CITIC Securities: Overseas integrated companies may increase procurement of Chinese components, focusing on investment opportunities in wind power components under comparative advantages.

CITIC SEC released a research report stating that multiple wind power components have a global comparative advantage. With the domestic industry gradually moving away from low-price competition, the proportion of overseas exports is expected to gradually increase, thereby improving the profitability of multiple segments of the industry chain. The segments with comparative advantages include castings, forgings, blades, foundations, and sea cables. Key points from CITIC SEC: From setting up overseas factories to comparative advantages, it is worth paying attention to the overseas export of wind power components. In recent times, setting up overseas factories has been an important industry trend and investment direction. CITIC SEC believes that the industry still has potential in this direction and has released multiple in-depth reports in the past 2 years to explain and recommend this direction. Recently, the company has discussed two paths for overseas exports: one is to set up production capacity overseas, and the other is to increase procurement even if the factories are in China. According to the second path, industries and segments in China have strong comparative advantages, including raw materials, electricity prices, technical workers, and management levels. The company also found that these industries and segments have low product standardization and automation levels. With the comparative advantages of production elements and the non-standard nature of products, CITIC SEC believes that the proportion of wind power component exports is expected to increase gradually, thus enhancing global competitiveness. Multiple factors shape the comparative advantages of wind power components. Considering the comparative advantages of wind power components is mainly based on production elements and non-standard products. In terms of production elements, China has various production capacities for steel and fiberglass, which can provide reliable quality and low-cost raw materials for wind power components considering the production processes and electricity price levels in China. The low standardization and low automation levels of the industry provide advantages while the casting process has high energy consumption. Wind power components also require strong technical and process levels, with differences in manufacturing processes even among different manufacturers in China. The non-standard nature of many wind power component segments poses challenges for factory management and skilled technical workers. Additionally, wind turbine components are mostly non-standard products, with different technical requirements and appearances for different manufacturers and models, reducing automation levels and increasing reliance on the aforementioned production elements. It is expected that overseas wind turbine companies will increase their procurement of Chinese components, leading to improved profitability. To enhance their competitiveness and market share, overseas wind turbine companies need to purchase wind power components from China to support their development and create effective industry cooperation. Vestas' 24Q3 financial report shows a slight decrease in new wind turbine orders to 4432MW compared to the previous year, but the average price is higher at 110 million euros/MW (approximately 8518.4 yuan/KW), slightly higher than last year. In order to alleviate cost pressures, CITIC SEC predicts that the company will increase its procurement of domestic components. According to media reports, German wind turbine company Nordex is expected to increase its procurement from the Chinese supply chain. Against the backdrop of enhancing competitiveness by increasing procurement of Chinese components, CITIC SEC expects other overseas wind turbine companies to adopt similar supply chain management strategies and increase the procurement proportion of Chinese components to reduce costs or mitigate possible supply shortages. This will drive an increase in the proportion of exports of Chinese wind power components and improve overall profitability. Risks: Lower-than-expected overseas wind power installations, potential international trade barriers, uncertainty in US offshore wind power policies, and fluctuations in raw material prices may affect the profitability of component companies.