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雷达卡
Wind Power Equipment
Flying with a strong tailwind
Michael Tong, CFA
Research Analyst
(852) 2203 6167
michael.tong@db.com
Eric Cheng
Research Analyst
(852) 2203 6202
eric-ct.cheng@db.com
Explosive wind capacity growth in China -- Buy picks and shovels first
We expect China's wind power capacity to grow at 25% CAGR from 2.6GW in
2006 to 60GW in 2020. Wind equipment suppliers, providers of "picks and
shovels", will embark on a decade-long upcycle. We initiate coverage on CHSTE, a
leading wind gearbox maker with unique position in the value chain. We maintain
Buy on Dongfang Electric for its significant wind exposure (orderbook = 6 x '07
capacity).
More positive on China’s wind capacity development
We are becoming more positive on the wind power growth prospect in China, due
to 1) a more conducive policy environment (i.e. recent changes in wind concession
awarding criteria), 2) the heightened concern of energy security and environmental
protection, 3) the increasingly competitive wind tariff vs. coal, and 4) a record-high
oil price. We believe the government will revise up the wind capacity target soon.
Flurry of new entrants but equipment in far stronger demand
The wind power equipment market in China features the entry of major
international players and the emergence of dozens of local newcomers. It is a
nascent market with an evolving landscape. Order book/bill ratio is high given the
mismatch between demand and supply. Despite significant capacity expansion
being planned, the near-term outlook still favors the suppliers more than the
buyers due to explosive order inflows. The localization requirement supports
domestic players. China may become a global manufacturing base for wind
equipment due to its sheer market size and unrivalled cost advantage.
Identifying key beneficiaries
We estimate an average domestic market size of Rmb24b per annum in 2008-20E
for wind turbines. From 2006-10E, we expect the annual market size to grow from
Rmb8.7b into Rmb18.5b. We have identified 20+ listed/private players in the wind
turbine/component space, which are likely to benefit from this boom trend.
Buy China High Speed Transmission Equipment and Dongfang Electric
We initiate CHSTE with a Buy for its unique position in the wind gearbox segment,
where supply tightness is most severe. We maintain a Buy on Dongfang Electric
as we find hidden value in its wind business with greater prospects. Moreover, its
long-standing relationship with IPPs, robust balance sheet, and excellent track
record in power equipment, place it above many pure plays.
Key risks
Key risks to our bullish view on the industry include 1) a potential capacity
overbuild, 2) lack of long operational track record for the newly developed turbine
and components, 3) uncertainty with policy supports, 4) short-term components
supply shortage, and 5) margin pressure from rising material costs.
Table of Contents
Investment thesis .............................................................................. 3
Ten reasons to be positive on China’s wind capacity growth....... 4
The dynamics of China wind power equipment market.............. 11
Key market players.......................................................................... 17
Risk factors....................................................................................... 23
Appendix A: A wind turbine ........................................................... 24
Appendix B: WTG makers in China ................................................ 25
Appendix C: China’s wind project economics and LT capacity
forecasts ........................................................................................... 29
Dongfang Electric ............................................................................ 31
CHSTE............................................................................................... 40
Huayi Electric Apparatus................................................................. 65
Xiangtan Electric.............................................................................. 67
209821.pdf
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