Zhixuan Finance APP learned that Xinda Securities released a research report stating that the power equipment sector maintains a high prosperity, and power equipment companies are expected to realize profit performance. It is expected that the second half of the year will be a peak in power grid investment, and under the current economic situation, the role of power grid companies in countercyclical regulation is relatively important. Furthermore, as the proportion of new energy continues to increase, the power grid needs to be expanded and upgraded for smart distribution, making it urgent to promote power grid construction. Therefore, Xinda Securities believes that power grid investment is expected to move upward. In terms of direction, UHV and main grid investment may remain at a high level, and investment in distribution network is expected to marginally improve.

The year of large-scale power grid investment redemption is gradually coming true, and the power equipment sector maintains high prosperity. The power equipment sector maintains a high prosperity, and power equipment companies are expected to realize profit performance. Looking at the whole year, in 2023, the power equipment sector achieved operating income of 319.6 billion yuan, a year-on-year increase of 15.8%; realized net profit attributable to shareholders of the parent company of 20.6 billion yuan, a year-on-year increase of 8.3%, and the overall net profit margin of power equipment companies remained stable. In terms of different sectors, the revenue growth rate of high-voltage equipment was higher.

The pressure of new energy consumption catalyzes the acceleration of power grid investment, and we continue to be bullish on the future power equipment market. The development of wind power and photovoltaic industries in China is rapidly increasing, and the proportion of power generation and installed capacity is increasing year by year, bringing considerable pressure to the power grid. The basic construction investment of the power grid in Q1 2024 was 76.6 billion yuan, a year-on-year increase of 14.7%. Xinda Securities predicts that the second half of the year will be a peak in power grid investment, and under the current economic situation, the role of power grid companies in countercyclical regulation is relatively important. Furthermore, as the proportion of new energy continues to increase, the power grid needs to be expanded and upgraded for smart distribution, making it urgent to promote power grid construction. Therefore, Xinda Securities believes that power grid investment is expected to move upward.

As for the direction, UHV and main grid investment may remain at a high level, and investment in distribution network is expected to marginally improve. The gap between power consumption and generation in various regions of China is gradually widening, driving the demand for inter-provincial power transmission. In 2023, the construction progress of UHV direct current is relatively fast and is carried out in stages. Looking forward to the second half of the year, Xinda Securities believes that the progress of UHV is still behind the planning target, and investment is expected to remain at a high level. The growth rate of distribution network construction is stable in 2023. From a longer perspective, as distribution network investment is a key investment in the 14th Five-Year Plan, Xinda Securities predicts that after the main grid construction is completed, the investment in distribution network will marginally improve. Specific directions include the intelligentization of power transmission and distribution processes, improvement of power quality, and intelligentization of residential electricity use.

The demand for power equipment overseas is improving, and the development of power equipment going global has brought important development opportunities. The export of electrical equipment is on the rise, mainly driven by the increase in overseas new energy installation and the pressure of power grid demand brought by consumption. Globally, China, the United States, and Europe are major countries for power grid investment. In 2022, the total global power grid investment was US $332 billion, of which China accounted for US $83 billion, the United States accounted for US $89 billion, and Europe accounted for US $65 billion. The investment in power grid of China, the United States, and Europe accounts for about 70%. The EU has released a ten-year power grid investment plan, and the investment in European power grid has increased. Globally, smart meters are one of the main directions of digital investment, and the coverage rate of smart meters in most countries is still not high. In addition, the rapid development of AI may lead to power shortages and shortages of supporting electrical equipment. In recent years, the export amount of transformers in China has increased, and the proportion of large-capacity high-end transformers has increased. We suggest paying attention to enterprises related to the export of power equipment, and first-mover advantages are expected to benefit.

Investment advice: 1) Suggest focusing on relevant targets in the high-voltage sector: Sieyuan Electric, Beijing Sifang Automation, Changgao Electric Group, Nari Technology, Henan Pinggao Electric, XJ Electric Co., Ltd., etc. 2) Suggest focusing on related targets in mid-voltage sectors of the distribution network, such as Shijiazhuang Kelin Electric, Hangzhou Shenhao Technology, and Yijiahe Technology; virtual power plant system platform construction related targets such as Beijing Sifang Automation, Nari Technology, Su Wen Electric Energy Co., Ltd., Acrel Co., Ltd., State Grid Information & Telecommunication, Langxin Group, etc.; virtual power plant operation-related enterprises such as Zhejiang Sunoren Solar Technology, Qingdao T-good Electric, Jinko Power Technology. 3) Power equipment is exported globally, and overseas demand has been good in recent years. It is recommended to focus on the initial release of targets such as Sieyuan Electric, Jinpan Technology, Hexing Electrical, and Wasion Holdings.

Risk warning: Power grid investment is lower than expected, raw material price fluctuations, power grid construction progress is lower than expected, and market competition intensifies.