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）

Event

Recently, Wangbian Electric （“the company”） releases its 2022 interim report.

In H1, 2022, the company achieved CNY 1.124 billion, CNY 116 million, and CNY 109 million in revenue, net profit attributable to shareholders, and net profit attributable to shareholders & excluding gains and losses from non-recurring items respectively, a year-on-year （YoY） growth of 27.53%, 69.22%, and 58.60%.

In the second quarter, the company also achieved a revenue of CNY 738 million, up 36.74% YoY and 90.87% QoQ. The company also reported CNY 80 million in net profit attributable to shareholders for the period, up 115.01% YoY and 117.80% QoQ. The Q2 net profit attributable to shareholders & excluding gains and losses from non-recurring items registered CNY 74 million, up 110.11% QoQ, in line with expectations.

Comments

The business for power transmission, distribution and control equipment has grown steadily.

During the reporting period, the revenue of the company’s power transmission,　　distribution and control equipment business registered CNY 405 million, the gross profit margin of which decreased by 6.48 pps year on year to 15.7%, as a result of the fluctuations in raw material prices. The company has 3356594kVA of power transformers, 4869 complete sets of electrical equipment and 426 box-type substations.

While tapping into the existing market, the company has also built a special team to focus on emerging fields such as new energy photovoltaics, wind power, charging piles, rail transit, data centers and new infrastructure. The company continues to build marketing channels, explore policy benefits, and gain more high-quality orders in new fields and with high profits.

The performance of oriented silicon steel business maintains rapid growth.

As one of the company’s main businesses, the oriented silicon business accounted for 61.30% of the company’s total revenue during the reporting period, staying at a high level. The revenue from the business reached CNY 689 million, a year-on-year growth of 49.53%, ranking the first among private companies in the domestic market and third across the country.

The company is also actively developing both domestic and foreign markets, and its export sales revenue reached CNY 248 million, up 328.70% YoY.

The layout for the company’s industrial chain integration is complete, and the expansion plan has been followed through.

Due to the tight supply and demand of high-grade oriented silicon steel in the market, the company’s production capacity utilization rate has continued to remain above 100% and overloaded, so it is in urgent need of production capacity expansion.

The company announced on June 17 that it will use self-raised funds of CNY 835 million to build a high magnetic induction grain-oriented silicon steel project with an annual output of 80,000 tons, and the construction is expected to be completed in two years. According to the company’s estimation and calculation, the internal rate of return of the project is 17.99% （post investment income tax）， and the investment payback period will be 6.99 years. After the project is completed, it will help the company to further enhance its position in the industry and seize market opportunities.

Earnings forecast and investment recommendation

We maintain our earnings forecast and 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 30.7x, 21.1x, and 14.4x, respectively, based on the closing price on August 25, 2022.

We maintain the rating of “Outperform”。

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