Minmetals Securities: The prosperity of the power grid continues, grasping the potential changes in UHV and intelligence.

Minmetals Securities released a research report stating that the new round of construction cycle for ultra-high voltage in China will start in 2023, with a construction period of about 2 years for DC ultra-high voltage. The peak of project commissioning is expected to occur by the end of 2024. Considering that most of the income from core equipment such as converter valves will be confirmed during commissioning, ultra-high voltage will enter a period of performance realization, and the performance realization strength of some companies is expected to exceed expectations. The importance of distribution networks has been clarified, with a focus on opportunities for intelligent distribution networks. As distributed photovoltaics gradually enter the electricity market and the issue of electric vehicle support becomes apparent, domestic investment in distribution networks is expected to accelerate. Whether it is the State Grid Corporation's concept of a strong smart grid or the Southern Power Grid Corporation's promotion of large-scale updating of grid equipment, the core is the expansion and upgrade of distribution networks. The distribution network layout is relatively decentralized, so in addition to focusing on leading companies in network automation, attention can also be paid to some regional leading enterprises. Key changes in the 24H1 financial report of the power grid sector The profitability of the sector is still in the uptrend range. The overall ROE of the power grid sector in 24H1 is 10.2%, an increase of 0.5 percentage points compared to the previous year, and the upward trend of profitability in the sector has continued since 2018. Capital expenditure in the sector is stable, with overall competition intensity not high. The overall capital expenditure of the power grid sector in 24H1 decreased by 4%, and the industry structure is relatively stable due to qualifications and technological barriers. Mid-term data in the industry The investment growth rate of domestic power grid in the first half of the year is the highest since 2017. The completed investment in power grid infrastructure in 24H1 increased by 23.7% year-on-year, the highest growth rate since 2017. The total investment in the power grid has accelerated significantly, partly driven by the new round of ultra-high voltage construction cycle starting in 23, and on the other hand, significant acceleration in provincial distribution network investment in 24. Continued prosperity in the overseas market for power grid equipment. In 24H1, the export growth rates of Chinese transformers and high-voltage switches were 22.4% and 24.2% respectively. Against the backdrop of global energy transformation and the serious aging of electricity grids in developed countries, global grid investment is entering an accelerated phase, and China's power equipment enterprises are facing long-term opportunities for overseas expansion. Risk warning: Risks of macroeconomic fluctuations; geopolitical factors and risks of anti-globalization; risks of policy changes; risks of fluctuating raw material prices.