XJ Electric: DC Smart Grid and Asset Injection

China has completed and put into operation 27 HVDC transmission lines. It is expected that during the 12th five-year period, the domestic HVDC investment will be around 300 billion yuan, bringing the total demand for converter station equipment to around 1.7 billion yuan, including the company's related converter valves. The demand is about 30 billion yuan, the need for control and protection is about 5 billion yuan, and the demand for DC field equipment is about 38 billion yuan. It is estimated that XJ Group will receive 40% of the control protection orders in the domestic HVDC transmission lines together with 2 billion yuan, 30% of the converter valve orders will total 9 billion yuan, and 10% of the DC field equipment orders will total 3.8 billion yuan. About 14.8 billion yuan, an average of 2.96 billion yuan or so, will be significantly more than before.

Smart Grid Drives Electric Power Automation Business Growth

At present, there are more than 2300 220kV and 500kV substations in China, and about 20,000 substations of 110kV and below. About 1,000 new substations are added each year. It is conservatively estimated that the digitalization of newly added substations will increase the demand for digital transformation of existing substations. If the digital transformation of a substation of 110kV should be carried out in about 1500 stations, the company is expected to obtain orders of 5 million to 6 million yuan. The system requirements for the digital transformation of 1,500 substations are expected to exceed 7.5 billion yuan per year, assuming that the company accounts for about 10%. The market share is also around 750 million yuan each year.

Asset injection can still be expected

We believe that the inflow of assets of the group company is only a matter of time. With the existing assets of the Group's own assets and the assets of the State Grid Group injected into the group, the performance of the group's assets can be increased by RMB 0.5-0.6.

Valuation and rating

Combined with the relative valuation method and the absolute valuation method, we believe that the company's reasonable valuation for the next 12 months is 33.56 yuan - 37.6 yuan, giving a cautious recommendation rating. The risk lies in the uncertainty of asset injection. The construction of domestic DC transmission lines and the promotion of smart grids may not be as expected.