CITIC SEC: The demand for ultra-high voltage industry is urgent and continuous, focusing on two main directions for layout.

CITIC SEC released a research report, stating that ultra-high voltage is the core demand to support the integration of new energy in the central and western regions of China, and the industry demand is urgent and continuous. SUN.KING TECH (00580) announced a procurement agreement, once again clarifying the core equipment demand for flexible direct current valves. Currently, with abundant reserves of flexible direct current projects, combined with offshore wind power and overseas demand, related equipment and components are expected to gradually enter the period of performance realization. It is recommended to focus on the layout of the two major directions of technological progress brought by CKH HOLDINGS ultra-high voltage flexible direct current in relation to the construction of ultra-high voltage projects: 1) Industrial chain enterprises benefiting from the construction of ultra-high voltage direct current channels and the technological advancement of flexible direct current; 2) Industrial chain enterprises benefiting from the construction of ultra-high voltage and supporting transmission and transformation needs. Key points from CITIC SEC are as follows: SUN.KING TECH disclosed a procurement agreement, supplying power electronic devices totaling 624 million RMB to five parties for use in the Gansu-Zhejiang flexible direct current project. On September 16, 2024, SUN.KING TECH announced that a subsidiary of the company, as the supplier, signed a six-party agreement with Changzhou Bory Electric Power Automation Equipment Co., Ltd., Nanjing Narada Semiconductor Co., Ltd., Xj Electric Co., Ltd., Xi'an Xidian Electric Power System Co., Ltd., and Rongxinhuike Electric Co., Ltd. A total of five parties signed a six-party agreement to purchase power electronic devices totaling 624 million RMB for use in the Gansu-Zhejiang 800 kV ultra-high voltage direct current transmission project. The Gansu-Zhejiang project is a key project in the national "14th Five-Year Plan" for power development, with a rated voltage of 800 kV and a rated capacity of 8 million kW, with a total investment of approximately 35.3 billion RMB. The project integrates 11.2 million kW of new energy power sources, and after completion, it can transmit over 36 billion kWh of power to Zhejiang annually. On the sending end, the project gathers photovoltaic, wind power, and energy-efficient thermal power in Gansu through a 750 kV alternating current system, and on the receiving end, it connects to the load center of Zhejiang through a 500 kV alternating current system. The Gansu-Zhejiang project started construction in July 2024 and is expected to be completed and put into operation in 2026. With abundant reserves of major projects, the demand for flexible direct current continues to improve. In the past few years, with the substantial increase in new energy installations surpassing grid construction, ultra-high voltage, as an important channel to support the integration of energy bases in the central and western regions of China and inter-provincial assistance, has clear construction demands. 1) From the perspective of project construction: The National Energy Administration has clearly stated that in 2024, construction will begin on three ultra-high voltage projects including Shaanbei-Anhui, Chuanyu, Mengxi-Beijing-Tianjin-Hebei, Datong-Huailai-Tianjin North-Tianjin South, and Gansu-Zhejiang direct current projects and two alternating current loop ultra-high voltage projects. Ultra-high voltage construction is progressing rapidly. 2) In terms of reserves for flexible direct current projects, the current reserves of ultra-high voltage projects for flexible direct current (excluding hybrid flexible direct current) already include the projects of Southeast Tibet-Guangdong-Hong Kong-Macao, Badanji-Sichuan, Xinjiang-Sichuan, with unprecedented ample project reserves. At the same time, the bidding for the offshore wind power flexible direct current transmission project on Sishan Island in Yangjiang has announced the shortlisted candidates, with Nanjing Narada remaining the first candidate for the converter valve; CHINA POWER Technology Equipment Co., Ltd. has invited bids for the Saudi flexible direct current project, including the projects of central-southern and central-western flexible direct current conversion stations. Both the grid, offshore wind, and overseas flexible direct current projects have entered a rapid release stage. The converter valve is a core component, focusing on the marginal changes of core components. In flexible direct current, the converter valve has high value, and based on the expected pace of future ultra-high voltage line construction and the commercial price levels during the large-scale construction phase of the industry, the value of core components of the converter valve was calculated. In 2024, the Mengxi-Beijing-Tianjin-Hebei line adopted a hybrid flexible direct current solution, and the Gansu-Zhejiang project adopted a pure flexible direct current solution. In 2025, except for Shaanxi-Henan, all other projects are pure flexible direct current lines. A neutral forecast for the "14th Five-Year Plan" period envisions the construction of 18 new direct current lines, with 4 conventional direct current, 11 pure flexible direct current, and 3 hybrid flexible direct current lines. The results of the calculation show that in 2024, the value of conventional valves, flexible direct valves, IGBTs, direct current capacitors, and thyristors are respectively 1.8 billion, 4.5 billion, 1.8 billion, 1.13 billion, and 360 million RMB; In 2025, the value of conventional valves, flexible direct valves, IGBTs, direct current capacitors, and thyristors are respectively 1.2 billion, 9 billion, 3.6 billion, 2.25 billion, and 360 million RMB. The confirmation of income from ultra-high voltage bidding and construction usually has a cycle of 18-24 months, and related companies in the industrial chain will gradually enter the period of performance realization. It is recommended to focus on the layout of the two major directions of technological progress brought by ultra-high voltage projects and CKH HOLDINGS ultra-high voltage flexible direct current in relation to the construction of ultra-high voltage and supporting transmission and transformation needs. Risk factors: Ultra-high voltage project construction falls short of expectations; grid investment falls short of expectations; domestication of core components of flexible direct current technology falls short of expectations; ultra-high voltage reserve projects progress slower than expected; industry competition intensifies.