CITIC SEC 2025 Power Equipment and Industrial Control Outlook: Moving Towards a New Situation. The growth space for high-quality equipment companies is expected to further open up.

CITIC SEC released a research report stating that the transformation of CKH HOLDINGS system is driving the global electricity grid and power construction towards a new phase. The domestic power equipment industry is benefiting from the construction of the domestic electricity grid brought about by the energy transition, and also from the continuous expansion of overseas markets due to demand growth. Technological advancements such as flexible direct current transmission are pushing for industry chain innovation. The continuous progress of AI technology and the rapid development of the Siasun Robot & Automation industry will also drive the industrial sector towards a new phase, including market growth, business development, and product upgrades. With multiple demands in areas such as power and electrical systems leading the way, technological advancements, and resonances in domestic and overseas markets, the growth space for high-quality equipment companies is expected to further open up. Key points from CITIC SEC are as follows: Power system upgrades: Long-term prosperity with both domestic and international resonance To achieve the goal of renewable energy consumption equivalent to 1.5 billion tons of standard coal by 2030, it is not only necessary to increase wind and photovoltaic installations, but more importantly to promote the construction and upgrade of the power grid. In this context, the construction of the power grid is expected to maintain long-term prosperity. The bank forecasts that domestic power grid investments will continue to grow by over 10% by 2025, continuing the trend of steady growth. On the structural side, both cross-regional transmission capacity construction and smart grid upgrades are expected; and the stability of the power grid sector in terms of supply and the rational pricing system reflected in grid tenders are long-term favorable factors. In addition, the investment entities for distribution networks are diversified, with a strong correlation between demand and the direct economic viability of projects. However, with the development of distributed energy, the gradual electrification of end-use energy, and the progress of electricity market reforms, the construction of distribution networks is also expected to undergo new changes, including both hardware installations and software upgrades. Power equipment going global: Domestic dual focus, attention to building commercial systems abroad In recent years, China's power equipment has accelerated its "going out" process, with rapid growth in exports of primary and secondary equipment driven mainly by its competitive advantages in overseas demand chains. Currently, with the penetration of new energy in European and American markets, AI driving an increase in electricity consumption, and the continuous release of demand from grid upgrades, utility-grade power sources in countries along the Belt and Road initiative urgently need capacity expansion and intelligent upgrades. The bank sees that exports of equipment such as transformers and electricity meters continue to grow along with increased overseas demand, providing high-profit margin opportunities for some companies. Based on this, the bank suggests focusing on the long-term development of commercial systems for companies going abroad, as these companies by building localized production capacities and deeply penetrating various overseas markets, are expected to maintain long-term steady growth. Industrial control: Policy promotion, technological progress The cyclical changes in the industry and technological advancements are driving the development of the industrial control industry. The industrial control industry has been in a downturn since 2022, but the industry decline has already narrowed, with November 2024 PMI turning positive and reaching its highest value in nearly five years. Moreover, with the support of a series of policies, the improvement in demand for some manufacturing sectors is expected, and considering changes in inventory cycles, the industrial control industry is poised to see an upturn in demand prosperity. In addition, industries such as humanoid robots from Siasun Robot & Automation are opening up new application scenarios for driver products, bringing new technological advancements and creating vast market spaces. In addition, the trend of industrial control companies going abroad continues, gradually opening up market spaces for their own development. Power equipment: Delivery prosperity period approaching, focus on base-load power sources The large-scale integration of new energy sources and the growth in electricity demand have raised higher requirements for base-load power sources, driving the accelerated development of traditional power sources such as thermal, nuclear, and gas power. This enables them to play a more significant role in supporting the system on a larger scale. The changing demands of these industries, catalyze base-load power sources to gradually enter the delivery peak season of the industry chain. Some base-load power sources are expected to maintain high levels of construction for the long term, further promoting the domestic substitution of key links and the reserve development of new generation technologies, benefiting the sustained development of the industry chain. Investment strategy 1. Power grid equipment: a) Domestic power grid investment: Power grid investments are expected to continue to grow by over 10% by 2025, maintaining a steady growth performance. With factors such as the stability of the supply side in the power grid sector and the rational pricing system reflected in grid tenders, the bank recommends continuing to focus on the sustained growth of top-quality companies in the power equipment sector, especially during the key layout window period around the release of power grid investment plans. b) Power equipment going global: The sources of overseas power equipment can be roughly divided into three categories: some overseas key projects and leading projects, the construction demands of capacity shifts in regions such as Mexico and Southeast Asia, and the demand for power equipment formed by basic electricity infrastructure requirements in regions such as Latin America and Africa. Based on the focus on increased exports of power equipment such as transformers and electricity meters in the short term, gradually consider expanding into high-end equipment such as flexible direct current and the building of production capacities advantageous in overseas channels. 2. Industrial control: With the support of a series of policies, the improvement in demand for some manufacturing sectors, and considering inventory factors, the industrial control industry is expected to see an upturn in demand prosperity. As domestic companies increase their overseas footprint, export demand gradually becomes one of the growth points. Looking ahead, the continued promotion of humanoid robots from Siasun Robot & Automation catalyzes the industrial control companies, providing broad development spaces, improving performance expectations, and flexibility. Currently, major companies in the industry are undervalued, and are expected to fully benefit from stable growth policies and technological advancements. 3. Power equipment: a) Thermal power: Transitioning from base-load energy to adjustable power sources, the bank predicts that the proportion of thermal power installations will decrease in the future but the installation scale will continue to increase. The bank recommends focusing on layout around three main project lines: core components, major equipment, and auxiliary equipment. b) Nuclear power: As an important base-load power source, nuclear power is expected to achieve steady development in the energy transition and "dual carbon" construction processes. With the support of continued stable approvals, the industry's prosperity is expected to rise, while the first fourth-generation high-temperature gas-cooled reactor is also officially commercially launched.The technological breakthroughs in the chemical and nuclear energy industries are also worth looking forward to.Internal combustion engine: The approval of gas power projects is accelerating, the number of construction projects by energy operators is increasing, and the leading manufacturers of core complete equipment are driving capacity expansion. The bank recommends paying attention to core companies including high-temperature alloys, castings and forgings, and complete equipment. Risk factors: Global "dual carbon" transition progress is slowing down; domestic new power system construction is below expectations; domestic grid investment is below expectations; progress of ultra-high voltage is below expectations; domestic grid digital transformation is below expectations; overseas grid construction activity is declining; domestic base load power source construction is below expectations; bulk raw material prices fluctuate significantly.