Transmission and transformation products usher in a high degree of prosperity

As of September 12, the power equipment sector index rose by -10%, while the Shanghai and Shenzhen 300 Index rose by 0% over the same period. Benefiting from the stability of power grid construction, the best sub-branch in the power equipment sector is the power transmission equipment sector, which is -5.1%, which is also the best industry for the overall fundamentals; both the power generation equipment sector and the industrial electrical sector are used. The impact of electricity growth and the macroeconomic downturn was a drop of 20%. The relative stability of grid equipment growth brought excess returns within the sector, which is consistent with our judgment at the end of last year.

Power transmission equipment has the highest degree of prosperity: Affected by the bottoming out of grid investment construction, except for distribution transformer products, the income of other products has increased, and the highest growth rate is secondary equipment. The products with improved revenue and gross profit margins include medium voltage switches, energy meters and cables. From another month's change in the gross profit margin, the equipment also showed an upward trend in both revenue and gross profit.

Thermal power equipment revenue and gross profit margin increased at the same time, but the market conditions were poor: due to the over-expansion of natural gas power generation and the construction of industrial captive power plants, the growth rate of thermal power equipment increased by 11% year-on-year. Due to the drop in raw material prices and the increase in the localization rate of key components, the gross profit margin increased slightly. The pessimistic expectation for future growth in electricity consumption is a major factor in the poor thermal power industry.

The impact of the macroeconomic impact on industrial electrical equipment is obvious: The economic prosperity of industrial electrical equipment is most affected by the macroeconomic recession and the decline in investment in fixed assets. Among them, the improvement of new energy grid-connected standards for power quality products and the substitution effect on foreign investment products have brought about a simultaneous increase in revenue and gross profit margin. The market demand for motor transmission and DC power products has declined, and the competition has been fierce. The gross profit rate has declined rapidly.

Industry Ratings and Recommendations: Maintain the industry's “Leading Market-B” rating, recommend secondary equipment companies with strongest deterministic performance, and high-voltage primary equipment companies with reversal of performance, and continue to focus on distribution switch companies.

The key recommendations are NARI, Sifang, XJ Electric, Siyuan Electric and Hegao Electric.

Risk Warning: 1. The risk of the grid company changing the investment plan; 2. The continued decline in electricity consumption growth risk; 3. Macroeconomic risks continue to bottom out.