XJEC(SZ:000400) HTSC·2025-05-13 07:30Investment 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 is expected to achieve a compound annual growth rate (CAGR) of 23.8% in net profit from 2025 to 2027, with projected net profits of 14.12 billion, 18.21 billion, and 21.22 billion RMB for those years [5][11]. Summary by Sections Business Overview - Xuji Electric's business covers core aspects of the new power system, with a steady growth outlook aligned with the national grid's total investment, which is expected to exceed 650 billion RMB in 2025 [3][14]. - The company has seen a continuous increase in its market share for smart substation products, with bidding shares rising from 6.7% in 2022 to an expected 8.6% in 2024 [3][16]. Direct Current Transmission - Xuji Electric leads in UHVDC technology, with a market share of approximately 20% for converter valves and 40% for direct current control protection systems. The company has a strong technical foundation and project experience in flexible direct current transmission [22][30]. - The report estimates that a single conventional/flexible UHVDC project could contribute 0.66-0.99 billion RMB and 1.48-2.35 billion RMB in net profit for 2027, translating to profit elasticity of 3.1-4.7% and 7.0-11.1% respectively [4][32]. Financial Projections - The projected revenue for Xuji Electric is expected to reach 17.09 billion RMB in 2024, with a slight increase to 18.32 billion RMB in 2025, reflecting a growth rate of 7.2% [6][11]. - The net profit for 2025 is projected at 1.41 billion RMB, with a year-on-year growth of 26.4% [6][11]. Market Position - Xuji Electric's competitive position is strengthened by its ability to provide complete solutions for both UHVDC and flexible direct current transmission, making it a key player in the industry [22][26]. - The company is expected to maintain a stable market share in smart metering, with ongoing demand driven by the peak replacement cycle and international expansion [16][17].