Company Profile

Chongqing Wangbian Electric (Group) Corp., Ltd. manufactures and distributes power transmission and distribution and control equipment. The Company produces power transformers, box type substations, electrical equipment complete sets, and other equipment. Chongqing Wangbian Electric (Group) also produces silicon steel products. (Source: Bloomberg)

Comments

Chongqing Wangbian Electric (“the company”) has been cultivating in the power transmission and distribution as well as control equipment industry for nearly 30 years, steadily advancing its industrial chain.

The company has mastered key production processes and a number of core technologies in power transmission, distribution and control equipment through long-term production practice and technological innovation.

The company has established a complete sales system and sales network, accumulating a broad customer base in the industry. The company’s independently-built oriented silicon steel production line was put into operation in 2017, forming an integrated industrial chain from key raw materials to end products.

Power transmission and distribution equipment is an important part of the power system, and the downstream boom drives the rapid growth of the industry.

As economic development enters a new stage, customers in industries such as new energy, data centers, and new infrastructure will gradually expand their demand for power transmission, distribution and control equipment, and the sector will usher in more growth potential.

Oriented silicon steel is an important raw material for transformers, and the growth of downstream demand serves as a good foundation for the development of the sector.

The cost of oriented silicon steel as a raw material accounts for about 30%-40% of the total production cost of a single transformer. In recent years, the smart development of urban and rural distribution network in China, the construction of new energy power stations and the improvement of the energy efficiency of power transformers have created a demand for higher-performance transformers. The steady growth of the downstream market serves as a good foundation for the development of the oriented silicon steel industry.

Competitive advantages of the company: The company’s diverse products are competitive and are able meet customer needs in a one stop way. Meanwhile, the company makes plans for the oriented silicon steel business and has significant advantages in industrial chain integration.

In terms of research and development, the company actively cooperates with research institutions to develop cutting-edge technologies and ranks among the top in the industry in terms of the output and performance of oriented silicon steel.

Earnings forecast and investment recommendation

The company has a variety of products. As the transformation of the power distribution network is advanced, the demand for energy-saving transformers has increased, and the supply of oriented silicon steel will be tight in the short term. The company has an integrated layout for the industrial chain and ranks among the top in the oriented silicon steel field. The company’s performance is expected to achieve strong growth.

We estimate the company’s net profit attributable to shareholders at CNY 266 million, CNY 388 million, and CNY 568 million for 2022, 2023 and 2024 respectively. The corresponding PE ratio is 27.9x, 19.2x, and 13.1x, respectively, based on the closing price on June 21, 2022.

We cover the company for the first time and give it a rating of “Outperform”.

Potential risks

Cyclical fluctuation in downstream industries; market competition risk; fluctuations in raw material prices.