June 02, 2020

Smart Grid Information Investment Peak Drives PLC Industry Outbreak

The Ministry of Industry and Information Technology released the "12th Five-Year Development Plan for Integrated Circuit Industry" on the 24th. According to the “Planning” target, the sales revenue of the IC industry will be doubled during the “12th Five-Year Plan” period. By the end of the “Twelfth Five-Year Plan”, the output of integrated circuits will exceed 150 billion, and the sales revenue will reach 330 billion yuan, an average annual increase of 18%. It accounts for about 15% of the world's IC market share and satisfies nearly 30% of domestic market demand. The plan also proposes that it will cultivate 5-10 backbone design companies with sales revenues exceeding RMB 2 billion, 1 company entering the top 10 global design companies, and 1-2 backbone chip manufacturing companies with sales revenue exceeding RMB 20 billion; The company's backbone packaging and testing companies with sales revenue exceeding RMB 7 billion have entered the top 10 in the world's packaging and testing industry; and form a group of small and medium-sized enterprises with strong innovation and vitality. Circuit industry, the representative industry in the minds of people, will also play an increasingly important role, and some listed companies will benefit from the "planning".

The next 10 years will be the peak of smart grid investment. 1. The smart grid construction is an urgent national strategy: The smart grid, as a cost-effective, safe and reliable interactive power grid, is an inevitable product of China's development of new industries such as energy-saving and environmental protection, new energy, and new energy vehicles. It is in line with China’s green and economical economy. Development strategies are particularly important in the current context of high oil prices. 2. In the next ten years, the state will invest heavily in smart grids: After two years of trials, the “12th Five-Year” smart grid will usher in a full-scale construction, and the national grid will invest 2 trillion yuan; the “Thirteenth Five-Year” national grid will also invest 1.7 million yuan. Trillion, eventually achieving a strong smart grid.

The PLC industry will achieve explosive growth. 1. The use of electricity information to collect components and components is the focus of development: The power consumption information collection system is the investment focus of the future smart grid. Within 10 years, the State Grid will invest 108.4 billion yuan and 46.5 billion yuan in the power and communication information platform side; To achieve the global leader in module and equipment manufacturing, it is inevitable to pursue the localization of core components. The Ministry of Industry and Information Technology plans to achieve a localization rate of 30%. 2, PLC industry will achieve greater than 40% growth: PLC as the main communication method of the smart grid, will inevitably achieve standard in the information acquisition equipment, the future 500 million sets of smart meter installation will drive the PLC chip 5-year compound growth of 40% Foreign demand will also accelerate the growth of the domestic PLC industry. 3. Multi-factorial verification of the industry's high growth: Most chip companies have a large backlog of orders in 2010, and their suppliers have increased their supply plans by more than 80%. In 2011, the sales target of 4 million units of MMIC (1.5 million last year) was achieved. , all indicate the explosiveness of the industry.

PLC controllers that provide system solutions in China most benefit. 1. Short-term enjoyment of high performance growth: As the implementer and leader of PLC technology, it will be the first to enjoy high value-added in the product chain; as the market leader and oligopolistic, the deepest in the short-term competition situation, the situation will be the deepest Benefit from the high growth of the industry; as a PLC solution provider, it is easy to extend to PLC equipment, application services, etc. 2. Long-term impact from foreign companies is small: foreign PLC chip technology and scale leading, long-term impact on the domestic market, but in the system program, will still be less than the market's most recognized, the domestic environment tracking the most tight, with mature and stable products and Long-term customers sticky domestic leader.

Fuxing Xiaocheng: New business or substantial improvement in company performance is still the peak period of China's smart grid construction in the next three years. Remote low-voltage PLC meter reading systems such as smart meters and concentrators will quickly become popular. This market is for PLC chips, chip modules, and carriers. The demand for the electricity meter is determined. Three years later, the domestic market will tend to be saturated.

Although the status of power line communication technology in the power system is constantly declining, but it will not be completely replaced by other communication technologies, because its advantages such as wide coverage, low investment, no re-wiring and the like still exist for a long time, but it has only changed from the former protagonist to The current auxiliary role. At the same time, power line communication technology is expanding into new application areas, such as smart homes, power line Internet access, Internet of things, and industrial control. In general, the power line communication industry still has a good development prospect in the future. As a leading company in this field, the company has a strong competitive advantage.

We believe that new businesses such as the company’s PL4000, digital transformers, and Ghana loss reduction projects that can basically start production as expected and generate revenue will significantly increase the company’s operating income and profit levels in the next two years. However, we expect the construction progress of PL4000 and digital transformer may be lower than expected, which will result in its actual income may be lower than the company's previous expected risk. At the same time, we believe that the company’s estimate of the annual revenue reduction of Ghana’s loss-incurring projects of US$330 million may be optimistic, and the overall tariff revenue is less than expected.

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