Power Transmission and Distribution Equipment:Things will be great when you’re downstream

Government investment in China’s power grid is shiftingfocus in two directions that will have major implicationsfor domestic power companies. With China’s upstreamelectrical grid almost complete (coal plants,hydro-electric plants, and so on), more investment willbe directed downstream to the power distributionnetwork that connects city power plants and industrialand residential customers to the grid. More investmentwill also be put towards connecting distributed energyprojects, particularly wind power and photovoltaic powergeneration (solar panels).

Wasion Group (3393 HK, Not Rated) and Boer Power(1685 HK, Not Rated), two domestic power companies,have taken different approaches to the changinginvestment landscape. Wasion has taken steps totransform itself from being China’s largest manufacturerof electrical meters, an upstream business, into aprovider of comprehensive energy-saving solutions anda major player in the development of a smart grid inChina (use of real-time information to achieveefficiencies).

Boer is a smaller company than Wasion in terms of totalrevenue turnover. In 2013, Boer had total turnover ofRMB1,354 compared with RMB2,412 at Wasion. UnlikeWasion, Boer does not have the wherewithal tomanufacture a wide range of in-house products or theexpertise to develop large-scale downstream energysolutions. Instead, Boer has closely allied itself withSchneider Electric, a multinational electricity distributioncompany. The biggest part of Boer’s business isdistributing and implementing Schneider products andsolutions, mainly at non-power grid companies like datacenters and telecommunication companies. Due to itssmaller scale and heavy reliance on a single dominantpartner, we believe Boer can not take full advantage ofthe changing trends within the sector to the extentWasion is now doing.

Wasion’s energy-saving solutions recorded 52% YoYgrowth in 2013. Wasion is also diversifying its client baseto include more non-power grid companies like gasdistributors and oil companies. Revenue from thesesources increased 21% YoY in 2013. Wasion’s businesswith the large power grid companies was generallyrestricted to selling them power meters. By contrast,non-power grid companies tend to require totalenergy-saving solutions delivering higher margins.