Power Equipment and New Energy: Policy Catalyzed Investment Value

As of July 11, 2014, among the 140 listed companies in the power equipment new energy industry, 69 have disclosed their performance forecasts for the first half of 2014. Among them, 47 companies experienced year-on-year growth, accounting for 68%. There are 4 companies that turned losses into profits year-on-year, and 6 companies are expected to incur losses. The number of companies with year-on-year growth in the range of 0~30% is the highest, with 21 companies, accounting for 30% of the currently disclosed figures.

Core viewpoint: Benefiting from the continuous promotion of favorable policies, the power equipment new energy industry is generally expected to achieve continuous improvement in performance in the first half of 2014. The wind and solar nuclear new energy sector performed better compared to the traditional power generation sector, with significant performance growth in the ultra-high voltage and smart grid transmission and transformation sectors. The performance of the new energy vehicles and power equipment sectors is also impressive. Among the 9 listed companies being closely tracked, two have disclosed forecasts: Pinggao Electric and XJ Electric, both with performance growth exceeding 50%. It is predicted that among the remaining 7 companies, 6 are expected to achieve rapid positive growth, except for Sifang Co., with Longi Green Energy's growth rate expected to reach 400%~600%.

The wind and solar nuclear new energy sector performed better compared to the traditional power generation sector. Relevant individuals believe that the fundamentals of the wind power industry have continued to improve this year, and the trend of net profit growth in the industry is expected to rebound in the second half of the year. The photovoltaic industry is also in a reversal and rising stage, and the profitability of major industry chain enterprises will improve season by season. Companies benefiting from the domestic power station market's initiation, such as inverters and those actively participating in power station construction, are worth watching. Due to the decline in macroeconomic growth and the adjustment of industrial structure, the growth rate of electricity consumption remains low, and the prosperity of thermal power equipment is not high.

The performance growth in the ultra-high voltage and smart grid transmission and transformation sectors is significant. In the first half of 2014, grid investment increased by nearly 5% year-on-year. Under the main theme of comprehensive smog control and significantly enhancing the overall level of China's equipment manufacturing industry, benefiting from the large-scale development of ultra-high voltage transmission projects, the continuous upgrading and transformation of distribution network intelligence, and the low prices of bulk raw materials, the performance growth in the high-voltage switchgear sector, cable sector, and distribution network automation sector is significant, and it is expected to maintain a long-term favorable prosperity.

The performance of the new energy vehicles and power equipment sectors is impressive. From the current situation, benefiting from the new energy vehicle boom ignited by Tesla, the power equipment sector, battery sector, and electric control sector have all achieved rapid growth, and the prosperity of the electricity consumption sector continues to rise in the first half of the year.

Investment suggestion: Based on the forecast of semi-annual and annual performance, it is recommended to pay attention to Aotexun and Huichuan Technology, which have high performance growth in the electricity consumption field, as well as Guodian Nari, XJ Electric, Pinggao Electric, and Senyuan Electric in the transmission and transformation field, and Sunshine Power and Longi Green Energy in the power generation field.

Risk warning: 1. The decline in electricity consumption growth exceeds expectations; 2. The growth rate of grid investment is lower than expected.