China Merchants Securities: Electricity equipment orders maintain a high growth rate, demand from data centers continues to expand

The Zhitong Finance App learned that China Merchants Securities released a research report saying that recently, overseas power equipment companies such as GEV, Siemens Energy, Hitachi, and ABB have successively disclosed financial reports for the latest quarter, and new orders for the electrification business have maintained a high growth rate as a whole. Mainly, power infrastructure in Europe, America, the Middle East, Asia Pacific and other markets is driving the increase in equipment demand. Among them, AI power infrastructure is an important driving force. Global power grid investment is in an upward cycle. AIDC has increased the demand slope and continues to focus on companies that have gained opportunities in overseas markets and entered the localized operation stage in the terminal market, or companies that have penetrated the supply chain of large overseas enterprises.

The main views of China Merchants Securities are as follows:

Overseas CSP companies' cloud business continues to grow at a high rate, and capital expenditure is strong

The 26Q2 cloud business all increased sharply year over year, and the demand for enterprise-level AI was real and widespread; capital expenditure remained strong, 26Q2 increased sharply year over year, and Google, Amazon, and Meta all raised their annual guidelines.

The operating indicators of most leading overseas power equipment 26Q2 electrification businesses continued to improve

GEV, Siemens Energy, Hitachi, Hyundai Electric, Mitsubishi Electric, ABB, and Eaton 26Q2 electrification business revenue all grew by more than 20% year on year, and the overall operating profit margin showed a year-on-year upward trend. For example, Hyosung Heavy Industries had an operating profit margin of +4.3 pct year over year due to increased revenue contributions from high-margin products such as transformers and circuit breakers in the US.

New orders for the 26Q2 electrification business, a leading overseas power equipment company, maintained a high growth rate. Data centers are one of the important driving forces. Production capacity and delivery capacity are limited, and there is a continuous backlog of orders

1) New orders: New orders for GEV, Hitachi, Hyosung Heavy Industries, Hyundai Electric, and ABB 26Q2 electrification businesses all achieved rapid growth. Among them, GEV and Hitachi all achieved a year-on-year growth rate of over 90%. The overall quarterly growth rate of new orders from leading overseas power equipment companies in the past year showed an accelerated expansion trend, mainly benefiting from the expansion and upgrading of European and American power grids (data centers are one of the important driving forces) and the construction of new power grids in the Middle East and Asia Pacific.

2) Specifically: Hitachi's capital expenditure is gradually tilting towards the electrification business. The important driving force for Hitachi Energy's order growth is large-scale HVDC projects, which still account for a small share of data centers; GEV 26H1 data center orders exceed 5 billion US dollars; Siemens Energy's orders in all business areas have increased, with transformers contributing the most, including demand from data center-related projects; Hyundai Electric said that negotiations on the supply volume of transformers in North America will exceed the current contract size; Hyosung Heavy Industries North American power grid equipment has high gross profit Orders continue to expand; strong orders from Mitsubishi Electric are mainly driven by the expansion of renewable energy applications and increased investment in data centers; ABB's electrification business mainly products are medium- and low-voltage switches, etc., and data center orders have maintained three-digit growth, and electrification orders outside of data centers have continued to grow by double digits; Eaton Electrical data center orders have increased by about 85% year over year; data center demand in Schneider Electric's orders has increased by three digits.

3) Order backlog: Hyosung Heavy Industries, Siemens Energy, GEV and Hitachi Power Grid businesses received 4.0, 3.9, 3.7, and 3.1 times revenue from on-hand orders/TTM respectively, showing an expanding trend, reflecting a continued increase in the backlog of orders.

Orders from Colo and EPC have also erupted, and power infrastructure has become an important constraint

New orders from Colo merchants such as DLR and EQIX increased dramatically year over year, and the backlog of orders reached a record high. The backlog of orders from EPC companies such as PWR and FIX all reached record highs, and growth visibility generally extended to 2027-2028. Under the constraints of lengthening power equipment delivery schedules and tight supply of technicians, EPC is in a good pricing environment.

Risk warning: AIDC capital expenditure falls short of expectations, raw material price increases, trade barriers, etc.