Annual Investment Strategy Report for the Power Equipment Industry: Wind and Photovoltaic Power Will Improve in the Long Term, and Electric Motor and Control will Forge Gold with Fierce Flames

The installed capacity of photovoltaics will remain at a high level, and we are optimistic about the fields of monocrystalline, distributed, and poverty alleviation

In 2017, China's photovoltaic industry developed beyond expectations. In the first three quarters, the country's infrastructure added 42.31 GW of solar power generation, a year-on-year increase of 60%. Among them, the newly installed capacity of distributed photovoltaic power generation increased by about 300% year-on-year. The National Development and Reform Commission has issued a notice on the pricing policy for photovoltaic power generation projects in 2018, announcing a subsidy reduction plan for 2018. The degree of subsidy decline is less than market expectations, and there is room for compression in the construction cost of power stations. The project yield will still remain high. We expect that China's newly installed capacity will remain at a high level of 50GW in 2018. We continue to have a positive outlook on the sustainable development of monocrystalline silicon, distributed photovoltaics, and poverty alleviation projects. We recommend Longi Corporation (601012), the leader in monocrystalline silicon wafers, and Linyang Energy (601222), the leader in distributed photovoltaics.

The trend of wind power industry recovery is established, and the value of configuration is highlighted

The trend of recovery in the wind power industry has been established, and the problem of wind power curtailment has significantly improved. Some areas of the "Red Six Provinces" in the Three North regions will be lifted in 2018. As of the end of 2016, there were a total of 84GW of projects approved for construction in China, plus an estimated 30.7GW of newly approved projects in 2017, totaling 114.6GW. Considering the pace of wind power subsidy reduction, this part of the project is expected to be connected to the grid in 2020, laying the foundation for China's new wind power installed capacity in the next three years. With the adjustment of the wind power industry, the industry concentration has further increased, and the market share of leading enterprises has increased. We are optimistic about the whole machine leader Goldwind Technology (002202) and the wind tower leader Tianshun Wind Energy (002531).

Select motor and electronic control enterprises with international competitiveness

Recently, the prices of upstream raw materials for motor and electronic control have continued to rise, resulting in increasing costs for motor and electronic control; At the same time, the expectation of a significant reduction in subsidies for new energy vehicles has led vehicle manufacturers to continuously lower the profit margins of motor and electronic control suppliers. At present, the market's pessimistic sentiment towards the new energy vehicle sector is gradually being released, and the implementation of the "dual credit" system will provide driving force for the healthy and long-term development of new energy vehicles. In addition, international manufacturers have been expanding their motor and electronic control businesses in China through the establishment of joint ventures and other forms, and domestic manufacturers are facing increasingly fierce competition. In this context, we have selected two investment themes: one is enterprises that can bind with major passenger car customers, achieve product volume, and achieve performance growth through the "quantity to price" approach; the other is enterprises with internationally competitive product quality systems, which are expected to enter the supply chain of international first tier car companies, and have strong cost control capabilities. We recommend Fangzheng Electric (002196) and Huichuan Technology (300124).