 billion yuan (excluding tax), an increase of 144.87% over the previous year.

The cost advantage is prominent, and the dry-changing global market size is expected to reach $9.2 billion by 2028. Compared with oil-immersed transformers, dry-type transformers have the advantages of high safety, small size, low maintenance cost, etc., and are more suitable for placement in towers. Take the 4.5 MW model as an example. Compared with the traditional “oil change+box to bottom” scheme, the “dry+box to top” scheme can save 1.1096 million yuan in cable+wire loss costs, accounting for 14.51% of the cost of a single fan. According to Markets And Markets, the global dry-type transformer market is expected to reach a market size of 9.2 billion dollars in 2028, with a CAGR of 6.8% in 2023-2028. In addition, dry-type transformers are also widely used in rail transit, energy saving, etc., further opening up industry space.

Issuing convertible bonds to expand the digital production capacity of energy storage+transmission and distribution equipment. In September 2022, the company registered to issue convertible bonds for a period of 6 years. As of March 31, 2024, the amount of convertible bonds that have not yet been converted was RMB 0.966 billion, accounting for 98.92% of the total amount of convertible bonds issued. The funds raised this time are mainly used to expand the production capacity of energy storage, transmission and distribution facilities. As of June 30, 2024, the Wuhan Digital Factory and the Guilin Digital Energy Storage Plant have all reached the scheduled state of use.

Investment proposal: We expect the company to achieve operating income of 7.39 billion yuan/9.435 billion/ 12.289 billion yuan in 2024-2026, and achieve net profit of 0.596 billion yuan/0.814 billion yuan/1.118 billion yuan. The corresponding PE was 22.34/16.35/11.90 times, respectively. It was covered for the first time, and a “gain” rating was given.

Risk warning: new wind power/photovoltaic installations fall short of expectations, risk of rising raw material prices, risk of deteriorating competitive landscape, risk of exchange rate fluctuations