XJEC(000400)2025-05-13 03:45Investment Rating - The report initiates coverage on Xuji Electric with a "Buy" rating and sets a target price of 26.41 RMB, based on a 19x PE for 2025 [1][5][7]. Core Views - Xuji Electric is a key enterprise under China Electric Equipment Group, positioned as a leading supplier of secondary equipment and converter valves in China. The company is expected to benefit from the steady growth of the new power system construction [12][13][17]. - The report anticipates the approval of 5-6 ultra-high voltage direct current (UHVDC) projects and 5-6 back-to-back projects within the year, which will significantly benefit Xuji Electric as a core supplier of converter valves and direct current control protection systems [2][12][13]. - The company has a leading position in flexible direct current technology, with the value of a single conventional UHVDC/back-to-back project estimated at approximately 1.3 billion RMB/300 million RMB, while the value of flexible direct current is about three times that of traditional direct current [2][12][22]. Summary by Sections Business Growth - Xuji Electric's business covers core aspects of the new power system, and its performance is expected to grow steadily alongside the total investment from the State Grid, which is projected to exceed 650 billion RMB in 2025 [3][14][19]. - The company's market share in smart substation products is steadily increasing, with winning bids of 340 million RMB, 495 million RMB, and 533 million RMB for 2022, 2023, and 2024 respectively, indicating a growing presence in the market [16][22]. Profitability Forecast - The forecasted net profit for Xuji Electric is expected to reach 1.41 billion RMB, 1.82 billion RMB, and 2.12 billion RMB for 2025, 2026, and 2027 respectively, with a three-year CAGR of 23.8% [5][11]. - The report estimates that a single conventional/flexible UHVDC project could contribute a net profit elasticity of 3.1-4.7%/7.0-11.1% for 2027, while five back-to-back projects could yield a net profit elasticity of 2.3-4.6% for 2025-2026 [4][32][34]. Market Position - Xuji Electric holds approximately 20% and 40% market shares in the UHV converter valve and direct current control protection system markets respectively, indicating a strong competitive position [30][31]. - The company has successfully developed a complete set of core technologies for ±800kV and below flexible direct current converter valves, showcasing its technological leadership in the industry [26][30].