Incident: The company released its 2020 annual report, achieving total operating revenue of 137.285 billion yuan, an increase of 7.67% over the previous year; achieving net profit attributable to shareholders of the parent company of 3.758 billion yuan, an increase of 7.34% over the previous year.
The three major sectors formed advantages in industrial linkage and collaborative development, with abundant on-hand orders: during the reporting period, energy equipment achieved revenue of 55.96 billion yuan, +21.8% year on year, mainly due to wind power business growth; industrial equipment achieved revenue of 42.177 billion yuan, -9.1% year on year, mainly due to the decline in the industrial infrastructure and intelligent manufacturing equipment business due to the impact of the epidemic; integrated services achieved revenue of 52.232 billion yuan, +17.9% year on year; mainly the energy engineering and service business grew rapidly. During the reporting period, the company added 185.55 billion yuan in orders, +8.7% over the same period; by the end of the reporting period, the company had orders of 276.09 billion yuan, +14.7% over the same period last year, and there were plenty of on-hand orders.
Energy equipment transformation has achieved remarkable results. Nuclear power orders have quadrupled: energy equipment achieved revenue of 55.96 billion yuan, an increase of 21.8% over the previous year, mainly due to the rapid growth of the wind power business; the gross profit margin was 17%, -0.7 percentage points over the previous year, mainly due to fierce competition in the coal-fired power generation equipment market, and the sales structure of wind power products changed. The company actively changed from traditional thermal power units to a diversified unit pattern. Production and sales of boilers, steam turbines, and generators declined year-on-year during the reporting period, with new orders for nuclear power added 7.4 billion yuan, five times that of 2019. In the context of carbon neutrality, the company is speeding up the adjustment of energy equipment structures, vigorously developing wind power, and developing green, efficient and clean thermal power equipment.
The wind power business benefited from the rush to install electric wind power. The company's fan production in 2020 was 5.5 GW, with sales volume of 5.1 GW, and sales volume +151% year on year, mainly due to the rush installation of onshore wind power when subsidies expired; wind power orders were added 29.1 billion yuan, an increase of 30% over the previous year. It is expected that offshore wind power will maintain high growth in 2021.
According to GWEC, domestic offshore wind power added 3.06 GW of installed capacity in 2020, with a cumulative installed capacity of 9.9 GW. The company will benefit from this as a leader in offshore wind power generation. Looking at the medium to long term, the installed capacity of wind power, as representative of renewable energy, will still be quite impressive during the “14th Five-Year Plan” period. The company's spin-off of its subsidiary Electric and Wind Power achieved phased results, and has successfully passed the listing approval.
Investment in scientific research continued to increase, and innovative results were emerging at an accelerated pace: the company spent 4.854 billion yuan on R&D during the reporting period, an increase of 18.74% over the previous year, accounting for 3.58% of operating income, and the number of R&D personnel accounted for 9.52% of the company's total number. The company added an order of 3 billion yuan for energy storage equipment, and Electric Guoxuan's Nantong Lithium Battery Smart Factory was officially put into operation; the company completed the development of a 1000V high-efficiency lithium battery energy storage system and operated it on the “Qinghai Golmud 32MW/64MWh Shared Energy Storage Power Station”. The “Nebula Zhihui” Industrial Internet Platform added 26,865 new devices, with corresponding assets worth 24.7 billion yuan, and the capacity to carry business at the group level.
Profit forecast, valuation and rating: Domestic wind power installations in 2020 exceeded expectations. The company is expected to benefit from Haifeng in '21, raising the net profit forecast for 2021-22 (3%/2%), adding a new forecast for 2023. The estimated net profit for 21-23 is 42.72/46.87/5.107 billion yuan. The corresponding EPS is 0.27/0.30/0.33 yuan. Shanghai Electric (A)'s current stock price corresponds to 21 PE in '21, and Shanghai Electric (H)'s current stock price is 9 times that of '21. As a leader in offshore wind power, the company has plenty of on-hand orders and is expected to continue to benefit from the development of offshore wind power and maintain the “buy” ratings for A and H shares.
Risk warning: Industrial policy changes affect the company's business, overseas political and economic risks, and exchange rate fluctuations.