As informed by the Securities Times app, Guolian Securities released a research report stating that the electrical utilities equipment industry is experiencing high growth in overseas exports and resonating with domestic ultra high voltage demand, showing a trend of increasing investment from the main network side to the distribution network side on the technological end. The current electrical utilities equipment features sustained investment growth, excellent performance, and a good supply pattern, bullish on the continuous improvement of industry prosperity, with equipment going global, ultra high pressure, and smart distribution network direction expected to benefit fully, achieving sustained growth.

Guolian Securities' main points are as follows:

The overseas export prospects of electrical utilities equipment are on the rise.

In the period from January to August 2024, China's total transformer exports amounted to $3.84 billion, a year-on-year increase of 25.9%; among them, the exports of liquid-immersed transformers were $2.45 billion, a year-on-year increase of 53.5%; with exports to Europe and the Americas increasing by 109% and 76% respectively. Since 2024, industry leaders Hitachi Energy and Siemens Energy have both announced transformer expansion plans of over $1 billion, considering the high start-up costs of transformer production capacity and the high demand for skilled labor, the expansion construction period is relatively long, further confirming from the investment plans of industry leaders that overseas transformer demand is expected to maintain high growth for a long time. Transformers and meters, as core export products that have already achieved market breakthroughs, leading suppliers are expected to see rapid development.

Ultra high pressure is entering an accelerated investment period, and high prosperity is expected to continue.

With the annual increase in the proportion of wind and solar installations in China, fluctuations in wind and solar output as well as absorption issues will bring operational pressure to the power grid, promoting accelerated growth in transmission side investments in the power grid in 2024. By August 2024, cumulative completed grid investment reached 333 billion yuan, up 23.1% year-on-year, a significant increase compared to the 5.2% full-year grid investment growth rate in 2023. According to the 14th and 15th Five-Year Plan, with a transmission gap of 275GW, corresponding to a 10GW wind and solar mega base external transmission scale for each ultra high voltage direct current line, it is estimated that 28 ultra high voltage direct current lines still need to be built. Assuming 3-4 ultra high voltage direct current lines are approved for construction each year, the high prosperity of ultra high voltage construction is expected to continue until the 15th Five-Year Plan. The increase in the proportion of new energy sources will enhance the rigid demand for ultra high voltage, driving the accelerated construction of ultra high voltage, benefiting the leaders in ultra high voltage equipment.

The intelligent transformation of the distribution network is expected to accelerate, forming a second growth curve.

As the construction of new power systems progresses, the distribution network is gradually transforming into a bidirectional comprehensive power network integrating sources, grids, loads, and storage interactions. We believe that through intelligent transformation, the distribution network can achieve orderly access of large-scale distributed power sources, flexible grid connection, and coordinated optimization of multiple energy sources. According to application scenarios, the key links of the intelligent transformation of the distribution network are the distribution substation (intelligent transformer, intelligent ring main unit), distribution lines (primary and secondary fusion pole-mounted circuit breakers), distribution terminals (smart meters), and monitoring systems (distribution comprehensive service platform). The peak of intelligent transformation of the distribution network is approaching, and equipment manufacturers with intelligent capabilities are expected to benefit first.

Investment advice: Focus on equipment going global, ultra high pressure, and intelligent transformation of distribution networks.

Guolian Securities believes that with the improvement of the prosperity of electrical equipment, equipment going global, ultra high pressure, and the intelligent transformation of distribution networks will fully benefit and are worth special attention.

1) Focus on the direction of going global, particularly on transformer and meter export leaders. It is recommended to pay attention to Jingpan Technology (688676.SH), Igor (002922.SZ), and Mingyang Electric (301291.SZ) in terms of the growth of business in the European and American transformer markets and the overseas transformer production capacity layout. Sufficiently benefit from the shortage of European and American transformers and have significant advantages in overseas revenue sharing and channels in the meter field, such as Sieyuan Electric (002028.SZ) and Hexing Electrical (603556.SH).

2) Focus on the ultra high pressure direction, particularly on the core equipment manufacturers in the ultra high pressure industry chain. It is recommended to pay attention to China XD Electric (601179.SH), XJ Electric Co.,Ltd. (000400.SZ), and Henan Pinggao Electric (600312.SH) under the China Electric Equipment Group.

3) Focus on the distribution network direction, particularly on the intelligent equipment manufacturers of the distribution network. It is recommended to pay attention to the secondary equipment leader of State Grid, Nari Technology (600406.SH).

Risk Warning: Risks of fluctuations in raw material prices, exchange rates; risks of changes in overseas policies; risks of ultra high pressure construction falling short of expectations; risks of distribution network policy advancement falling short of expectations.