Overview of CITIC Construction Investment's semi-annual reports on the power equipment and new energy industry: Looking for positive variables in demand while the boom is fulfilling but undervaluing valuations

The Zhitong Finance App learned that CITIC Construction Investment released a research report saying that Q2 lithium battery storage has shown a high boom on the revenue side. The decline in ocean breezes and photovoltaics reflects that the industry is currently at the bottom, and the power equipment industry continues to enter a boom cycle. In particular, the export chain is performing well, but concerns about the future have lowered the sector's valuation. At the level of production expansion, the industry as a whole is still moderate. Investment suggestions: ① The large storage, household storage sector, lithium batteries and materials began to show performance growth in the second quarter. The supply and demand situation is still good. Recently, it has been challenged by changes in the external environment, and the valuation level has declined markedly, and it is worth continuing to focus on. ② In the model of order or marginal change pricing, focus on changes in orders from companies in the domestic gas turbine industry chain, AIDC, European Sea Breeze, etc.

CITIC Construction Investment's main views are as follows:

By collating the semi-annual reports of the power equipment and new energy industry, it was found that the industry was clearly divided. Lithium battery storage was showing a high boom on the revenue side (large storage mainly had significant individual shares of Sunshine Power and was affected by the pace of delivery in the first half of the year). The decline in ocean wind and photovoltaics reflected that the industry was currently hovering at the bottom, and the power equipment industry also continued to enter the boom cycle. In particular, the export chain performed well, but concerns about the future weighed down the sector's valuation.

At the level of production expansion, the industry as a whole is still moderate. Looking at various indicators (cash expenses for new projects under construction and purchase of fixed assets), the 26Q2 year-on-month growth rate is not obvious. On the demand side, lithium battery energy storage achieved the high boom as scheduled, maintaining the previous judgment that the lithium battery industry may still maintain a growth rate of about 25% in 2027 (mainly due to power restoration, and the energy storage drive is more obvious), and the lithium battery industry's announcement to expand production volume (falling between 25% and 40% in different areas). The current sector's overall valuation performance falls on the 2026 expected growth rate due to weak demand growth expectations. PE falls back to 15-20X, 2027 performance expectations fall at 10-15X. If subsequent demand expectations are fulfilled, there will be significant room for valuation repair.

Overvalued sectors include: AIDC power equipment, gas turbines, copper foil, photovoltaics, etc.; those with relatively low valuation levels include lithium batteries, lithium carbonate, etc.

Risk Alerts

Optical storage: 1. The release of upstream raw materials has accelerated the expansion of production in the midstream manufacturing industry, leading to increased competition in the industry. Currently, all links in the main industry chain have large production capacity, and some new players plan to expand production. If subsequent raw materials are sufficient and production expansion can be implemented, it is expected that industry competition may intensify; 2. There is a risk that industry demand will fall short of expectations due to bottlenecks in power grid consumption, etc. China, the US, and Europe have been connected to the grid faster in recent years, which may have a certain impact on the consumption capacity of power grids, which may slow down the growth rate of new PV installations; 3. There is a risk that profitability will decline due to the rapid spread of new technology. Currently, TopCon's battery expansion plans in the photovoltaic industry are large. If subsequent industry production expansion accelerates and there is not much gap between players, then there may be a risk that TopCon's profitability will decline.

Lithium batteries: 1. Downstream NEV production and sales fall short of expectations: the sales side may be affected by weak demand and fall short of expectations; the production side may fall short of expectations due to large fluctuations in upstream raw material prices, repeated power restrictions, etc., which in turn affect the profitability and valuation of the industry chain; 2. The rise in raw material prices has exceeded expectations: raw material prices have continued to rise since 2021, while raw material prices fluctuate greatly in stages. High prices and instability have a certain impact on the profitability of companies related to the industry chain; 3. Key projects promoted in the lithium battery industry chain fall short of expectations: Key: Project progress is the key for relevant companies to support revenue and profits. It is also a reflection of growth. Failure to advance key projects as expected will affect current and long-term performance, as well as the stability of the industrial chain.

Wind power: 1. The promotion of wind power planning policies falls short of expectations; 2. The promotion of Shenyuanhai wind power projects falls short of expectations: wind power project construction volume and construction progress falling short of expectations will affect large-scale development of the industry; 3. Increased industry competition will damage the overall profitability of the wind power industry: if industry competition intensifies, further intense price wars will cause damage to the profits of enterprises in the industry; 4. Industry cost reduction falls short of expectations: large-scale development of Shenzhen Ocean also requires cost reduction of upstream components, such as floating floats, integrated submarine cables, etc. It falls short of expectations and will affect large-scale wind power in the deep sea Promotion and development; 5. Risk of fluctuations in raw material prices: Upstream raw materials for wind power are mainly steel, and large fluctuations in steel prices will cause risks to the profit stability of enterprises corresponding to risk.

Power equipment: 1. Demand side: the scale of power investment falls short of expectations due to changes in national infrastructure policies; the scale of power grid investment falls short of expectations; demand for power equipment falls short of expectations due to a decline in the growth rate of new energy installed capacity; the growth rate of electricity consumption in the whole society falls short of expectations; the progress of UHV construction falls short of expectations; 2. Supply side: prices of commodities such as copper resources and steel rise; the progress of the electricity price mechanism falls short of expectations; 3. Policy aspects: support related to the new electricity market falls short of expectations; the progress of electricity price mechanisms falls short of expectations; spot market Progress falls short of expectations; peak and valley prices fall short of expectations; 4. International situation: energy crisis abates faster, energy prices fall faster; barriers to international trade deepening; 5. Market aspects: drastic changes in the competitive landscape; intensification of competition has led to lower profitability than expected; transportation and other expenses have risen; 6. Technical aspects: progress in technological cost reduction is lower than expected; technical reliability is difficult to further improve; 7. Mechanistic aspects: electricity market mechanisms are falling short of expectations; supporting services, capacity compensation, peak and valley price differences in the spot market fall short of expectations; demand for virtual power plants Side management, etc. Emerging market mechanisms fell short of expectations.