Investment key points
Sifang Co., Ltd. is a leading power relay protection enterprise. Company was founded by Academician Yang Qixun , an expert on power relay protection in my country. It is a leading private enterprise for power secondary related equipment. The management R&D team has a deep academic background and has been deeply bound through equity incentives, and its solution strength is strong. The product includes power automation software such as relay protection, substation monitoring, etc., and also includes power distribution switches, SVG and other hardware. It can be used in all links of the power system "transmission-transmission-distribution-use" - the business structure meets the needs of the construction of new power systems. Customers include leading enterprises in the power grid (State Grid South Grid ), power generation group ( Huaneng , etc.), and industrial fields (CNPC, etc.). Currently, the power grid-side business accounts for 50%+ and the pattern is stable; the power generation side has outstanding growth, and at the same time, the energy storage technology has been accumulated for a long time and is ready to go. The off-grid business is expected to surpass the traditional main business of the power grid and achieve the "second growth curve".
power grid side: The "basic disk" business remains stable overall, seizing the structural opportunities of distribution networks. Power grid investment maintains a steady growth of CAGR ≈5% in the 14th Five-Year Plan, and the structural direction tends to solve the direction of new energy consumption such as UHV in the main network, intelligent distribution network and pumped storage. 1) The bidding for the main network secondary equipment has grown steadily, and the CR6 such as Guodian Nanrui , Sifang Co., Ltd. exceeded 90%, and the share is stable; at the same time, the company seizes structural opportunities such as centralized control stations. 2) The distribution network has been upgraded from automation to intelligence to cope with the impact of distributed photovoltaics on the distribution network. The first and second integration of column switch and other intelligent equipment penetration rate has been improved. The company has a deep accumulation of network switch products. At present, the share of South Grid has increased and the number of State Grid has been successfully expanded in many provinces, which is expected to contribute to the increase. 3) With the acceleration of power grid investment in 2023, the main distribution network equipment bidding will work together, and the grid side is expected to achieve a year-on-year growth of by +10~15%.
Power generation side: New energy grid-connected access equipment is highlighted with high β, and traditional power generation is steadily increasing. new energy installations grow rapidly + strong energy storage, medium- and long-term consumption problems gradually emerge, bringing opportunities for incremental power, software and hardware equipment. The company is one of the few suppliers of complete grid-connected solutions, and is expected to benefit fully:
Profit forecast and investment rating: We expect the company's net profit attributable to shareholders from 2022 to 2024 to be RMB 538/677/822 million, respectively, +19%/+26%/+22% year-on-year, respectively, and the corresponding current price (December 2) PE is 23 times, 19 times and 15 times respectively. Considering that the company's power generation side contributes performance elasticity and has strong competitiveness, the grid side has made steady progress, and emerging businesses such as centralized control stations and energy storage are expected to bring new performance increases. In 2023, the company will be given 27 times the PE as a valuation basis, with a target price of 22.5 yuan per share, and the first coverage will be given a "buy" rating.
Risk warning: power grid investment is lower than expected, new energy installation is lower than expected, and competition is intensified.
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Domestic power relay protection leading enterprises, the market is high and the core products are strong in competitiveness. Since its establishment in 1994, Sifang Co., Ltd. has focused on relay protection and automation related products, mainly covering four categories: transmission and transformation protection automation, power generation, distribution and power electronics. Its customers cover three types of enterprises: power grid companies ( State Grid Southern Power Grid ), power generation enterprises (Huadeng, Datang , etc.), and industrial enterprises (CNPC and Baowu Group). The company's sales share of relay protection and substation automation and other products are firmly at the forefront of the industry. In 2021, the company's relay protection products and substation monitoring products have a cumulative market share of substation equipment procurement in State Grid to 23%/16% respectively.
Equity structure is clear and stable. The actual controllers of company are Academician Yang Qixun and Professor Wang Xuzhao . Both are the founders of Hardwig Sifang (the predecessor of Sifang Co., Ltd.). They have worked together since 1994 and have a stable relationship. As of 2022H1, Academician Yang Qixun and Professor Wang Xuzhao held 38.65% and 5.02% of respectively through direct or indirect methods, the major shareholder Sifang Group held 43.1% of stake, and the company's Qihang No. 1 employee stock ownership plan held 2.73% of stake, and the equity structure was clear.
Management layer has a deep academic background. Academician Yang Qixun, the actual controller of , is one of the first academicians of my country's engineering academies and an expert in the relay protection of my country's power system. He invented the complete set of microcomputer line protection devices in my country's first microcomputer relay protection device, and mastered the core intellectual property rights of the relay protection of the power system. Most of the company's management has a master's degree or above, and many of them have professional senior professional titles and a profound professional and academic level.
Employee stock ownership plan establishes a company's long-term incentive mechanism. On September 14, 2020, the company launched the Qihang No. 1 employee stock ownership plan, intending to grant stock to no more than 300 employees, with a total grant of no more than 31.74 million shares (accounting for 3.9% of the company's total share capital at the time of the announcement). In terms of performance appraisal, based on the net profit in 2019, the cumulative net profit growth rate from 2020 to 2022 shall not be less than 15%/30%/45% respectively. From 2020 to 2021, the company achieved net profit of , with the net profit in 2019 as the base, respectively, year-on-year growth of 88.33%/152.51%, far exceeding the unlocking target.
The company's operating performance has grown steadily, and it has accelerated significantly since 2020. Looking at the life cycle since the company went public, :
product categories are numerous and can be classified as power grid (main network, distribution network) products + off-network products. Among them, the revenue on the grid side accounts for the majority, and the off-network is expected to "come behind". With technological innovation, company has formed a rich product category around relay protection automation, among which
Revenue structure adjustment affects the gross profit margin level, and in the future, it will drive profit growth with volume. 2011-2022H1 company's gross profit margin dropped from 46.5% to 34.2%. The main reasons are: 1) The added value of secondary equipment such as grid-side relay protection and substation automation is high, and its competitiveness is excellent, and the gross profit margin is usually above 40%. The proportion of relatively low-gross profitable off-network businesses such as new energy, rail transit, and petrochemicals has increased to lower the overall gross profit margin. 2) The new revenue standards will be implemented in 2020, and the project implementation and service personnel expenses originally included in "sales expenses" will be changed to "operating costs", resulting in a significant "decline" of gross profit margin. 3) Secondary equipment is mainly software-oriented, and the profit level is less affected by the price fluctuations of raw material . In the future, with the increase in new energy and other businesses on the power generation side, and the proportion of complete solutions with large value and relatively low gross profit margin increases, the overall gross profit margin will show a stable and slightly decline.
cost rate level remains high, and measures to reduce fees and increase efficiency have continued to be promoted in recent years, and the cost level is expected to decline in the subsequent period. Among them, the sales expense rate and R&D expense rate remain at a level of over 10%:
The power system is divided into five major links: "transmission-transformation-distribution-use", and the power grid focuses on the last four links. After the "Power Reform Document No. 5" proposed the "factory and grid separation" in 2002, the power grid company focused on investment and operation in the transmission, transformation, distribution and power consumption links. Electrical equipment usually consists of primary equipment and secondary equipment:
With the advancement of the construction of new power systems, the demand for incremental secondary equipment has become prominent, while primary equipment has basically grown at a low speed along with the investment in power grids. From the perspective of the four major power system elements of "source network load storage": 1) Secondary equipment such as power generation prediction software and station coordination control improve the controllability of the "source"; 2) Traditional scheduling and protection systems are also obvious in dealing with large proportion of new energy access. The new generation of dispatching systems, centralized control stations, secondary protection monitoring, etc. have improved the reliability of the "network"; 3) Information and intelligent systems such as EMS (energy management system) improve the flexibility of "load storage". Although the value of secondary equipment is less than that of primary equipment, it has higher technical content and more categories. Therefore, the leaders of secondary equipment with platform-based technology (Sifang Co., Ltd., Guodian Nanrui, etc.) will fully benefit from the construction of new power systems.
Main network investment is stable, the supporting secondary equipment pattern is stable, and the company's power transmission and transformation business basically grows simultaneously with the power grid investment.
In the 14th Five-Year Plan, the investment in power grid has increased slightly, and the construction of ultra-high voltage transmission channel, distribution network capacity expansion and power grid intelligence will become key investment directions. Xin Baoan, the new chairman of , proposed a plan to invest US$350 billion in the "14th Five-Year Plan" (the investment scope of power grid infrastructure, the total investment amount is higher) to promote the transformation and upgrading of power grids. We expect that during the "14th Five-Year Plan" period, the average annual investment amount of State Grid will remain stable at around 500 billion yuan, of which State Grid plans to invest 501.2 billion yuan in 2022, an increase of 6% year-on-year. In addition, South Network also released an investment plan of 670 billion yuan in November 2021. In the 14th Five-Year Plan, the power grid will focus on the construction of new power systems, focusing on the construction of ultra-high voltage transmission channels (solving centralized new energy consumption), distribution network capacity expansion (distributed new energy consumption), and grid intelligence. Related power equipment and industrial chain companies are expected to usher in a window of rapid development.
The secondary equipment pattern on the grid side is stable, and the company's power transmission and transformation business is steadily increasing. company can provide a full series of protection and automation products from 1000kV ultra-high voltage to 10kV low voltage, such as relay protection, substation automation, scheduling automation, etc., and its technology is at the forefront of the world. According to State Grid bidding data, the company's winning bids on State Grid's 110kV and above relay protection and monitoring systems from January to September 2022 were 21%/19%, both ranking third (Nan Rui includes Guodian Nan Rui and Nan Rui Relay Protection). As the first line of defense for the safety of power grid and equipment operation, various power grid companies have particularly strict assessments of secondary equipment suppliers. The market members are basically the "six majors" of Nanrui Jibao, Guodian Nanrui, Xuji Electric, Sifang Co., Ltd., Guodian Nanzi , and Changyuan Shenrui. The market share of for protection and monitoring products above 220kV is basically occupied by six major players, with CR690%, and the structure is stable; private enterprises such as 110kV and below Siyuan Electric , Jinzhi Technology and other private enterprises also participated. We expect the company's main business, resilience and substation automation system, to basically maintain revenue of about 2 billion yuan, and the competitive landscape will be stable, and will increase slightly in the future with the growth of power grid investment.
aims at the new generation of centralized control stations and other subdivided directions, achieving a breakthrough in the "platform period" of main network business. Although the main network sector has stable performance, the company relies on its leading technical strength and backed by the power grid-side resources to seize the local transformation opportunities brought by the main network due to new energy. , for example, the new generation of centralized control station : In order to adapt to the situation where the source load and space-time changes are more frequent and complex after large-scale new energy access, the need for real-time acquisition of device status and dynamic perception of system operation has become increasingly urgent. The new generation of integrated control system has key functions such as "integrated monitoring, panoramic display, data penetration, one-click sequence control, paperless operation, comprehensive error prevention, intelligent alarm, automatic acceptance". After the system is completed, it will effectively solve problems such as insufficient equipment monitoring intensity, insufficient equipment management fineness, and insufficient production informatization.According to the company's interim report in 2022, the company has successfully won the bid for projects such as the Xi'an Nanjiao Central Control Station in Shaanxi, the Anhui Provincial Inspection and Central Control Station, and the Shanghai Beijiu Main Control Station. At the same time, the company successfully won the bid for 4 bids in the first equipment invitation bidding and procurement of the State Grid power transmission and transformation project, accounting for 36% of the total bid packages, reflecting the State Grid's recognition of the company's new generation of centralized control station system products and technologies. In the future, the centralized control station model will bring new business growth points to the company in the traditional power grid field.
distribution network automation construction has entered the "end" and space is limited. automation products mainly focus on secondary sub-sites, terminals, etc. According to the State Grid social responsibility report , the distribution network automation rate has reached 90% in 2020, and there is relatively little room for improvement. The main sub-site structure is stable, and the Nanrui Group is in the first echelon. Others include Xuji Electric and Sifang Co., Ltd., and the terminal products DTU and FTU are gradually replaced by first- and second-generation fusion products. We expect that with the overall investment in distribution network automation, the growth rate of distribution network automation products such as Sifang Co., Ltd., FTU/DTU will remain stable.
distribution network intelligent switching equipment undertakes future increments. distribution network intelligence is the "2.0 version" of distribution network automation to improve the "conspicuous, measurable and controllable" capabilities of the distribution network. Among them, in provinces within the State Grid scope in 2021, the newly tendered distribution network switch equipment mostly appears in the form of a first- and second-time integration set, replacing the original FTU+ column switch and DTU+ ring network cabinet equipment. The main categories are first- and second-time integration column switch and ring network cabinets. State Grid launched the "Technical Plan for the First and Second Fusion of Power Distribution Equipment" in 2016 and the "12kV First and Second Fusion Set of Column Switches" in 2020. With the improvement of standards and various technical solutions, coupled with the reliability of distribution networks under large proportion of new energy access, the penetration rate of the first and second integrated switches is expected to continue to increase. However, the product barriers on the distribution network side are relatively low, the quality is uneven, and the regionality is strong and the competition is serious at low prices, resulting in extremely scattered structure and average profitability. From 2020 to 2022, State Grid and South Grid will gradually carry out and deepen the standardization of distribution network switches. Through strict special inspections, the access of some non-qualified manufacturers will be controlled. The concentration of distribution network equipment is expected to increase in the future and the profit margin level is expected to be restored.
The next stage of power grid-side growth depends on distribution network business, and the company has a complete set of solutions for main sub-stations, terminals, and switches. In 2017, Company carried out strategic integration of distribution network business, established distribution power business units and increased investment. In that year, the distribution network automation contract was 276 million yuan, an increase of 146% year-on-year, and the distribution network switch contract was 233 million yuan, an increase of 300% year-on-year. Currently, customers are mainly South Network and State Grid as the supplement. In 2021, the South Grid Corporation of China declined due to the loss of the bid. The distribution system of the 2022H1 power distribution system achieved revenue of 232 million yuan, an increase of 17% year-on-year, and the growth rate began to recover. It is expected to achieve rapid growth in 2022. In the future, with the successful expansion of new products such as the first and second integration ring network cabinets and mid-switches, the business is expected to increase rapidly.
As one of the leading domestic power equipment companies, the company has been deeply engaged in the secondary field of power grids. The second position of Longer-Electricity has been stable. The investment in UHV + power grid intelligence has increased to drive the company's relay protection and monitoring systems to achieve steady growth. At the same time, the company has formed a new advantageous product sequence in the distribution network primary and secondary system solutions, and has continuously achieved business breakthroughs in the South Grid and State Grid regions. We expect the company's grid-side revenue CAGR is expected to achieve a growth of 10-15% from 2022 to 2024.
Power generation side provides complete solutions such as secondary equipment, SVG, energy storage, etc. to new energy and traditional power generation fields, with performance elasticity greater than that of the power grid side. company provides grid-connected access solutions for traditional power supplies (spotential and hydropower), wind power (offshore and onshore wind power), photovoltaic (centralized distributed), wind and light storage centralized regulation and operation and maintenance solutions, including secondary equipment such as relay protection and monitoring, as well as hardware equipment such as SVG and energy storage. The new energy side achieved revenue of approximately 478 million yuan (revenue accounts for 20%), an increase of 49% year-on-year. In the context of the era of new energy parity, the company's high growth in power generation business has begun to emerge.
New energy parity makes the β attribute of grid-connected access equipment highlight. new energy has entered the parity stage. According to the outbound reports "The general trend of carbon neutrality, the leading strong will always be strong" and "Sea wind bidding restarts, land wind parity new cycle - 2022 Wind Power Strategy Report", we expect the domestic CAGR of photovoltaic and wind power from 2022 to 2025 to be 24%/36%, respectively, and the installed capacity is expected to maintain a high growth. However, new energy power generation has volatility, randomness and is not easy to control. In the medium and long term, as new energy becomes the main power supply to replace traditional power, in order to maintain the balance between power generation and load power:
The company's new energy side has sufficient orders, from providing products to providing complete solutions, and the value of a single project is increased. is one of the few domestic suppliers with complete set of wind power photovoltaic grid-connected solutions:
New energy secondary equipment + SVG market average annual scale is about 10 billion yuan, with a large space. Judging from the approval status of photovoltaic and wind power projects, new energy installed capacity will maintain a long-term growth trend. We expect that about 1,000 new scenery and solar projects will be built every year in the 14th Five-Year Plan. The value of secondary equipment + SVG single project is about 10 million yuan, and the value does not change much with the project power. The average annual market size is 10 billion yuan, with a broad space. As the company transforms its supply products to solutions, the scale of a single project is expected to increase significantly, and the business growth rate will be more considerable.
point product:
l secondary equipment: The competitive landscape on the power generation side is better than the power grid side, and the company's market share is expected to increase. The power grid side of has a high entry threshold (especially secondary equipment), and the customer is single, so the layout is concentrated in the leading secondary equipment manufacturers Guodian Nanrui, Sifang Co., Ltd., Xuji Electric, Guodian Nanzi, etc. The power generation side customers are more scattered than the power grid side (such as large state-owned enterprises such as Datang and Huaneng), and the threshold is slightly lower than the power grid side, so third-party manufacturers of "non-grid systems" also have stronger ability to take orders.The grid side pattern is more stable than the power generation side, but for most competitors on the power generation side, Sifang Co., Ltd. is better at grid scheduling and operation, and its understanding of grid connection access and product categories are better than other companies. Therefore, Sifang Co., Ltd. is expected to obtain a higher sales share on the power generation side (relative to the power grid side).
lSVG: A large number of scenery and light grid connections have a negative impact on the quality of electricity, and have created the demand for reactive power compensation equipment SVG. The company's new energy SVG ranks first in China and has strong product competitiveness. As the proportion of wind power and photovoltaic power generation gradually increases, such power supplies do not emit reactive power , causing the power system to face greater voltage fluctuations, , harmonic pollution and other effects, which has spawned the demand for reactive compensation equipment. By continuously reducing costs, SVG prices have approached SVC, which have good economic performance and are the mainstream products in the market. According to the data of Xinfengguang’s prospectus, the high-voltage SVG market was 4.1 billion yuan in 2019 (we expect it to be mainly grid-connected side applications). industry specifications usually match reactive devices based on 10-20% new energy installed capacity. As the proportion of new energy power generation increases, we believe that the proportion of subsequent construction is expected to increase to 30-40%. Therefore, in the medium and long term, the growth rate of the SVG industry is faster than the growth of wind and solar installations. 's power electronics application business uses high-voltage chain power electronics products as the main technical platform, and its main product is SVG, and downstream customers are complete equipment manufacturers or general contractors for new energy power stations. Based on the 3 billion yuan new energy SVG market size in 2020, Siyuan Electric's new trend sales accounted for 55%. SVG products have relatively high maturity and high standardization. Currently, Guodian Nanrui, Zhiguang Electrical , Sifang Co., Ltd., and TBE Electrical electrical equipment manufacturers have participated, and the concentration and profit margin level are showing a downward trend. The company's SVG products belong to the first echelon in China. Benefiting from the company's technical accumulation in the field of power electronics and practical experience in the field of network-related control, it has won consecutive bids for many large-scale framework projects such as Huaneng Group and Gxin Energy Wind Power. With the rapid growth of new energy installations during the 14th Five-Year Plan period, we expect the company's SVG business to achieve a growth of more than 20% with the high beta of the scenery industry, and with the stable market competition pattern and the stable recovery of bidding prices, the gross profit margin of the company's SVG products is expected to be restored.
The overall stability of traditional power supply, and domestic substitution brings structural opportunities. Company provides thermal power and hydropower plants with supporting secondary equipment such as excitation control, relay protection, monitoring, DCS/PLCh, etc. Among them,
Policy drives the energy storage market volume. We expect the scale growth rate of each link in the "14th Five-Year Plan": the power grid side, power consumption side.2021 is the first year of energy storage, and relevant policies for energy storage on the power generation side, grid side and user side are frequently issued:
The company's energy storage products are concentrated on the power generation side. We expect the new capacity/power scale of energy storage on the grid-connected side from 2022 to 2025 to be about 98%/113%. According to our judgment on the newly installed capacity of centralized photovoltaic wind power in China, assuming that the allocation and storage duration of new projects have gradually increased, and at the same time, due to the improvement of energy storage economy, the penetration rate of energy storage at the stock end has slowly increased. We expect that by 2025, my country's new installed capacity of centralized photovoltaic, distributed photovoltaic and wind power energy storage will be 37GW/92.4GWh, 6.4GW/14GWh, and 7GW/14GWh, respectively, with a total of 50.3GW/120.5GWh, and the CAGR from 2022 to 2025 will be 98%/113%, respectively.
Deeply engaging in the energy storage field, and its business is expected to increase. When energy storage is in the pilot stage, energy storage technology reserves and project pilot projects will begin. In 2009, the company began to develop energy storage converters (PCS) and energy management systems (EMS). Starting from 2021, the company has established an energy storage business department to vigorously develop energy storage business in order to optimize the organizational structure and resource allocation. The company's energy storage business develops along two models:
Under the background of the new power system, the electricity side shows the following characteristics: 1) The degree of load electrification has been improved. According to the calculations of the South Network, the electrification level of energy consumption for industrial/construction/transportation terminals has increased from 30%/30%/5% in 2020 to 50%/75%/50% in 2060;
The electricity consumption side has steadily improved, and in the long run, the opportunity to be nurtured is born. Company extends the advantages of secondary equipment such as protection and monitoring of power grid power generation side to the power consumption side, and provides intelligent protection and control of power consumption systems (secondary equipment), shore power supply, microgrid management system, SVG and other products and solutions for TOP customers in industries such as steel and metallurgy, rail transit, petrochemical, and ports. In terms of digital electricity use, the company has begun to layout and research and development in the series of products such as electricity safety monitoring, energy efficiency improvement, and low-carbon management, and promote the practical application of smart electricity use solutions in commercial operations, office places and industrial production scenarios. However, the digital electricity use business is still in the cultivation period. We expect the revenue volume from 2022 to 2024 to be at the level of tens of millions. With the deepening of the reform of the power market and the continuous strengthening of the energy management awareness of electricity side, the company's electricity side business is expected to gradually increase.
We expect the company's overall revenue growth rate to be 19%/24%/21% respectively from 2022 to 2024:
) Other (energy storage, smart electricity use, etc.) mainly include the company's emerging businesses and incubation businesses, mainly focusing on energy storage businesses. The smart electricity use business is expected to have a small amount of revenue. We expect the revenue CAGR from 2022 to 2024 to be 110%.
Expense rate assumption: company continues to maintain a high level of R&D investment and off-network development efforts, but expenses increase revenue and reduce expenditure and business scale effects have a dilution effect on expenses. We assume that the company's R&D expense ratios from 2022 to 2024 will be 9.4%/9.3%/9.2%, respectively, sales expense ratios will be 9.0%/8.7%/8.5%, respectively, and management expense ratios will be 4.6%/4.5%/4.4%, respectively.
Profit forecast and investment advice: Because the company's new energy business on the power generation side is growing rapidly, the energy storage business is ready to go. We expect the company's net profit attributable to shareholders from 2022 to 2024 will be RMB 538/677/822 million, respectively, +19%/+26%/+22% year-on-year, respectively, and the corresponding current price (December 2) PE is 23 times, 19 times and 15 times respectively. Comparable companies are all leading power equipment companies in power grids, and they all have secondary equipment products. The average PE of comparable companies in 2023 is 20 times. Considering that the company's power generation side contributes performance elasticity and has strong competitiveness, the grid side is stable and progressing, and emerging businesses such as centralized control stations and energy storage are expected to bring new performance increases. In 2023, the company will be given 27 times PE as a basis for valuation, with a target price of 22.5 yuan per share, and the first coverage will be given a "buy" rating.
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