Industry insiders say that based on the goals of carbon peak and carbon neutrality, the renewable clean energy industry will experience accelerated development. Wind power, especially offshore wind power, has abundant exploitable resources, is clean and safe, and has great potential for cost reduction and efficiency improvement in the future. It is expected to become a new trend for investment in new energy in the future.

 

The valuation advantage is highlighted

 

From the performance of the market on November 18th, against the backdrop of a volatile downward trend in the A-share market, the wind power sector performed outstandingly, with the CSI Wind Power Industry Index rising 1.66% against the trend. Among them, Tianneng Heavy Industry saw an increase of over 12%, while Times New Materials, Tongyu Heavy Industry, Jiangsu New Energy, and Daikin Heavy Industry all saw an increase of over 5%.

 

According to the official website of CSI Index, the CSI Wind Power Industry Index was released on April 29th this year. It selects no more than 50 listed companies' securities related to upstream materials and components, midstream wind turbines and other related supporting equipment, and downstream construction and operation of the wind power industry from the Shanghai and Shenzhen markets as index samples to reflect the overall performance of listed companies' securities in the wind power industry in the Shanghai and Shenzhen markets. According to Wind data, as of the close of November 18th, the CSI Wind Power Industry Index has a total of 33 constituent stocks with a total market value of 10702.28 billion yuan. Among them, the three stocks with the highest weight are Sunshine Power, Goldwind Technology, and Mingyang Intelligence, all with a market value of over 50 billion yuan.

 

Since November, the Shanghai Composite Index has fallen by a cumulative 0.75%, while the CSI Mainland New Energy Theme Index has taken profits after reaching a historic high, with a cumulative correction of 5.46%. At the same time, the CSI Wind Power Industry Index has risen by 5.42% cumulatively.

 

Analysts say that the clear valuation advantage is the main reason for the wind power sector's recent independent market trend. According to Wind data, the wind power industry index has the lowest valuation among the CSI new energy related thematic indices. As of November 18th, its price to earnings ratio (TTM) and price to book ratio (LF) were 35.69 and 4.18, respectively; The price to earnings ratio of the new energy and photovoltaic industry indices are both above 50, and the price to book ratio is above 5; The P/E ratios of the power battery and new energy vehicle indices are both over 80, with a price to book ratio of over 10. Looking at individual stocks, the three wind power stocks with high gains yesterday, Tianneng Heavy Industry, Times New Materials, and Tongyu Heavy Industry, all have a total market value of around 10 billion yuan, with P/E ratios of 26.90, 27.43, and 44.91, and P/B ratios of 3.51, 1.85, and 2.19, respectively, highlighting their valuation advantages.

 

It is precisely because of the current relative valuation advantage of the wind power sector that public funds have been increasing their allocation to the wind power track since the third quarter. In addition, according to the website of the China Securities Regulatory Commission, as of now, more than 10 fund companies have submitted application materials for wind power themed ETFs, all of which have been accepted. From the perspective of product form, these more than 10 wind power themed ETFs are all in the form of index funds, tracking the CSI Wind Power Industry Index.

 

Expected to become the next blue ocean

 

Industry insiders say that wind power, especially offshore wind power, is expected to become the next blue ocean for China's low-carbon energy development. According to the "China Wind Power Development Roadmap 2050", the exploitable amount of offshore wind energy resources at a height of 100 meters in waters ranging from 5 to 50 meters deep in China is approximately 500 million kilowatts. According to the 2020 Statistical Bulletin on China's Marine Economy released by the Ministry of Natural Resources, offshore wind power developed rapidly in 2020, with an additional 3.06 million kilowatts of grid connected capacity added throughout the year, an increase of 54.5% over the previous year.

 

Industry insiders say that China's offshore wind power has fully entered the stage of large-scale and commercial development. Breakthroughs have been made in domestic wind turbine technology and construction technology, and the single unit power of offshore wind turbines has rapidly developed from 4 megawatts to 10 megawatts, gradually narrowing the gap with international advanced levels. At the same time, offshore wind power is gradually developing from nearshore to deep offshore, and with the maturity of floating and other technologies, the exploitable space for offshore wind power is enormous. On November 16, at the China EU Offshore Wind Power Industry Cooperation and Technology Innovation Forum, Chen Shixi, an academician of the CAS Member, said: "Large wind turbines, large-scale development, floating foundation, offshore intelligent operation and maintenance, and far-reaching offshore flexible and direct transmission technology are the development direction of offshore wind power."

 

Not only domestically, the development of offshore wind power has also been recognized by many other countries. On November 5th, American energy giant Dominion Energy submitted a plan to the Virginia State Commission for approval to build a 2.6 gigawatt (GW) offshore wind power project along the Virginia coast. The total investment of this project is approximately 9.8 billion US dollars, making it the largest offshore wind power project in the United States to date. Previously, at the 2021 International Wind Energy Conference held in Beijing, the Deputy Director General of the Danish Energy Agency announced the bidding plan for the North Sea Energy Island in 2022, stating that the energy island can provide a large amount of wind power in the future, distributed transmission to European consumers.

 

Having long-term profit potential

 

Industry insiders generally believe that the current wind power industry is in a stage of rapid development, and the construction of offshore wind power bases will accelerate the process of sea wind parity. Leading offshore wind power companies in various links will continue to benefit, and the prospects of the offshore wind power market will improve in the next 10 years.

 

CITIC Securities stated that the wind power industry chain mainly includes three main links: upstream raw material and component manufacturing, midstream complete machine manufacturing and cable laying, and downstream wind power operators, with numerous listed companies participating in them. The gross profit margin of glass fiber and carbon fiber reinforced material manufacturers located at the forefront of the industry chain, as well as downstream operation links, has been increasing year by year, while midstream blade and whole machine manufacturers have borne significant cost reduction pressure, resulting in compressed profits. Due to the characteristic of the entire industry chain resembling a "smile curve", it is expected that high value-added reinforcement materials and operational links will gain more profit space in the long run.

 

Against the backdrop of the booming offshore wind power industry, Zheshang Securities believes that there will be significant changes in the competitive landscape and expected product value of various components. The large-scale production of components such as bearings and flanges will increase the entry threshold for the supply chain. Small and medium-sized manufacturers are gradually phasing out of the supply chain, while top manufacturers are expected to increase and improve their market share and profitability due to the optimization of the competitive landscape.

 

In terms of investment advice, Minsheng Securities stated that it will closely follow the trend of large-scale and offshore wind power, accelerate the layout of advanced production capacity, and focus on leading component companies that are expected to achieve market share growth. In addition, under the stimulus of cost reduction, second tier complete machine manufacturers and other high-quality component and complete machine manufacturers who have won bids and increased shipments are also worth paying attention to.

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