CITIC SEC: Power grid investment stepping up focus on progress of UHV reserves and changes in overseas expectations.

CITIC SEC has released a research report stating that, combined with the comparison of the same caliber in the CCTV report, it observed the growth performance of State Grid's investment plan exceeding 650 billion yuan by early 2025. At the same time, Southern Power Grid also proposed a record high investment arrangement. With the support of the grid investment plan, the infrastructure investment of the power grid in 2025 is expected to continue to improve. Looking back at the performance of the grid sector since 2021, it is recommended to focus on the progress of ultra-high voltage reserve landing and changes in overseas expectations, and to focus on the ultra-high voltage core station equipment leader and high-quality enterprises going overseas as the key direction for current layout. The main points of CITIC SEC are as follows: Both "two grids" investment plans hit record highs According to CCTV, it is expected that the total investment of State Grid in 2025 will exceed 650 billion yuan for the first time throughout the year; from the comparison of similar news reports, CCTV reported in early 2024 that State Grid is expected to invest over 500 billion yuan in grid construction in 2024, and in July 2024, CCTV reported again that State Grid added to its investment plans the total investment in the grid in 2024 will exceed 600 billion yuan, with an additional 71.1 billion yuan compared to 2023. In terms of news reports, the growth in early 2025 compared to early 2024 and mid-2024 was 30% and 8.3%, respectively. At the same time, the 2025 work conference of Southern Power Grid revealed that the company's fixed asset investment plan for 2025 is 175 billion yuan, hitting another record high. The record high investments of both "two grids" have laid a solid foundation for the positive expectations for orders in the power equipment sector in 2025. With the backdrop of a positive plan, investment growth is highly achieved Combining with the monthly data on the completion of basic grid construction investment released by the National Energy Administration, from March to November 2024, except for a slight decline in July compared to the same period last year due to a high base figure and an 8.4% year-on-year increase in November under the circumstances of a seasonal high base, the rest of the months maintained a rapid growth of more than double digits year-on-year; from January to November 2024, the cumulative year-on-year growth rate of basic grid construction investment completion reached 18.70%. It is expected that in 2025, as the year of the end of the "14th Five-Year Plan," the completion amount of basic grid construction investment is expected to continue to grow by over 10%, corresponding to an estimated amount of about 680-700 billion yuan. Outlook for the main theme of the year: "strong policy" of domestic demand and "huge space" of overseas demand hand in hand Looking back at the market performance of the grid sector since the introduction of the new power system in 2021: the sector welcomed the reversal of strong domestic policy expectations in 2021, and officially entered the accelerated expansion phase of grid investment in 2023-2024; during the same period, the development of power equipment companies going overseas continued, with early channel customer advantages and product richness gradually becoming key barriers to overseas competition. Selecting 11 listed companies with market values of over 10 billion in the sector, comparing the absolute returns and relative returns against the Shanghai and Shenzhen 300 Index in the past four years, core leading power equipment companies recorded positive returns in 2021/2023/2024, with the best performance within the sector in the past four years being representative companies going overseas; in the 2023-2024 domestic ultra-high voltage construction cycle, under the influence of strong policy expectations at the beginning of the year, the representative companies of ultra-high voltage demonstrated outstanding relative and absolute performance. Investment strategy: Looking ahead to 2025, the initial investment stance of the "two grids" and the progress of key ultra-high voltage projects are expected to resonate, driving the domestic grid policy market; as overseas policies gradually settle down, the direction of overseas development is expected to return to long-term growth logic. In terms of allocation, based on the progress of the ultra-high voltage reserve landing and changes in overseas expectations, it is recommended to focus on the core station equipment leaders of ultra-high voltage and core high-quality enterprises going overseas as the key direction for the current layout. Risk factors: the development of the domestic new power system is slower than expected; the growth of domestic grid investment is lower than expected; the slow landing of ultra-high voltage projects; the lower-than-expected growth of distributed electricity investment; weakening of power equipment exports; worsening industry competition landscape; significant fluctuations in prices of bulk raw materials.