Weekly Report on Electrical Equipment in the New Energy Industry: Focus on the Policy Dividends of the Two Sessions, Electricity Reform and New Energy Vehicles Remain Hot Topics

The power equipment new energy industry was mentioned multiple times in the government's 2016 work report, and the key tasks for the future almost cover all current investment directions in the industry, including: significantly relaxing the entry threshold for the power industry (power reform); constructing ultra-high voltage, smart grids, and new energy vehicle charging facilities; rural power grid transformation; increasing the proportion of clean energy such as wind and solar; widely carrying out contract energy management and increasing energy-saving transformations (services on the power user side). We believe that under the current economic environment, the entire new energy power equipment industry will be a hotspot for investment throughout the 13th Five-Year Plan period (2016-2020).

The power trading center is online, and the power reform is advancing further. The Beijing and Guangzhou power trading centers went online on March 1, marking a shift from policy-driven to practical implementation of the new round of power system reform. This confirms our judgment on power reform at the beginning of the year, and we have also emphasized that the power reform has just begun, with 2016 gradually entering the year of implementation and landing of supporting documents for power reform. The establishment of the Beijing and Guangzhou power trading centers mainly focuses on cross-regional and long-term power trading, promoting direct power supply to large users. We expect that the subsequent launch of provincial trading centers will focus on the trading of the power spot market, and we suggest paying close attention to the progress of several demonstration provinces for power reform. As the power trading center advances, it will promote the subsequent opening of electricity sales and the development of electricity service models. We particularly recommend paying attention to companies such as Juhua Technology, Jicheng Electronics, Xinlian Electronics, Zhongheng Electric, and Guodian Nari.

New energy vehicles: The average annual production and sales will reach 900,000 units in the next five years.

The target of 5 million new energy vehicles by 2020 is mentioned again. Xinhua News Agency released the major projects and initiatives in the 13th Five-Year Plan, which specifically mentioned that the cumulative production and sales of new energy vehicles nationwide will reach 5 million by 2020. According to data from the Ministry of Industry and Information Technology, China produced a total of 370,000 new energy vehicles in 2015, while from 2009 to 2015, China produced nearly 500,000 new energy vehicles. Based on the target of 5 million by 2020, the average annual production and sales of new energy vehicles in the next five years must reach 900,000 units. The growth of new energy vehicles still has huge development space, and the increase in new energy vehicles will also drive the demand for upstream batteries and motor control, benefiting charging piles as well. We particularly recommend companies such as Fangzheng Electric, Yiwei Lithium Energy, Tianci Materials, Hekang Frequency Conversion, Keda, Zhongheng Electric, and Heshun Electric.

Energy storage: Distributed power sources and energy storage, opening the next era.
Xinhua News Agency released the major projects and initiatives in the 13th Five-Year Plan, where the development of energy storage and distributed energy was specifically mentioned. For distributed power sources and energy storage, under the broad environment of power reform, we believe this is an inevitable trend in the future development of the power industry. The rise of distributed power sources and energy storage can improve the reliability of power supply on one hand, and on the other hand, more diverse business models can be formed on the electricity sales side.

Moreover, the rise of distributed power sources and energy storage has further improved the physical structure of the energy internet. We particularly recommend paying attention to companies such as Jicheng Electronics, Sunshine Power, Xiongtao Co., XWANDA, and Jingyuntong.