中国电力设备行业策略分析

1、By: Corey Chan (S1700518100001)Equity ResearchReportElectricalApril HYPERLINK / SPOTLIGHT &reportbepartWhy read this report?We are bullish on investment in Chinas power grid and expect itto surge in 2019-21e, as it has been historically used as a tool to smooth out economicdowncyclesWe find valuatio

2、n for the A-share power T&D industry attractive and expect better order flow to drive stockpricesWe explain why we think Nari Technology, Pinggao Electricand Chint Electrics are best positioned tobenefitThe key messagesChinas industrial strength has been built on many pillars, and one of the most im

3、portant is the countrys huge power grid. To meet the ever-increasing demand for electricity, China has been expanding its ultra-high voltage (UHV) network which is used to carry power over long distances, making it a perfect match for the countrys challenging geography.China has the most UHV lines i

4、n the world and this network is creating a bridge between the resources-rich western provinces and the power-hungry eastern regions. The new UHV grid is also helping the country make the transition to renewable generation as it attempts to reduce its reliance on coal and cut levels ofpollution.Corey

5、 Chan* (S1700518100001)Head of A-share Infrastructure ResearchHSBC Qianhai Securities Limited HYPERLINK mailto:corey.chan corey.chan+86 755 8898 3404* Employed by a non-US affiliate of HSBC Securities(USA)Inc,andisnotregistered/ qualified pursuant to FINRAregulationsAfter two years of stagnant growt

6、h, we expect a resurgence in investment in Chinas power grid over 2019-21. With the slowdown in the economy, we expect the government to give investment in power grid a major boost. Grid investment, just like infrastructure investment, has been historically used as a tool to smooth out economic cycl

7、es.The government is working to encourage investment in power infrastructure and to reduce the curtailment rate energy produced but not dispatched to the grid of power from renewable energy sources. We see two areas that can drive grid investment and, in turn, demand for power transmission and distr

8、ibution (T&D) equipment:More UHV network investment: Additional investment spurred by the National Energy Administration (NEA) plan to construct 12 ultra-high voltage lines (the 7 AC & 5 DC program);More distribution network investment: Additional investment to boost network expansion and increase t

9、he automation of the distributionnetwork.We believe the potential upside is not priced in. The A-share power T&D sector is trading at an average 17x 2019e PE, below its historical average PE of 25x since 2012. A-share power T&D stocks have historically moved in line with UHV investment and have outp

10、erformed when equipment order flow is strong. Nari Technology, Pinggao Electric and Chint Electrics are our preferred stocks.Contents HYPERLINK l _bookmark0 Why readthisreport?1 HYPERLINK l _bookmark1 Facts andfigures3 HYPERLINK l _TOC_250000 Relatedresearch4 HYPERLINK l _bookmark2 Stepping onthepow

11、er5 HYPERLINK l _bookmark3 Cyclical uptickunderway14 HYPERLINK l _bookmark4 Ourstock-pickingframework31 HYPERLINK l _bookmark5 Companysection37 HYPERLINK l _bookmark6 Nari Technology(600406CH)38 HYPERLINK l _bookmark7 Xuji Electric(000400CH)50 HYPERLINK l _bookmark8 Pinggao Electric(600312CH)60 HYPE

12、RLINK l _bookmark9 TBEA(600089 CH)71 HYPERLINK l _bookmark10 Chint Electrics(601877CH)82 HYPERLINK l _bookmark11 Glossary92 HYPERLINK l _bookmark12 Disclosureappendix94 HYPERLINK l _bookmark13 Disclaimer97Facts and figuresRMB537bnChinas power grid investment in 2018, flattish y-o-y65%Historical corr

13、elationbetween infrastructure and grid investmentRMB70bnEquipment demand from the 7 AC & 5 DC program set to kick-in in 2019-21We expect a boost to grid investment to counter the economic slowdown and to reduce curtailment from renewable energy sources, leading to significant upside to power equipme

14、nt demand5%p.aWe expect a boost to grid investment to counter the economic slowdown and to reduce curtailment from renewable energy sources, leading to significant upside to power equipment demandOur forecast of power grid investment CAGR in2018-21e15% p.adriven by strong UHV network investment in 2

15、018-21e4%p.aForecast of distribution network investment in2018-21eWhile the UHV network investment could be one-off, demand for equipment in the power distribution network should sustain in the long runRMB100bnWhile the UHV network investment could be one-off, demand for equipment in the power distr

16、ibution network should sustain in the long runAnnual equipment demand of power distribution network in2019-20e60%in is 17%p.aleading to immense growth potential for secondary distribution equipment in2018-21eRelated researchRecommended reading. HYPERLINK /R/52/XgHgBFb China Engineering & Constructio

17、n: Initiate up to a sector 9 November 2018Stepping on the powerThe valuation of the A-share power T&D industry has historically moved in step with grid investment. With grid investment recovering due to more ultra-high voltage (UHV) construction, we expect the sector to re-rate. In addition to the a

18、cceleration in UHV investment, we see upside in spending on power equipment as the level of automation in the distribution network rises. We believe there will be opportunities ahead for equipment makers to tender for projects. Our preferred stocks are Nari Technology, Pinggao Electric and Chint Ele

19、ctrics.Upside from accelerating grid investmentChinas power network investment was down by 2% in 2017 and flattish in 2018. We expect that to increase by 14% in 2019 on accelerated investment in ultra-high voltage (UHV) lines. On 7 September 2018, the National Energy Administration (NEA) announced p

20、lans to construct 12 UHV lines (the 7 AC & 5 DC program). We estimate a total investment of RMB190-200bn. Only four of the lines have been approved. The total investment of the remaining lines pending to be approved could top RMB140bn, we estimate. This should represent significant upside to the pow

21、er grid investment of RMB540bn in 2018.In addition to this round of UHV investment, in the long term, we also see growth from the development of grid automation in the distribution network. Currently, only 60% of Chinas distribution network is covered by grid automation systems. This leaves a long w

22、ay to go to reach the governments target of 90% by 2020. Developed nations such as France and Japan have much higher distribution automation coverage ratios at 90-100%. As a result, we expect secondary distribution equipment to see a 17% demand CAGR in 2018-21e.We think a large part of the investmen

23、t will take place in 2019. This is because grid investment, just like infrastructure investment, has been historically used as a tool to smooth economic cycles. With the slowdown in Chinas economy, we expect a boost to be given to power grid investment. This is consistent with our view of an acceler

24、ation in infrastructure fixed asset investment (FAI) growth in 2019.We do not expect there to be too much difficulty funding increasing grid investment. The State Grid Corporation of China (State Grid), which is responsible for over 90% of the grid investment, has successfully deleveraged over the y

25、ears, with net gearing dropping from over 40% in 2015 to 34% in 2018. In addition, other funding sources are opening up. State Grid said on 27 December 2018 that, as part of its 10 reform initiatives, it plans to invite private sector to invest in UHV and power distribution projects. We think this c

26、ould alleviate the capex burden on State Grid for grid construction.The acceleration in project approvals and the subsequent equipment tendering could provide catalysts for the power transmission and distribution (T&D) equipment sector. Historically, tendering results have driven the share price per

27、formance of leading equipment makers. As shown in Exhibit 3, Henan Pinggao Electric, the largest UHV gas insulated switchgear (GIS) maker in China, outperformed the benchmark index when order flow is strong and vice versa. With rising grid investment ahead, we believe the industry, trading at a 17x

28、2019e PE (below historical average valuation of 25x), is on the cusp of a re-rating.Nari Technology (Nari), Henan Pinggao Electric (Pinggao), and Zhejiang Chint Electrics (Chint) are our preferred stocks. We like Nari for its strong R&D capability, market leadership in secondary equipment, and poten

29、tial upside from insulated-gate bipolar transistor (IGBT) and internet of things (IoT). For Pinggao, we like its high exposure to power transmission equipment which we expect to see a cyclical upswing in 2019-20. We like Chint for its attractive valuation and margin upside from price increases.Exhib

30、it 1. A-share power T&D: Industry trading at low end of historicalvaluationExhibit 2. A-share power T&D: Valuation moves in tandem with UHV investment approvals45.040.035.030.025.020.015.010.05.0-Jan-12Jan-14Jan-16Jan-18PEMean+1SDRMB bnRMB bn-Jan-12Jan-14Jan-16Jan-18PE(LHS)UHVinvestmentapproved160.0

31、140.0120.0100.080.060.040.020.0-Source: Wind, HSBC Qianhai Securities. Note: The sector index consists of 7 stocks including China XD (601179.SH) and Sifang Automation (601126.SH), in addition to the 5 names we initiate on.Source: Wind, HSBC Qianhai SecuritiesExhibit 3. Pinggao outperforms benchmark

32、 index when order flow is strongIndex (rebased on 2012.1.4)Contract Value (RMB mn)Index (rebased on 2012.1.4)Contract Value (RMB mn)50-Jan-12Jan-13Jan-15Jan-16Jan-17Jan-18PinggaoHS300Announcement of tendering results(RHS)25002000150010005000Source: Wind, HSBC Qianhai Securities.Why UHV lines are imp

33、ortantThe further electricity travels, the higher the energy loss along the way. However, it is possible to reduce the proportion of energy lost by stepping up the voltage. Therefore, to reduce the energy loss, UHV lines are used to carry electricity over long distances. Hence it is not surprising t

34、hat China has the worlds largest number of UHV line build-outs, given the countrys massive size and the long distance between the resources-rich western regions and the power- hungry eastern regions. Out of Chinas top 13 hydro power plants, seven are located in the southwest provinces. Of the countr

35、ys top 16 coal power plants, 14 are located in North China. In addition, wind power in the “Three North” area (Northwest, Northeast and North China) accounts for 77% of total wind power installation, while solar power in the West accounts for 41% of the total capacity. Given most energy is consumed

36、by the industrial zones in the east (the top four provinces in eastern China consumed 34% of total electricity in 2018), we believe the UHV lines are a means to bridge the supply with the demand. HSBCs Asia-Pacific Power, Utilities, and Renewables Research team expects that the development of UHV ne

37、tworks will benefit the renewable energy operators, especially wind farm utilities which have been experiencing high levels of curtailment. The team believes that approximately a third of the curtailment issues have to do with the lack of grid infrastructure. UHV is part of the answer.Concern about

38、the risk of cancellation of new lines is overdoneMany market participants are about of of new UHV lines due to lowutilizationoftheexistingWebelieveareespeciallyfortheUHV DC lines. to issued in 2018 studying the efficiency of the UHVlines,sixUHVDClinesreportedresultsoperatinghoursfromto 6,000 hours i

39、n 2016, or a utilization rate 4). We utilization to the development of more resources at the generation end. We the risks are certain UHV AC lines in central China. these lines altogetheraccountforlessthan20%ofourforecastUHVequipmentofExhibit 4. Utilization of the UHV DC lines are satisfactoryProjec

40、tVoltageTransmission capacityEffective hoursUtilization(kV)(GW)2016Yunan-Guangdong8005.0523759.8%Jinping(Guizhou)- South Suzhou8007.2532460.8%NuozhaduGuangdong8005.0529060.4%Xiangjiaba (Yunnan Sichuan border)- Shanghai8006.4509558.2%Xiluodu Yunnan Sichuan border - Jinhua(Zhejiang)8008.0459252.4%Hami

41、nan(East Xinjiang)- Zhengzhou8008.0403346.0%Source: NEA, HSBC Qianhai SecuritiesInitiate coverage of five A-share power T&D equipment makersNari TP is in R&D is well in UHV in key in in We 1) is in to on 21x a in Pinggao Electric (600312 CH, Buy, TP RMB13.7): We view Pinggao as the best name to play

42、 the UHV investment upcycle as the company has 50-60% revenue from power transmission equipment in 2017, the highest in its peer group. The companys key strength lies in UHV GIS, for which it has a dominant 40-50% market share in China. Parent Pinggao Groups participation in grid equipment leasing p

43、rojects with State Grid should support the listco in securing more distribution equipment orders, we believe. We expect its earnings to see exponential growth from RMB15m in 2018 to RMB774m in 2020e driven by the speeding up of UHV tendering and its market leadership in UHV GIS. In this context, val

44、uation at 20 x 2019e PE is still attractive, in ourview.Chint Electrics (601877 CH, Buy, TP RMB40.4): Despite being the largest supplier of low- voltage (LV) apparatus in China (c18% market share), the ASP of Chints LV apparatus has been well below that of competitors. We hence see considerable room

45、 for price hikes that could drive up the gross margin of the power equipment business. The companys deep cooperation with its dealers gives it a distinctive advantage in market coverage and cash generation. We believe the strong cash flow from the power equipment business can support growth of the p

46、hotovoltaic (PV) business which is asset-heavy in nature. Valuation at 14x 2019e PE is compelling, in ourview.TBEA (600089 CH, Buy, TP RMB11.8): The company is the largest UHV transformer manufacturer in China and one of the top five solar-grade polysilicon suppliers in the world. Weexpectaturnaroun

47、din FCFin2020eonlower capex.Weexpecttherenewableenergy products and solutions division (27% of revenue in 2017) to register a 20% revenue CAGR in 2018-21e on polysilicon capacity expansion and the companys extensive engineering and construction (E&C) backlog. Valuation at 14x 2019e PE is attractive,

48、 in ourview.Xuji Electric (000400 CH, Buy, TP RMB15.6): The companys key strength lies in DC & We like the companys exposure to both primary and secondary equipment for UHV DC transmission and power distribution. We in inWithin is We & isinWhere we are different from consensusof by IoT Pinggao Elect

49、ric: Our 2019 earnings estimate is 6% above consensus as we expect faster earnings growth for its high-voltage equipment division.Chint Electrics: Our 2019-20 earnings estimates are 5-6% above consensus as we expect faster earnings growth for its power equipment segment.Exhibit 5. HSBC Qianhai Secur

50、ities estimates vs. Consensus HSBCQianhaiestimates Consensus estimates VarianceCompanyRMBm201820192020201820192020201820192020NariRevenue26,55532,98038,38128,55032,20738,121-7%2%1%Net profit3,6204,6205,5113,9514,4335,230-8%4%5%PinggaoRevenue6,43810,08611,6818,83110,06912,078-27%0%-3%Net profit156227

51、74334587767-96%6%1%ChintRevenue25,38932,01436,13226,93931,71936,872-6%1%-2%Net profit3,4544,3725,2733,6574,1754,971-6%5%6%TBEARevenue41,43446,52549,24140,85244,31048,6101%5%1%Net profit2,1602,2933,0392,3082,4173,100-6%-5%-2%XujiRevenue8,21710,73711,7878,2179,93011,4260%8%3%Net profit2005927322006057

52、410%-2%-1%Source: Wind, HSBC Qianhai Securities estimatesNote: Net profit here is after distribution to preferred shareholders and to perpetual security holdersCompany catalystsin by 3) Pinggao: 1) rising market share in UHV GIS; 2) better-than-expected margin due to improving product mix; and 3) be

53、tter-than-expected order flows for the mid & low-voltage equipment segment driven by the parents participation in grid equipment leasing.Chint: 1) rising market share in LV apparatus; 2) better-than-expected margin due to price hikes of LV apparatus; and 3) faster-than-expected expansion of the dire

54、ct selling channel.TBEA: 1) faster-than-expected ramp-up of the new polysilicon capacity; 2) better-than-expected polysilicon margin due to stronger-than-expected solar industry demand growth; and 3) rising market share in transformers.Xuji: 1) better-than-expected primary and secondary equipment de

55、mand driven by better-than- expected grid investment; 2) rising market share in converter valve and HVDC control & protection system; and 3) better-than-expected margin due to improving product mix.ESGThe five companies have all set detailed guidelines for ethical management, safety management and s

56、ocial contributions, and follow Chinas market rules on corporate governance. Average board tenure for each of the five companies are all over two years. All five companies have independent board members accounting for over 30% of theboard.Exhibit 6. ESG indicators, 2017NariPinggaoChintTBEAXujiNo. of

57、 board members12109.011.010Average board tenure (years)5.03.7No. of female board members10231Female board members (%)8.3%0.0%22.2%27.3%10.0%No. of independent board members43343Board member independence (%)Source: Wind, Company data, HSBC Qianhai Securities33.3%30.0%33.3%36.4%30.0%Sector catalysts a

58、nd downside risksCatalysts: 1) asset restructuring of State Grid; 2) stronger-than-expected mixed-ownership reform of the State Grid that boosts investment in power network; 3) higher-than-expected electricity usage in China that could lead to more grid investment; and 4) higher-than-expected power

59、generation for renewable energy that could lead to more UHV construction.Downside risks: 1) delayed tendering schedule or cancellation of new UHV AC & DC lines; 2) lower-than-expected utilization of the existing UHV lines; 3) higher-than-expected receivable provision on delayed payment from State Gr

60、id; and 4) decline in electricity tariff that could lead to weaker balance sheet of grid operators and hinder new grid construction in turn.Equities ElectricalEquities ElectricalEquipmentApril201911Exhibit 7. China Power T&D Equipment: Valuation CompsCompanyStockCodeCurRatingTPClosingMarketCap.ADTV