JINPAN SMART TECHNOLOGY(688676)：DIGITAL-BACKED DRY TYPE TRANSFORMER LEADER STEPS UP EFFORTS IN ENERGY STORAGE

Jinpan Smart Technology has been engaged in power equipment for more than two decades and has developed into a domestic leader in dry type transformers. The Company has been building its core competitiveness of lower costs and higher efficiency via keen promotion of digitalization.
Benefiting from the upsizing of fans & blowers and the active capacity expansion of the photovoltaic (PV) value chain, Jinpan’s fundamentals of dry type transformers have been rosier than ever. Meanwhile, it has been proactively stepping up efforts in energy storage, with medium- and high-voltage direct-mounted energy storage systems (ESS) as core products. With the gradual capacity commissioning of the projects in Guilin and Wuhan, we expect Jinpan’s energy storage business to develop rapidly on the back of multiple advantages, such as strong technical know-how and a solid customer base, and refuel its growth. In addition, we see a rapid growth in its order in-takes as Jinpan spread digital factory solutions inspired by its own experience in digital transformation, which may further improve its products for the kick-start of marketing promotion.
We forecast its 2022-24E EPS to be Rmb0.64/1.01/1.53 and assign 45x 2023E PE to derive a target price of Rmb45. We initiate coverage with a "BUY" rating.
As a leading intelligent manufacturer in dry type transformers, Jinpan refuels growth by stepping up efforts in new energy.
Founded in 1997, Jinpan is a leader in dry type transformers. Its core products of dry type transformers have been applied in multiple scenarios, covering high growth industries, such as wind and PV power. It ventured into energy storage in 2022, which formed a triple driver for its growth. The Company targets at global mid- and high-end markets and has established deep cooperation with Vestas, General Electric (GE), Siemens and other global giants. Jinpan recorded operating revenue of Rmb3.303bn in 2021 (up by 36% YoY), with attributable net profit (ANP) of Rmb235mn (up by 1% YoY). The revenue driven by the surging demand climbed to Rmb1.975bn in 1H22 (up by 32% YoY), and the ANP fell to Rmb96mn (down by 16% YoY) due to the rising prices of raw materials, such as coppers and silicon steel, and the impact of regional Covid flare-ups on deliveries, etc. With the gradual commissioning of its energy storage projects, alongside the marginal improvement or easing of constraints, such as raw material price hikes and regional pandemic, we expect an inflection point for accelerated earnings growth.
Jinpan’s fundamentals trended upward with continued expansion of its product pipeline and application coverage.
We expect a rise in the penetration of dry type transformers for wind power with the upsizing of fans & blowers, and the active capacity expansion will also drive up demand for special custom dry type transformers. Jinpan has built a strong presence in dry type transformers with a focus on leading customers to achieve stable growth. Its market share of dry type transformers for wind power increased from 17% in 2019 to 26% in 2021. Besides, the Company has also proactively promoted continued expansion of its product pipeline, as well as downstream application coverage. In terms of products, the ester oil-immersed transformers have gained verification from top domestic fan & blower manufacturers and are likely to start shipment within this year. The shipment of the switchgear series grew rapidly in 2021 (up by 86% YoY), and that of box type transformers also spiked in 1H22 (up by 115% YoY). In newly-tapped areas, Jinpan seized the opportunity of rapid installation growth in the wake of the grid parity of PV power with a focus on PV power plants and silicon materials, alongside rapid shipment growth in relevant box type/special custom dry type transformers. Its PV power segment posted operating revenue of Rmb446mn (up by 287% YoY) in 1H22.
Jinpan stepped up efforts in energy storage to refuel growth backed by shared technologies/customer bases with ESS.
In 2022, Jinpan launched a series of energy storage products, with middle- and high-voltage direct-mounted ESS as core products. Meanwhile, it has been building a presence in low-voltage ESS and household energy storage products. In terms of capacity stock, The Company's Guilin energy storage plant (with capacity totaling 1.2GWh) has started commissioning in Jul 2022, and its Wuhan energy storage plant (with capacity totaling 2.7GWh) will likley follow suit in 2H23. In terms of backlog orders, Jinpan has secured a total of about Rmb275mn ESS-related orders, specifically, orders of 200MWh middle- and high-voltage direct-mounted ESS. The Company's existing products share common underlying technologies with energy storage products, and it has entered a cooperation in high-voltage ESS technologies with Shanghai Jiao Tong University (SJTU), which may give it a preemptive advantage in advanced technologies. On the front of customer bases and sales channels, it also has a wide client base in various energy storage application scenarios, such as power generation, grid and industrial & commercial enterprises.
Promoting digital transformation: Enhance production efficiency & provide digital solutions to customers.
By relying on its own R&D group, Jinpan has completed the construction of digital factories in Haikou and Guilin in recent years, with a keen promotion of digital transformation to achieve lower costs and higher efficiency. According to the Company's 2021 annual report, the capacity of its Haikou digital factory increased by more than 100% YoY, with the output up by c.95% YoY and the inventory turnover times up by more than 110% YoY. The Company spread its digital factory solutions, including preliminary consulting and planning services, underlying architectural design, production equipment and relevant software, etc., based on its own application experience to provide integrated solutions for its customers. Jinpan secured Rmb300mn order intakes for its digital factories, and its key customer is Eaglerise Electric & Electronic, whose orders will be shipped in different batches in 2022/2023. The continuous growth in single customer order in-takes reflects the Company’s digital factory solutions have received high recognition from customers, and the products have reached maturity to a certain degree. With the accomplishment of the first order, we expect Jinpan to further improve products and management teams to realize gradual marketing promotion of digital factory solutions.
Potential risks: Fluctuations in raw material prices; market exploration in energy storage missing expectations; disappointing exploration of digital factories; trade frictions; fluctuations in exchange rates; wind and PV power installations falling short of expectations; slower-than-expected penetration growth of dry type transformers.
Investment recommendation: Jinpan has been engaged in power equipment for more than two decades and has developed into a domestic leader in dry type transformers. The Company has been building its core competitiveness of lower costs and higher efficiency via keen promotion of digitalization. Benefiting from the upsizing of fans & blowers and the active capacity expansion of the PV value chain, Jinpan’s fundamentals of dry type transformers have been rosier than ever. Meanwhile, it has been proactively stepping up efforts in energy storage, with medium- and high-voltage direct-mounted ESS as core products. With the gradual capacity commissioning in the projects in Guilin and Wuhan, we expect Jinpan’s energy storage business to develop rapidly on the back of multiple advantages, such as strong technical know-how and a solid customer base, and refuel its growth. In addition, we see a rapid growth in its order in-takes as Jinpan spread digital factory solutions inspired by its own experience in digital transformation, which may further improve its products for the kick-start of marketing promotion. We forecast its 2022-24E EPS to be Rmb0.64/1.01/1.53. With the average comps valuation of about 34x 2023E PE for Windsun Science Technology (688663.SH), Zhiguang Electric (002169.SZ) and Sinexcel Electric (300693.SZ) based on Wind consensus estimates as a reference, and considering the high visibility of earnings growth (with 2022E-2024E CAGR for operating revenue and net profit at 39%/55%, respectively), we assign 45x 2023E PE to derive a target price of Rmb45. We initiate coverage with a "BUY" rating.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。