The scale of power grid investment in 2024 is expected to reach a record high in recent years. According to CCTV reports, in order to accelerate the construction of a new type of power system, the State Grid Corporation of China's total grid investment for the year will exceed 600 billion yuan, an increase of over 70 billion yuan compared to 2023. This marks the first time that grid investment has surpassed 600 billion yuan, with the additional investment mainly directed towards the construction of ultra-high voltage AC/DC projects and the digital and intelligent upgrading of the power grid.
At the beginning of 2024, the State Grid had indicated that the investment in grid construction for the year would be about 560 billion yuan, which was adjusted to 600 billion yuan by mid-year. The continuous growth logic of grid investment scale and the development opportunities for listed companies in the industry chain have become the focus of market attention.
"Replacement of old with new" supports the acceleration of grid investment
The State Grid Corporation's investment adjustments are generally made once at the beginning of the year and once in the middle of the year. The beginning of the year adjustment is usually in mid-January to determine the annual budget volume, while the mid-year adjustment is based on the development situation in the first half of the year to analyze and adjust the budget.
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Overall, the trend of the State Grid gradually increasing the amount of grid investment this year is significant. In 2023, the domestic grid investment completion amount reached 527.5 billion yuan. According to the 600 billion yuan investment amount for 2024, the year-on-year increase in grid investment is about 13.74%. This is the first time since 2015 that the growth rate of grid investment has exceeded 10%, surpassing the growth level of previous years (5%-8%). At the same time, compared with the 560 billion yuan set at the beginning of the year, the total amount has been increased by another 40 billion yuan.
Regarding the acceleration of the State Grid's investment scale, a research report from CITIC Securities points out that China's grid investment has dual attributes of ensuring energy transformation and energy security, as well as counter-cyclical adjustment. Under the joint promotion of the "dual carbon" transformation and the growth of electricity demand, domestic grid investment is expected to maintain stable growth. Focusing on the core issue of new energy consumption, it is expected that grid investment will continue to focus on the construction of the main grid frame centered on large wind and photovoltaic bases + inter-regional external transmission channels, and the digital and intelligent upgrading of distributed smart distribution networks.
The rapid development of new energy has brought consumption pressure to the grid, which has been the core issue of grid investment bidding in recent years. This can be seen from the acceleration of ultra-high voltage construction within the year, where the external transmission demand of large wind and photovoltaic bases urgently needs to be met by ultra-high voltage.
In fact, the recently released document on large-scale equipment updates is also an important driving force to further accelerate the growth of grid investment. The document "Several Measures on Further Strengthening Support for Large-Scale Equipment Updates and Consumer Goods Replacement" issued by the National Development and Reform Commission and the Ministry of Finance proposes to arrange about 300 billion yuan of ultra-long-term special treasury bond funds to further support large-scale equipment updates and consumer goods replacement. In terms of increasing support for equipment updates, the document proposes to expand the support scope to equipment updates in fields such as energy and power, old elevators, and key industries' energy-saving, emission reduction, and safety transformation, and to adjust dynamically according to the actual situation.
Power grid companies are an important part of the central enterprise's promotion of large-scale equipment updates. At the same time, most of the leading listed companies in power grid equipment are central enterprises, including China West Electric (601179.SH), Xuji Electric (000400.SZ), Pingao Electric (600312.SH), Guodian Nanzhi (600268.SH), Guodian Nanrui (600460.SH), Baobian Electric (600550.SH), and so on.
From 2019 to 2023, the central value of the power grid investment scale was about 500 billion yuan. Whether the increase to 600 billion yuan this time is sustainable? A private fund manager in the East China region told the First Financial Journalist that, considering the demand for new energy consumption, the ultra-high voltage lines that have been constructed, the demand for old European and American power grids, and the natural growth law of domestic electricity demand, the central value of power grid investment is expected to increase."The counter-cyclical adjustment function of the power grid is particularly evident, and the core issue of new energy consumption has reached a point where it must be resolved. Considering the reliable integration of subsequent new energy and grid stability, it is expected that by 2025, power grid investment will still focus on addressing the transmission issues from large bases, which brings certainty to the construction of ultra-high voltage and the replacement demand for distribution grid equipment," said the private equity insider.
How will listed companies benefit?
There are as many as 237 listed companies in the power equipment sector. As the national power grid investment accelerates, the market is concerned about how the incremental investment will drive the operating performance of listed companies.
"The direction of power grid investment is key. To distinguish, the Southern Power Grid mainly focuses on the distribution grid, including energy-saving and efficiency enhancement, reliability engineering improvement, and digital power grids. In addition to the distribution grid, the State Grid also includes ultra-high voltage, which is the most significant highlight in the growth of power grid investment," the private equity insider said: "Under the 'dual carbon' goal, the construction of ultra-high voltage has clearly accelerated since 2023. In the 'Fourteenth Five-Year Plan' for power transmission channels, it is planned to build '9 direct 5 alternating current', including 3 flexible direct current projects, initiating the large-scale application of ultra-high voltage flexible direct current. It is expected that domestic direct current ultra-high voltage projects will maintain high-intensity construction, and the demand for core equipment such as converter transformers, converter valves, and combined electrical equipment for ultra-high voltage direct current is expected to remain strong."
The additional 71.1 billion yuan investment in the State Grid this time is mainly used for the construction of ultra-high voltage AC and DC projects, and the digital and intelligent upgrade of the power grid. The reporter noticed that recently, China's first cross-regional ultra-high voltage direct current project using flexible direct current technology at both the sending and receiving ends - the Gansu-Zhejiang ±800 kV ultra-high voltage direct current project - has been approved by the National Development and Reform Commission.
"The fundamental driving force behind the construction of ultra-high voltage is the consumption demand of large western wind and light bases. There is still a certain gap in the number of ultra-high voltage projects that match this demand. It is precisely because of the demand gap that ultra-high voltage has become the main direction of the State Grid's additional investment. We believe that the construction of ultra-high voltage projects is changing from a cycle to growth," the aforementioned private equity said.
The mid-year performance forecasts that have been released provide investors with information for the layout in the second half of the year. Overall, power equipment stocks closely related to the construction of the main and distribution grids have achieved a significant increase in performance in the first half of the year. Baodian Electric (600550.SH) and Shenma Electric (603530.SH) are expected to achieve the highest net profit growth of 155.61% and 182.26%, respectively; Pinggao Electric (600312.SH), Senyuan Electric (002358.SZ), and Changgao Electric (002452.SZ) are all expected to see net profit growth of more than 50%.
Regarding the reasons for the growth in performance, Pinggao Electric stated that the acceleration of key power grid projects and the delivery of the company's key projects have led to a structural change in revenue; Shenma Electric, which is mainly engaged in composite insulating products for power systems, stated that under the dual factors of a large number of new energy access to the power grid and the update of the power grid's own infrastructure, the market demand in the transmission and transformation field has shown a strong growth momentum; Baodian Electric said that the company's ultra-high voltage and other product orders have been sold in this reporting period, which has driven an increase in operating income and an increase in product gross profit.
It should be pointed out that the time span from bidding and winning to project implementation in power grid investment is quite long, and the order of benefits for related links in the industry chain is different. "A single ultra-high voltage construction can take 2-3 years, and many product deliveries are in batches, so it will not appear as an 'explosive' increase in the profit and loss statement of listed companies, but a relatively moderate 'growth' increase. It is expected that the current speed of power grid investment-driven projects will promote the profit release of listed companies to 2027," the private equity insider added.
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