Event: on December 15, 2020, the bid winning results of 220kV and 35kV submarine cable procurement and laying works (bid section 1 and bid section 2) of Mingyang Yangjiang Qingzhou four seas wind farm project were publicized, Ningbo Orient Wires & Cables Co.Ltd(603606) won bid sections 1 and 2 with 699 million yuan and 691 million yuan respectively.
Comments:
East Cable won the bid to strengthen the core logic of submarine cable industry, and the submarine cable leader with strong comprehensive strength is more competitive
Since September 2022, when the bid winning candidates for the 220kV and 35kV submarine cable procurement and laying project of Mingyang Yangjiang Qingzhou four seas wind farm project were announced, AVIC Baosheng has caused heated discussions in the industry and concerns of investors with its low bid price (bid section 1:620 million yuan and bid section 2:600 million yuan), The market is worried that Baosheng’s low price strategy will have a great impact on the follow-up competition pattern and gross profit margin of submarine cable industry. The results of this bidding have dispelled the market’s doubts.
From the final bid winning results on February 15, compared with Baosheng’s lower bid price, the bid price is higher (bid section 1: 699 million yuan, bid section 2: 691 million yuan), but the Ningbo Orient Wires & Cables Co.Ltd(603606) submarine cable with richer engineering experience and more solid technical strength won the bid.
We have repeatedly stressed with the market that price is not the only factor in submarine cable bidding, and comprehensive factors such as price, technology and business need to be considered. Enterprises and wind farms have high requirements for product quality. We believe that submarine cable leaders have core competitive strength in bidding competition, and it is difficult for backward players to catch up with them through low price strategy. The landing of the bidding results has also verified the core views we have emphasized with investors for many times: the submarine cable industry has high competition barriers, stable competition pattern and limited space for price exploration. It is the most deterministic link of Haifeng track, with large long-term growth space and benefits from the leading core
In the future, the downward exploration space of submarine cable price and gross profit margin is limited, and the far-reaching sea development is expected to bring new opportunities of “simultaneous rise of volume and price”
Due to the promotion of sea breeze parity, the market is worried that it will have a great impact on the submarine cable price and gross profit margin. We believe that the downward exploration space of submarine cable price and gross profit margin is limited. At the same time, with the increase of high-voltage submarine cable demand and the development of far-reaching sea, it is expected to bring the opportunity of “simultaneous rise of volume and price” to the submarine cable industry. The main reasons are as follows:
Firstly, from the perspective of submarine cable cost composition, the proportion of wind turbine cost is the largest. At the same time, due to the strong scale effect of wind turbine, the decline of wind turbine price is an important part of the promotion of sea wind parity. However, the proportion of submarine cable cost in the whole development process of offshore power supply is relatively small, and the general proportion of the industry is no more than 10%. Anyway, compression has little impact on the development degree of the whole wind farm; At the same time, the submarine cable occupies a very important position in the sea breeze industrial chain and has high industrial barriers, mainly reflected in technical capacity, resource barriers and other aspects. The pattern is relatively stable, so the submarine cable leader has a certain bargaining power; With the promotion of submarine cable bidding in 2022, we expect that the demand for submarine cable will continue to increase from 2023. At the same time, it will take some time for the capacity of submarine cable leader to climb and release. We judge that the power to start the price war of submarine cable leader is insufficient.
The competition barrier of submarine cable industry is high, the pattern is stable and the space is large, and the leading core benefits
Due to its product characteristics and special position in the industrial chain, submarine cable has high industrial barriers, obvious first mover advantages and stable competition pattern. At present, several leading enterprises represented by Jiangsu Zhongtian Technology Co.Ltd(600522) , Ningbo Orient Wires & Cables Co.Ltd(603606) , Hengtong Optic-Electric Co.Ltd(600487) occupy the largest market share:
1) technical barriers to production: manufacturers with high-voltage submarine cables, such as 220kV or above, are scarce;
2) qualification barrier: production qualification and product international certification are difficult, and there are few funded enterprises in China;
3) production equipment barrier: complex production line, high technical requirements and high investment cost;
4) customer barriers: customers have high requirements for product quality and stability, value the historical achievements of the enterprise, and have high brand dependence;
5) Capital Barrier: the investment scale of production line is large, the accounting period of production raw materials is short, and the speed of sales collection is slow. It needs its own funds to maintain its operation, and the enterprise needs strong financing ability;
6) geographical barriers: due to the transportation demand, submarine cable enterprises need to rely on ports.
Driven by the dual carbon policy, China’s sea breeze development has the dual attributes of “large space and strong certainty”. As the core link of the sea breeze industry chain, the submarine cable has large long-term growth space. With the gradual promotion of sea breeze bidding in 2022, we judge that the demand side of the industry will be greatly improved in 2023, and the core will benefit the leader of submarine cable.
Investment suggestions and risk tips
Offshore wind power has large long-term growth space and strong certainty. The competition barrier of submarine cable industry is high and the competition pattern is stable. The leader is expected to benefit from the core. Key recommendation: submarine cable faucet [ Jiangsu Zhongtian Technology Co.Ltd(600522) ]; It is suggested to pay attention to: [ Hengtong Optic-Electric Co.Ltd(600487) ], [ Ningbo Orient Wires & Cables Co.Ltd(603606) ], etc.
Risk tips: the risk that the development of marine business is not as expected, the risk of price fluctuation of raw materials, the risk of market competition, the risk of project management, the risk of macroeconomic and industrial policy changes, the risk of repeated spread of covid-19 epidemic, etc.
