Matters:
On May 21, 2020, Tianneng Heavy Industries signed the “Shanwei Offshore Engineering Base (Lufeng) Construction Project Investment Cooperation Agreement” with the Lufeng Municipal People's Government and CGN New Energy South China Branch. The company plans to invest in the construction of offshore wind power supporting equipment manufacturing projects with an annual output of 400,000 tons at the Shanwei Offshore Engineering Base (Lufeng), including offshore wind turbine towers, single piles, multi-pile conduit foundations, etc. The total investment (framework) amount (framework) is about 600 million yuan. The company invested 100 million yuan in 2020, and is expected to start 50% of production in 2021 and fully reach production in 2022.
Guoxin Telecom's new opinion: 1) Guangdong Province guaranteed the installation of offshore wind power through local subsidies during the 14th Five-Year Plan period as a probable event. 2) Currently, Guangdong has no large-scale manufacturing capacity for offshore wind towers and piles. 3) The 400,000-ton production capacity plan ensures that the company monopolizes more than half of Guangdong's offshore wind power demand, and the market layout is timely. 4) The company will rapidly transform into the largest domestic offshore wind power infrastructure manufacturer. 5) Risk warning: Consumption bottlenecks in the wind power industry have caused the industry's installed demand to fall short of expectations; offshore wind power policies have fallen short of expectations. 6) Investment advice: The company strategically lays out the core offshore wind power circuit. It is expected that revenue and profitability will increase rapidly in the next three years. Considering that no production or orders have been obtained, the profit forecast is expected to be 1.69/2.26/2.61 yuan per share for 20-22, corresponding to the dynamic PE of 8.5/6.3/5.5X; maintain a reasonable valuation range of 20.8-25.1 yuan/share, a 46%-76% premium over the current stock price, maintaining the “buy” rating.
Comments:
During the 14th Five-Year Plan period, Guangdong Province rapidly developed offshore wind power in offshore deep-water areas. On May 6, 2020, the Guangdong Provincial Energy Administration issued the “Guangdong Province Action Plan for Cultivating New Energy Industry Clusters (Draft for Comments)”. It plans to expand the scale of the new energy industry and plan to increase the installed capacity of new energy by 29 GW (including wind power, photovoltaics, biomass) in the 14th Five-Year Plan, with an annual average of close to 6 GW, reaching a cumulative total of 42 GW. By 2022, Guangdong Province will mainly develop 15 offshore wind farm sites in shallow offshore areas (within 35 meters of water depth), with a total installed capacity of 9.85 GW; after 2022, Guangdong will launch 8 large-scale offshore wind farms in deep-sea areas (35-50 meters deep) with an installed capacity of 57 GW, distributed in eastern Guangdong and western Guangdong. In May of this year, the National Energy Group announced that the winning bidder for the investment opportunity research service for the first phase of the Shantou deep-water offshore wind power project was won by China Power Construction's Zhongnan Research Institute for 38.95 million yuan. This move indicates that major power central enterprises have begun preparing investment projects in the near deep-water areas of Guangdong two to three years later. The CGN Group is also actively seeking related offshore resources by driving industrial development.
First to start production and monopolize half of Guangdong, the company may transform into the largest offshore wind power pile base and wind tower manufacturer in China. According to the “Guangdong Offshore Wind Power Development Plan (2017-2030)”, Guangdong Province plans to build 30 GW of offshore wind power by 2030. We expect to start relaying central subsidies in 2022 and providing appropriate local subsidies to the offshore wind power industry. It is expected that 2022-2024 will add about 2-3 GW of offshore wind power installations every year.
Currently, there are no large-scale manufacturers specializing in offshore wind towers and pile foundation manufacturing in Guangdong Province. Based on the calculation that each MW requires a total of 300 tons of offshore wind towers and piles, it is estimated that starting in 2022, Guangdong Province will add 2.5 GW of offshore wind power installations. The annual demand for related products will be 750,000 tons. This time, the company plans to start production capacity of 400,000 tons. If production is successfully put into operation, it will take up half of the Guangdong offshore market.
The company currently has nine major production bases in the country, with a total production capacity of 360,000 tons, including 100,000 tons of offshore wind power in Xiangshui, Jiangsu, and will gradually be put into operation in Guangdong to 400,000 tons in the future. The company's offshore wind power business share will rapidly increase, and it will transform into the second largest wind tower and pile manufacturer in the domestic industry and the largest wind tower and pile foundation manufacturer in the offshore wind power market segment, achieving enterprise leaps and bounds.
Considering that no actual production and valid orders have been obtained, the company's wind tower sales volume in 2020-2022 is expected to be 34/40/450,000 tons respectively. The restart construction of the Sanbei University base will bring significant business growth to the company in 2022. At the same time, the popularity of models with towers over 150 meters in Shandong and Henan regions has also increased the installed demand and market concentration of regional wind towers. As market concentration increases and steel price trends are adjusted, wind tower bidding prices and sales costs are expected to remain at the level of 2020. The company's net profit per ton of steel stabilized at around 2,220 yuan.
Investment advice
The company strategically lays out the core track for offshore wind power. It is expected that revenue and profitability will increase rapidly in the next three years. Considering that no production or orders have been obtained, profit forecasts are temporarily maintained. It is expected that earnings per share for 20-22 will be 1.69/2.26/2.61 yuan, corresponding to the dynamic PE of 8.5/6.3/5.5X; maintaining a reasonable valuation range of 20.8-25.1 yuan/share, a premium of 46%-76% over the current stock price, maintaining the “buy” rating.
Risk warning
Consumption bottlenecks in the wind power industry have caused the industry's installed demand to fall short of expectations; offshore wind power policies have fallen short of expectations.
