CICC: State Grid's investment exceeds 650 billion yuan for the first time, and business sentiment continues to rise.

CICC released a research report stating that State Grid has actively stated that grid investments will continue to increase, and they are optimistic about the continuous improvement of the domestic grid prosperity in 2025. It is expected that by 2025, ultra-high voltage projects are expected to be approved for "Four Direct and Four Exchanges," with ultra-high voltage investments expected to increase by about 30% year-on-year. Distribution grid reinforcement is imminent, and in the long term, with State Grid gradually phasing out equipment manufacturing enterprises and some distribution network equipment tenders being centralized to subsidiaries, the market share of the distribution network industry is expected to gradually concentrate on leading enterprises with superior technology and stable quality. Event: On January 15th, State Grid announced that grid investments in 2025 will exceed 650 billion yuan for the first time, focusing on optimizing the main grid, strengthening the distribution grid, and serving the high-quality development of new energy. They will continue to promote the implementation of major projects, such as the construction of the Shaanxi-to-Henan ultra-high voltage transmission line, and key projects like the Zaozhuang in Shandong and Tonglu in Zhejiang pumped storage power stations. CICC's main points are as follows: State Grid has taken a positive stance and grid investment continues to increase State Grid announced in January and July of 2024 that grid investments in 2024 would exceed 500 billion yuan and 600 billion yuan respectively. At the beginning of this year, they further increased the investment target, stating that grid investments in 2025 will exceed 650 billion yuan, the highest in recent years. It is estimated that the investment in 2025 will increase by about 15% compared to the budget at the beginning of 2024, and considering the ongoing demand for grid infrastructure, there may still be room for further upward revision. Ultra-high voltage major projects are progressing smoothly, and it is expected that the "Four Direct and Four Exchanges" project will be approved in the coming year. In recent developments, the approval of the Shandong Yanwei ultra-high voltage AC transmission line has been obtained, expected to be operational in 2026; the certainty of ultra-high voltage AC projects is high, and bidding volume is expected to increase significantly by 2025. In addition, Southern Grid and State Grid have jointly established a Tibetan-Guangdong DC operation company, and State Grid has signed a cooperation memorandum with the Inner Mongolia Autonomous Region on the support project for the Shage Desert base, with the Tangdongnan-Guangdong-Hong Kong-Macao, and the Mongolian-West-Beijing-Tianjin-Hebei ultra-high voltage DC lines expected to accelerate implementation. Furthermore, State Grid has initiated feasibility studies for the Mingan-Gan, Yuzhou-Guizhou, and Xiang-Guangzhou back-to-back projects, which are also expected to be approved in 2025. Distribution grid reinforcement is imminent, and long-term prospects look good for the improvement of market share and optimization of the industry landscape. According to preliminary statistics, the amount of provincial-level distribution network tender contracts in 2024 by State Grid was close to 190 billion yuan, an increase of 17% year-on-year. Distribution grid investments in 2025 are expected to accelerate compared to 2024, with an overall investment growth rate between 5-10%, and is expected to continue into the "14th Five-Year Plan" period. It is expected that large-scale equipment updates will drive the growth of distribution transformer tenders, and requirements for distributed photovoltaic "four capabilities" will drive the acceleration of distribution network intelligence upgrades. Looking ahead, as State Grid gradually phases out equipment manufacturing enterprises in the third sector and some distribution network equipment tenders are centralized to subsidiaries, the market share of the distribution network industry is expected to gradually concentrate on leading enterprises with superior technology and stable quality. Valuation and Recommendations 1) Ultra-high voltage and main grid: NARI Technology (600406.SH), Henan Pinggao Electric (600312.SH), Xj Electric Co., Ltd. (000400.SZ), China XD Electric (601179.SH), Sieyuan Electric (002028.SZ), etc.; 2) Distribution grid: Ningbo Sanxing Medical Electric (601567.SH), Willfar Information Technology (688100.SH), Beijing Sifang Automation (601126.SH), etc. Risk Warning: Grid investments may not meet expectations, and progress on ultra-high voltage lines may not meet expectations.