Key points of investment:
Promote market-based development and create new drivers for new businesses. The company is one of the largest comprehensive equipment manufacturing enterprise groups in China. The company has continuously developed new businesses in recent years, such as energy saving and environmental protection (rural domestic sewage treatment), energy storage, industrial Internet, smart cities, fuel cells, etc., which are expected to contribute new growth drivers to the company in the medium to long term.
Energy saving and environmental protection: The water treatment business is advancing rapidly. The company has built a complete industrial chain covering engineering+design, technology+products, operation+service, focusing on the fields of power plant environmental protection, solid waste treatment and water treatment. In 2019, the company's new environmental engineering and service orders increased 111.3% year-on-year.
Energy storage: phased and sector-specific layout. As a leading domestic energy equipment enterprise, the company lays out lithium batteries, liquid flow batteries, fuel cells and decommissioned battery systems in stages and fields. The company cooperated with Guoxuan Hi-Tech and received numerous projects such as Daxing International Airport, Xiong'an New Area, Beiqi Futian, and Nantong New Energy Bus.
Industrial Internet: “Nebula Zhihui” and “e-Station Connect” have been launched one after another. In 2019, the company launched the “Nebula Zhihui” industrial internet platform, which has now connected nearly 100,000 main devices such as elevators, fans, and power plants. The “e-Station Connect” spare parts e-commerce platform was launched to initially form industry solutions such as intelligent operation and maintenance of wind power, remote operation and maintenance of thermal power, and machine tool maintenance.
Intelligent manufacturing: Deeply involved in smart factories, operation and maintenance, supply chains, etc. The company uses digital, networked and intelligent means to build industrial clusters that serve smart cities and form Shanghai Electric's intelligent intelligence.
The company's current demonstration projects cover industrial zones, steam turbine generator plants, rail transit, deep processing of aquatic products, etc.
Elevators: New additions and stock modifications drive demand together. The company is a leading domestic elevator company. In recent years, demand in the elevator industry has been mainly driven by new real estate construction, maintenance, and renovation of old elevators. Shanghai Mitsubishi is the domestic elevator leader. The company continues to maintain close cooperation with core partners such as Evergrande, CNOOC, Greenland, and Country Garden; at the same time, it is strengthening the tracking of core and major projects in second- and third-tier cities.
Offshore wind power: The market is growing rapidly, and the company is the leader of Haifeng. After 2022, the feed-in tariffs for offshore wind power will follow the guide prices for the year they are connected to the grid, and the enthusiasm for more installations in the next year is guaranteed. The company is the largest manufacturer of offshore wind turbines in China and will benefit from industry growth dividends.
Profit forecasts and investment recommendations. It is estimated that in 2020-2022, the company's net profit will be 4.07 billion yuan, 4.651 billion yuan and 5.459 billion yuan respectively, with growth rates of 14.5%, 16.1% and 17.4% respectively. Corresponds to earnings of $0.26, $0.31, and $0.36 per share. Combining the company's market position, business layout, growth and peer valuation level, the company was given 25-30XPE in 2020, corresponding to a reasonable valuation range of 6.5 yuan to 7.8 yuan, covered for the first time, and given a “superior market” rating.
Risk warning. The decline in the coal-fired unit industry has exceeded expectations, and the progress of new business expansion has fallen short of expectations.