Sinolink: The global gas turbine market is improving, and the localization process continues to progress.

Sinolink released a research report stating that the rapid expansion of global AI data centers and the increasing demand in the gas turbine industry will lead to high-speed growth in orders/revenue for major gas turbine manufacturers or component suppliers worldwide starting in 2023. In addition, the global gas turbine market is mainly dominated by overseas leaders such as Mitsubishi Heavy Industries, Siemens, and GE. There is a large potential for Chinese gas turbine companies to increase their market share. Over the past decade, the proportion of gas-fired power generation in China's total power generation has steadily increased. With the continuous localization of CHINA GAS HOLD turbines, the top companies in the gas turbine industry chain are expected to benefit greatly. Sinolink recommends the leading domestic gas turbine blade manufacturer Anhui Yingliu Electromechanical (603308.SH). Sinolink's main points are as follows: Global AI data center expansion is driving the demand for gas turbine power generation, with high growth in overseas gas turbine orders Benefiting from the expansion of AI data centers, the global demand for gas turbines is accelerating. Gas turbines are mainly used in power generation, industrial drives, marine power, and other fields, with high technological barriers to entry. According to Gartner, the number of large data centers built worldwide for generative AI is growing rapidly, leading to a high increase in electricity demand. The global electricity consumption of AI servers is expected to increase from 195 terawatt-hours in 2023-2027 to 500 terawatt-hours. Data centers require long-term stable and sufficient backup power sources due to their high commercial value. Gas turbines, with advantages such as fast start-up speed, high power generation efficiency, and strong peak load capabilities, are expected to become an important choice for peak load power generation in the future, and the long-term demand for gas turbines is promising. According to Gas Turbine World and Mitsubishi Heavy Industries, global gas turbine sales are expected to increase from 39.98 GW in 2019-23 to 44.10 GW by 2024-26, with a compound annual growth rate of 2.49%. The annual global gas turbine sales are expected to reach 60 GW by 2024-26, a 36% increase from 2023, accelerating growth. Income/orders for overseas gas turbine industry leaders are growing rapidly. Currently, the global gas turbine market is mainly dominated by companies like Mitsubishi Heavy Industries, Siemens Energy, and GE, with the three companies holding a combined global market share of 76.3% according to Straits Research. Current orders/income for overseas gas turbine companies are growing rapidly: 1) In the 2024 fiscal year, Siemens Energy's gas service business received new orders worth 16.365 billion Euros, a year-on-year increase of 26.89%, with accelerating growth. New assets worth 241 million Euros were added to the gas service sector in the 2024 fiscal year, up by 48.77% year-on-year. 2) Mitsubishi Heavy Industries' energy system business revenue in 1H24 increased by 7.1% year-on-year, with plans to increase gas turbine production capacity by 30% by the 2026 fiscal year. 3) In 1-3Q24, GE Vernova received new orders for 78 gas turbines, a 32.2% year-on-year increase, with heavy-duty turbine orders increasing by 37.5%, indicating high growth in orders. 4) In 2024 Q1-Q3, overseas component leader Howmet's quarterly revenue in the engine field was 0.89/0.93/0.95 billion USD, with continuous quarter-on-quarter growth. The proportion of power generation by CHINA GAS HOLD has been steadily increasing, and the localization of gas turbines in China is continuing The proportion of power generation by CHINA GAS HOLD has been steadily increasing, with significant room for improvement compared to overseas. From 2013-2023, CHINA GAS HOLD's power generation has grown steadily, with a compound annual growth rate of 9.9%. The proportion of natural gas power generation has increased from around 2.1% to 3.2%, but is still far below the global average (23%) and significantly lower than the US (43%). There is still significant room for improvement in China's proportion of gas-fired power generation. The localization of gas turbines in China is progressing steadily, with significant breakthroughs in heavy-duty turbine technology. After years of development, China has achieved localization of light gas turbines, with some products available for export, but heavy-duty turbines still rely on imports to some extent. Since 2022, China has made new breakthroughs in the field of heavy-duty turbines, such as the official launch of the domestically produced F-grade 50 MW heavy-duty gas turbine in 2022, marking a breakthrough in China's independent heavy-duty turbine field from zero to one. Leading domestic companies in the industry chain are improving their technology, leading to a continuous high growth in income in the gas turbine sector. 1) Dongfang Electric Corporation: In 2022, the domestically produced F-grade 50 MW heavy-duty gas turbine was launched nationwide, further promoting the localization of heavy-duty turbines. Revenue from gas turbines reached 3.6 billion yuan in 1H24, a year-on-year increase of 154% with accelerating growth. 2) HARBIN ELECTRIC: In 2023, the revenue from gas power equipment was 1.144 billion yuan, a year-on-year increase of 86.35%, maintaining high growth. 3) Hangqi Turbine: In 2023, the revenue from gas turbines was 1.03 billion yuan, a year-on-year increase of 108%, with revenue accounting for 17.3% of the total from 8.9% in 2022. 4) Anhui Yingliu Electromechanical: By the end of 1H24, the contract liabilities had increased to 171 million yuan, a growth of over 200% compared to the end of Q2 24.5) Wedge Industrial: In 2023, revenue from high-temperature materials business reached 250 million yuan, a year-on-year increase of 52%, showing high growth rate. Risk Warning: Slow progress in global data center expansion, slower than expected progress in capacity expansion of major domestic manufacturers, and exchange rate fluctuation risks.