According to the news from the Smart Finance app, China International Capital Corporation (CICC) released a research report pointing out that global grid investment is resilient, and going abroad is still an important driving force for high-quality enterprises to achieve growth. CICC believes that in the context of energy transformation, cross-border connectivity, and the renovation of old power systems, Europe is one of the regions with strong demand for electrical equipment in recent years. As the largest importer of transformers in the European Union, Chinese companies have certain performance and brand foundation, and are expected to further open up the European market with their technological strength and cost advantage.

CICC's main points are as follows:

Macro: Clear growth in installed power generation capacity and electricity consumption, and continuous enhancement of operator plans to accelerate grid investment.

The new British government has set more ambitious goals for clean energy installation, and strongly supports the popularity of electric vehicles and hydrogen production through electrolyzers. Bloomberg New Energy Finance (BNEF) predicts that by 2030, UK's electricity demand is expected to increase by 25% compared to 2023. The left party's advantage in the French parliamentary elections is seen by BNEF as an indication that France will continue to actively promote energy transition in the next five years. While there is uncertainty in the energy policies of the US presidential election, the stable base of existing infrastructure, combined with clear growth in power generation capacity and the resurgence of electricity consumption driven by reindustrialization and AI, lead us to believe that grid investment still needs to be accelerated. In addition, looking at the Capex plans of multiple European and American grid operators such as NGG, Elia, ENEL, Exelon, and Duke, there is a continuous increase in grid planning, which improves the certainty of investment implementation.

Medium-term: Steady growth in China's exports of electrical equipment, bullish on the demand opportunities in the European market.

From January to July 2024, China's major exports of electrical equipment increased by 17.2% year-on-year, maintaining steady growth, with the growth rate of exports to the European market particularly impressive at 23.9% year-on-year. We believe that in the context of energy transformation, cross-border connectivity, and the renovation of old power systems, Europe is one of the regions with strong demand for electrical equipment in recent years. As the largest importer of transformers in the European Union, Chinese companies have certain performance and brand foundation, and are expected to further open up the European market with their technological strength and cost advantage.

Micro perspective: 2Q24 performance verifies the continuation of prosperity, bullish on the growth potential of Chinese companies under the overflow of orders.

Front-end demand is relatively strong, with a sustained impressive performance in 2Q24 revenue growth and BB Ratio indicators. Hitachi and GEV's upward revision of full-year performance guidance for the power equipment industry reflects their development confidence. At the same time, leading manufacturers maintain high order backlog, further highlighting the overflow effect of orders. Second-tier brands like Hyundai Electric are accelerating their growth. We also have confidence in the future potential of excellent Chinese manufacturers in securing orders. In the back-end stage, there is noticeable performance differentiation, mainly due to different downstream structures. Datacenter and utilities-related demand are leading in growth, while the traditional construction market remains weak. In the metering segment, European and American manufacturers' competitiveness is continuously declining in emerging markets, while Chinese companies are expanding their presence. In the cable segment, there is high demand for European grid interconnection and wind power support.

Risk

Overseas grid investment fell short of expectations, risks from changes in international trade policies, and exchange rate fluctuations.