CITIC SEC: Nuclear power manufacturing industry sees valuation reassessment, with short-term performance increase and broad long-term opportunities.

CITIC SEC released a research report stating that the demand for AI is causing a global renaissance in the nuclear power industry, and high-profit rate and high-growth nuclear power manufacturing industry valuations are expected to be reassessed. Domestic nuclear power has entered a peak period of normalization of approval and construction, and the bank expects components to enter a peak delivery phase starting in 2026, leading to accelerated industry profit release. At the same time, the significant increase in demand for multiple dimensions such as advanced reactors, nuclear technology applications, exports, and spent fuel processing will contribute to industry growth. Against the background of prospects for high performance growth, opening growth space, and restructuring of long-term valuations, the switch in valuation benchmarks brought about by nuclear fusion is expected to greatly increase sector valuations. The bank recommends a focus on a large number of companies in the industrial chain and also recommends paying attention to leading companies in nuclear fusion-related components. Key points from CITIC SEC: Manufacturing industries with high-profit rates and high growth have long-term constrained valuations. According to the National Energy Administration, by 2025, China's nuclear power generation will only account for 4.82%, while the world average is around 10%, with developed countries generally having a nuclear power share of over 20%. The demand for AI has sparked a renaissance in the industry, and China has vast growth space. The nuclear island is the core link of a fission power plant, and industry barriers result in relatively high gross profit margins. According to relevant listed company announcements and data from the prospective Industry Research Institute, the gross profit margin of core equipment in the nuclear island is above 30%. Against a background of historically stable performance growth and high gross profit margins in the nuclear power business, valuations of nuclear power component companies have been constrained by a lack of market confidence in the "long-term growth" of the nuclear power industry. Nuclear power has entered a normalization phase of approval and construction, and the bank expects components to enter a peak delivery phase in 2026. After the validation of third-generation nuclear power technology in China in 2019, nuclear power units have now entered the phase of normal approval. According to the China National Nuclear Power Industry Association, China has approved 4/4/5/10/10/11/10 units for the years 2019-2025. Meanwhile, the number of nuclear power projects that broke ground in the years 2019-2025 were 4/4/5/5/5/6/9. Considering that 3-4 years after approval, nuclear power equipment will begin to enter delivery cycles, along with a high number of projects starting in 2025, the bank expects a concentrated delivery period for components to begin in 2026. Industry faces multiple opportunities for improvement. In terms of advanced reactors, China has demonstration projects in high-temperature gas-cooled reactors and thorium-based molten salt reactors. By 2025, China has completed the preliminary design of commercial fast reactors with a million-kilowatt level. Regarding Small Modular Reactors (SMR), the domestic Linglong-1 reactor has made continuous progress, and the International Energy Agency predicts that by 2050, global SMR cumulative investments will reach $670 billion. In terms of nuclear technology applications, it is estimated by twelve ministries and commissions including the National Atomic Energy Agency that the output value will exceed 600 billion yuan by 2030. Additionally, demand for nuclear power exports, spent fuel processing, and other factors will contribute significantly to industry growth. Nuclear fusion catalyzes intensive release, and after a switch in valuation benchmarks, nuclear power valuations are expected to increase significantly. Nuclear fusion is hailed as the "ultimate energy source" for humanity and has become a definitive development direction both domestically and internationally. According to official websites of various nuclear fusion companies and the Controlled Nuclear Fusion WeChat official account, over 300 billion yuan in capital expenditure has been invested during the "13th Five-Year Plan," with favorable release acceleration. With smooth progress in domestic and international installations, the bank believes that as technological breakthroughs continue at home and abroad and as the technological singularity approaches, the industry's capital expenditure benchmark is expected to transition from experimental reactors to commercialization. The long-term annual equipment space for fusion industry is expected to exceed trillions, which could significantly boost the overall valuation of the nuclear power industry. Risk factors: - Risk of unstable nuclear power development policies - Risk of major safety incidents in the nuclear power field - Risk of delays in nuclear power project construction - Risk of fluctuations in raw material prices - Risk of commercial development of controlled nuclear fusion falling short of expectations.