荷兰银行—中国电力设备行业研究报告2007

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Bright outlook still overlooked
Increases in new orders for power equipment manufacturers
suggest high earnings growth should continue in 2008-09. Nuclear
orders to be delivered from 2009 will likely prolong the high growth,
in our view. Our top picks are Dongfang and Harbin.

Strong power demand growth should drive sales
We forecast power demand will increase 14% in 2008, driven by our forecast of GDP
growth of 11%. Given that the government expects total capacity in China to increase
to 720GW by the end of 2007, to maintain the electricity supply and demand balance,
total capacity should grow at the same pace (about 100GW). Since power demand
grew 15.1% in the first nine months of 2007, we believe we will see upside to our
forecasts unless GDP growth slows substantially.
Additional demand from replacement of small, inefficient power plants
Total power equipment produced per year should be even higher given the
government's target is to increase the operation of large-scale power-generating
units to replace about 60GW of small, inefficient power plants over 2007-10. In
addition to the capacity needed to match the power-demand growth, total capacity
produced per year should rise. All this explains the increase in new orders that power
equipment manufacturers have received since 1H06.
Nuclear power plant development supports long-term growth
The government has set a target to have 40GW of nuclear power capacity by 2020
(vs 9GW currently). The development of nuclear power is still in the early stages in
China, but management expects that once technology matures, the gross margin for
nuclear power equipment will surpass that for thermal power equipment. In addition
to a higher per-unit selling price (4-5x that for thermal power equipment), the
delivery of nuclear power equipment could help power equipment manufacturers to
maintain high earnings growth in the longer term.
Raising our target prices; our top picks are Dongfang and Harbin
We raise our earnings forecasts and target prices for Dongfang (target price HK$85.0
thanks to enhancement from asset injections and the faster development of the
nuclear and wind power equipment businesses), Harbin (target price HK$33.0 on the
back of a higher margin-expansion forecast) and SH Electric (target price HK$7.20
based on higher contributions from the power equipment and electromechanical
businesses). Dongfang and Harbin remain our top picks in the sector because we
forecast both will maintain EPS CAGRs (2007-09) exceeding 35% (PEG ratios of
0.4x), and our revised target prices suggest more than 50% potential upside for
each.

Contents
U T I L I T I E S 2 0 N O V E M B E R 2 0 0 7 2
V A L U A T I O N C O M M E N T
Valuation and recommendation 3
We remain bullish on power equipment manufacturers because we expect strong
EPS growth until 2009 due to new orders gaining momentum. Our top picks are
Dongfang (TP: HK$85) and Harbin (TP: HK$33).
Earnings and target price upgrade 3
ABN AMRO versus consensus 3
High PE supported by high EPS growth 4
Earnings sensitivities 4
Our top picks: Dongfang and Harbin 5
I N V E S T M E N T V I E W
Demand still growing 7
Strong power demand growth should drive the government to approve more new
power plants to maintain the electricity supply and demand balance. We forecast
net capacity added per year will remain above 100GW.
YTD electricity demand growth beats govt forecast 7
Net capacity addition should exceed 100GW in 2008 8
Benefit from small plants replacement 9
The government’s energy savings policy to replace small coal-fired power plants
should drive extra demand for large-scale power-generating units (10-15GW pa),
given a lower coal consumption rate and higher efficiency.
57-60GW inefficient plants to be closed over 2007-10 9
Replacement orders will increase the total capacity needed 9
Increasing new orders for equipment manufacturers 10
Nuclear power supports long-term growth 11
The government’s plan to boost nuclear-power-generating capacity to 40GW by
2020 could support power equipment manufacturers’ long-term growth given
higher unit prices and better profit margins as technology matures.
Accelerating development in nuclear power 11
C O M P A N Y P R O F I L E S
Company profiles 14
Dongfang Electric 15
Harbin Power Equipment 25
Shanghai Electric Group 34
A P P E N D I X
Appendix 43
1. Winners & losers 43
2. Major components of coal-fired, gas-fired, hydro, wind and nuclear power plants 45

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