China Securities Co., Ltd.: Increase in wind power heavy asset utilization rate, focus on subsea cables, tower top companies, and turbines, offshore wind sector.

China Securities Co., Ltd. released a research report stating that with the stability of wind power industry prices and cost reduction, gross profit margin recovery, as well as the unexpected increase in prices of castings and blades, the high-profit growth brought by offshore orders, they continue to have a positive long-term outlook on the future high growth and long-term space of the offshore wind sector. The current 2025 performance of offshore wind targets corresponds to a low PE valuation, with some companies clearly at the bottom of market value. The industry catalyst in 2025 will drive the sector upward, and they recommend focusing on submarine cables, tower top companies, and specifically recommending the main engine and offshore wind sectors. China Securities Co., Ltd.'s main points are as follows: Special Topic Research : How much profit recovery will the increase in capacity utilization in the wind power heavy asset link bring? The increase in capacity utilization of component companies (towers, castings) and the price increase (castings, blades) drive profit improvement. (1) Casting Industry: The overall breakeven point of the industry is about 49% (may differ between different companies). At a 30% capacity utilization rate, the net profit per ton is approximately -1414 yuan/ton; at a 50% capacity utilization rate, the net profit per ton is approximately 32 yuan/ton (close to breakeven point); at 100% capacity utilization, the net profit per ton is approximately 1116 yuan/ton. According to calculations, the breakeven capacity utilization rate of Riyue Heavy Industry is 38%; assuming that the shipment volume of Riyue Heavy Industry in 2025 corresponds to a capacity utilization rate of 83%, the net profit per ton of Riyue Heavy Industry is calculated to be 946 yuan/ton, a 31% increase from the 2024 projection of 723 yuan/ton. The breakeven capacity utilization rate of Jinlei Technology is 67%; assuming that the shipment volume of Jinlei Technology in 2025 is 100,000 tons (a neutral assumption), corresponding to a capacity utilization rate of 67%, the breakeven for Jinlei Technology's casting business in 2025 is calculated. In addition to the increase in net profit per ton brought by the increase in capacity utilization, the casting phase in 2025 also has some price elasticity. (2) Tower Industry: The overall breakeven point of the tower (wind turbine base) industry is about 21% (may differ between different companies). At a 10% capacity utilization rate, the net profit per ton is approximately -1162 yuan/ton; at a 50% capacity utilization rate, the net profit per ton is approximately 648 yuan/ton; at 100% capacity utilization, the net profit per ton is approximately 874 yuan/ton. The tower companies experience a significant increase in net profit per ton (from -3424 yuan/ton to 648 yuan/ton) in the process of increasing capacity utilization from 5% to 50%. In 2024, the capacity utilization rate for some tower companies in the offshore wind business was only single digits (such as Titan Wind Energy), with a net profit per ton of approximately -2000 yuan/ton. It is estimated that after the offshore wind volume shipments return to normal in 2025, there will be a significant increase in net profit per ton and performance will have significant elasticity. Special Topic Research : Positive outlook on the high growth of offshore wind, recommend focusing on undervalued stocks Review of offshore wind projects in 2024 and outlook for 2025. Offshore wind in 2024: It is estimated that about 6GW of offshore wind projects were connected to the grid in 2024, with large volumes connected in Hainan, Shandong, and Zhejiang, connecting 1.8GW, 1.26GW, and 0.89GW respectively. The grid connection volume was lower than expected, affecting the performance of related tower and submarine cable companies. Outlook for offshore wind in 2025: It is expected that 12-15GW of new offshore wind projects will be connected to the grid in 2025. According to statistics, about 15GW of offshore wind projects have already been tendered/awarded for wind turbines in 2025, and 12GW of projects have been tendered/awarded for submarine cables. Assessment of industry bidding activity in 2025-2026: It is expected that Guangdong, Shandong, Zhejiang, and Jiangsu will have the most bidding activities in 2025-26. Currently, the offshore wind volumes in these four provinces are 15GW, 15GW, 10GW, and 10GW respectively. These provinces are most active in promoting offshore wind, and companies such as Dongcheng, Zhongtian, Hengtong, Tianshun, and Haili will benefit from local advantages. Special Topic Research : Few sectors where there are positive and significant changes on the supply and demand sides, recommending the wind turbine sector In recent years, there have been frequent quality accidents in wind turbines, prompting some owners to optimize bidding rules to promote healthy competition in the industry. Turbine manufacturers have been affected by losses, leading to more rational pricing and 12 turbine manufacturers signing a self-discipline agreement. The increase in offshore demand has brought structural optimization, which is the most important force for future performance and valuation improvement. The wind turbine sector is one of the few sectors where there are positive and significant changes on both the supply and demand sides. The future performance elasticity of turbine manufacturers mainly comes from: (1) stable prices and cost reduction, gross margin recovery; (2) optimization of bidding rules, companies placing more emphasis on quality in orders, leading to unexpected profit growth; (3) the increase in high-profit offshore orders bringing performance increment. It is recommended to focus on turbine manufacturers and the offshore wind sector. For turbine manufacturers, it is recommended to pay attention to: Windey Energy Technology Group (300772.SZ), Sany Renewable Energy (688349.SH), Ming Yang Smart Energy (601615.SH), Goldwind Science & Technology (02208,002202.SZ); They continue to have a positive long-term outlook on the future high growth and long-term space of the offshore wind sector, and recommend focusing on: Ningbo Orient Wires & Cables (603606.SH), Jiangsu Zhongtian Technology (600522.SH), Titan Wind Energy (002531.SZ), Dajin Heavy Industry (002487.SZ), Jiangsu Haili Wind Power Equipment Technology (301155.SZ)(300129.SZ) Shanghai Taisheng Wind Power Equipment (300129.SZ)In the component link, focus on casting and blade links with price elasticity by 2025. It is recommended to pay attention to: Zhuzhou Times New Material Technology (600458.SH), Jinlei Technology (300443.SZ), Riyue Heavy Industry (603218.SH).