Core Viewpoint - Dongwu Securities issued a report on August 8, giving Hewei Electric (603063.SH, latest price: 39.25 CNY) a buy rating based on several growth drivers and competitive advantages [2] Group 1: Growth Drivers - The growth of the new energy electric control business is driving overall growth, and the full product line coverage supports international expansion [2] - The company possesses leading advantages in high-power technology, indicating significant potential in the transmission business [2] Group 2: Cost Management - The company demonstrates strong cost control capabilities, with a stable decrease in the period expense ratio [2]

Investment Rating - The report maintains a "Buy" rating for the company [7] Core Views - The company achieved significant growth in H1 2025, with revenue of 1.884 billion RMB (up 36.39% YoY) and net profit of 243 million RMB (up 56.79% YoY) [1][2] - The strong performance in Q2 2025 was driven by high demand in downstream sectors, particularly in wind and energy storage, alongside effective cost control that improved overall gross margins [1][3] - The company is focusing on core technology platforms and diversifying application scenarios, which is expected to enhance its market position [1] Financial Performance - In Q2 2025, the company reported revenue of 1.111 billion RMB (up 33.33% YoY, up 43.60% QoQ) and a net profit of 137 million RMB (up 38.11% YoY, up 30.34% QoQ) [1][2] - The gross margin for Q2 2025 was 35.44%, an increase of 0.45 percentage points YoY, while the net margin was 12.68%, a slight decrease of 0.50 percentage points YoY due to increased credit impairment losses [2] - The company’s H1 2025 revenue from the new energy control business was 1.524 billion RMB (up 44.97% YoY), while the engineering transmission business revenue was 226 million RMB (up 11.50% YoY) [3] Business Segments - The new energy control business experienced robust growth, benefiting from strong demand in offshore wind and energy storage, although its gross margin decreased due to intensified market competition [3] - The engineering transmission business saw an increase in gross margin to 47.71% (up 8.26 percentage points YoY), attributed to the acceleration of domestic substitution and higher-value projects [3] Product Development and Market Expansion - The company is actively promoting large-capacity power supply and power quality products, with significant growth potential in data centers [4] - The overseas revenue for H1 2025 reached 148 million RMB (up 54.46% YoY), accounting for 7.83% of total revenue, indicating strong growth momentum in international markets [4] Profit Forecast and Valuation - The company’s projected net profits for 2025-2027 are 642 million RMB, 750 million RMB, and 830 million RMB, respectively, with corresponding EPS of 1.41, 1.65, and 1.83 RMB [5] - The report assigns a target price of 48.05 RMB for 2025, based on a PE ratio of 34 times, reflecting confidence in the company’s growth across its various business segments [5]

Summary of Key Points from the Conference Call Company Overview - Hezhong Electric is primarily an electric power electronics platform company, originally focused on the wind power sector and gradually expanding into photovoltaic, energy storage, and hydrogen energy sectors [2][16] - The management team has a strong technical background, with many members coming from Huawei and Emerson Network Power, which enhances the company's technological capabilities [8] Industry Insights - The AI data center (AIDC) market is expected to see significant growth, with global installations projected to reach 12 GW by 2025, leading to a corresponding market space of $18.2 billion for UPS and $5.8 billion for HVDC [4][10] - The HVDC market is anticipated to grow rapidly, potentially reaching nearly $30 billion by 2028, driven by its efficiency and stability advantages [4][10] - The demand for power supply solutions in AI data centers is increasing, with a focus on stability, efficiency, and power requirements [12] Financial Performance - Hezhong Electric has experienced a compound annual growth rate (CAGR) of over 20% in revenue since 2018, although the company faces pressure in 2024 due to challenges in the renewable energy sector [7] - The company maintains a stable gross margin, with the large transmission business achieving profitability around 45% [7][16] - Revenue and profit growth are expected to rebound as the company explores new large transmission fields [7] Market Opportunities - The company is well-positioned to capitalize on the accelerating capital expenditures from major cloud providers in North America and domestic giants like Alibaba and Tencent, which are expected to increase their capital spending in 2025 [3][10] - Hezhong Electric aims to leverage its large power technology to expand into AI data center power supply, soft start, pumped storage, and controlled nuclear fusion sectors [6][9] Competitive Landscape - The UPS market currently dominates the power supply sector, holding over 90% market share, but HVDC is expected to gain traction due to its lower costs and smaller footprint [13][15] - The penetration rate of HVDC is projected to increase significantly in the coming years, particularly in overseas markets [15] Future Projections - The company anticipates revenue growth in the wind power sector, with onshore wind expected to grow over 30% and offshore wind potentially doubling by 2025 [3][16] - The overall revenue and profit growth outlook for Hezhong Electric is positive, with projected net profits of $640 million in 2025, $760 million in 2026, and $930 million in 2027 [17] Conclusion - Hezhong Electric is strategically positioned to benefit from the growth in AI data centers and renewable energy sectors, with a strong management team and a focus on technological innovation [2][8][9]

Investment Rating - The report assigns a "Buy" rating for the company, Hewei Electric (禾望电气) [1][7]. Core Insights - Hewei Electric is positioned as a power electronics platform company with a strong moat, expected to leverage the AI wave to expand into new fields, particularly in AI data center (AIDC) power supply solutions [4][13]. - The company has a solid growth trajectory in its core businesses of new energy control and transmission, with significant opportunities in the rapidly growing AIDC market [7][28]. Summary by Sections 1. Business Overview - Hewei Electric focuses on new energy control and transmission, with its core business covering wind power converters, photovoltaic inverters, energy storage systems, and hydrogen production systems [4][13]. - The company has expanded its product offerings since its establishment in 2007, leveraging its expertise in high-power technology [4][13]. 2. AIDC Market Potential - The demand for AIDC is expected to grow significantly, with a projected CAGR of approximately 40% from 2023 to 2028 [29]. - By 2025, the global AIDC market is anticipated to account for 79% of new data center installations, with a substantial increase in power consumption [29][30]. 3. Product Development and Market Position - Hewei Electric is a leader in wind power converters, with a comprehensive product range covering 750kW to 30MW power segments, and is expected to see high growth in sales [4][5]. - The company is also well-positioned in the photovoltaic and energy storage markets, maintaining a strong market presence and competitive advantage [4][5]. 4. Financial Projections - Revenue forecasts for Hewei Electric are projected to reach 49.08 billion yuan in 2025, with a growth rate of 31%, and net profit expected to grow by 45% to 6.39 billion yuan [6][7]. - The company is expected to maintain a stable growth trajectory through 2027, with revenue and profit growth driven by its core businesses and new opportunities in AIDC [7][20]. 5. Competitive Landscape - The report highlights the competitive landscape in the AIDC sector, noting that Hewei Electric's early mover advantage in high-power technology positions it favorably against competitors [4][5][28]. - The company is expected to benefit from the increasing demand for high-efficiency power supply solutions in the context of rising AI computing needs [4][5][28].