Huaan: The investment in the power grid is steadily increasing, crossing the bottom of the industrial control cycle.

Huaan released a research report stating that the transformation of the domestic energy system requires support from electrical grid equipment. The increasing share of wind and solar power generation increases the instability of the grid. Information technology helps improve the efficiency of the grid, increase power regulation capacity, and is expected to increase in proportion in grid investments, with a logical growth trajectory. On the other hand, the industrial control market in 24H1 is still at the bottom stage. Project-based market demand is more evident, traditional industries show a weak recovery, and industrial enterprise profits and capacity utilization rates continue to rise. Looking ahead, downstream industries are gradually transitioning from passive destocking to actively restocking, along with equipment upgrades. This is expected to accelerate the industry towards an upward turning point, with support for top domestic industrial control companies. Key points from Huaan are as follows: Financial performance of power equipment: Steady growth in the power equipment industry in 24H1, with profits affected by declining prices In the first half of 24H1, the power equipment sector achieved revenues of 183.291 billion yuan, an increase of 3.24% year-on-year; net profit attributable to shareholders was 13.053 billion yuan, a decrease of 21.80% year-on-year; the average gross profit margin was 25.93%, an increase of 0.27 percentage points year-on-year; and the net profit margin was 1.60%, a decrease of 3.87 percentage points year-on-year. The decline in profitability of the power equipment sector was mainly due to the performance drag of TBEA Co., Ltd., whose net profit attributable to shareholders in 24H1 was 3.0344 billion yuan, a decrease of 59.36% year-on-year, mainly due to a significant drop in sales prices of the company's high-purity polysilicon and coal products. Outlook for power equipment: Focus on distribution network informatization, ultra-high voltage, and overseas segments The transformation of the domestic energy system requires support from electrical grid equipment. The increasing share of wind and solar power generation increases the instability of the grid. Information technology assists in improving the grid's efficiency, increasing power regulation capacity, and is expected to increase in proportion in grid investments, with a logical growth trajectory. On the other hand, the continued construction of large wind and solar bases is expected to drive the construction of ultra-high voltage transmission lines into a growth cycle, thereby driving demand for ultra-high voltage equipment and supporting equipment such as new energy boosting transformers, transmission transformers, and switchgear. Factors such as overseas European and American energy transformation, reshoring of manufacturing industries, and local geopolitical conflicts are expected to drive the demand for voltage regulating equipment. It is recommended to focus on distribution network informatization, main network ultra-high voltage, and overseas segments. Industrial control: Profit gradually recovering, with strong players consolidating their position At the industry level, the industrial control market in 24H1 is still at the bottom stage. Project-based market demand is more evident, with the traditional industry showing a weak recovery state and industrial enterprise profits and capacity utilization rates continuing to rise. At the company level, affected by the downturn in the industry cycle, the performance of industrial control companies in 24Q1 was under pressure. However, there was marginal improvement in 24Q2, with both revenue and profit showing some degree of recovery. Looking ahead, downstream industries are gradually transitioning from passive destocking to active restocking, coupled with equipment upgrades. This is expected to accelerate the industry towards an upward turning point, with support for top domestic industrial control companies. Hydrogen energy: Continuous progress in green hydrogen projects in 24H1, with significant performance differentiation in the sector In the first half of 2024, the hydrogen energy sector achieved revenues of 170.288 billion yuan, a decrease of 18.05% year-on-year; net profit attributable to shareholders was 2.04 billion yuan, a decrease of 90.41% year-on-year; the average gross profit margin for the sector was 17.83%, a decrease of 2.37 percentage points year-on-year; and the average net profit margin was -1.45%, a decrease of 4.48 percentage points year-on-year. Looking ahead to the second half of the year, with the introduction of multiple support policies for green hydrogen in various regions, the demand for electrolyzers is expected to double. With industrial decarbonization and consumption demand, the importance of hydrogen energy in policy planning is expected to increase, and the initiation of wind and solar projects will also accelerate bidding pace. Attention should be paid to hydrogen production, storage, and transportation. Risk Warning New energy vehicle sales lower than expected; wind and solar installed capacity growth lower than expected; grid investment lower than expected; ultra-high voltage construction lower than expected; progress in emerging industries such as hydrogen energy and low-altitude economy lower than expected; intensified industry competition; risks from overseas trade policies.