[20081112]CITICS*SECTOR RESEARCH*CITICS-Electric Equipment and New Energy Sec

Dear all,
Attached please find the Electric Equipment and New Energy Sector Monthly Tracker in Nov., 2008 by Liu Lei and Yang Fan.
Should you have any query, please feel free to contact your account managers.
Investment Highlights
Q308 report review: the industry continued fast growth: excluding the effect on DEC (600875) from whole group listing, 30 listed companies we covered posted operating income of RMB40.11 billion, up 42% yoy; and core business cost of RMB30.7 billion, up 41.3% yoy. The gross margin was 23.4%, net income was RMB4,053 million, up 67.55% yoy, and net sales margin was 10.1%, up 1.54 ppt yoy.
Power station equipment segment: output growth approaches zero and there shows an obvious sign of industry peak. Entering 2008, the segment of power station equipments witnessed further decline in the output growth rate, among which the output of steam turbine and hydra-turbine generators posted negative growth for the first time and installed capacity of thermal power plants is expected to decline in the foreseeable future.
Power transmission and distribution equipment segment: benefiting from more investment into power grid, the segment keeps upbeat business climate. During 1-8M08, the output of transformers, high-voltage switches and power cables rose by 29%, 12% and 45% yoy. Primary power transmission and transformation equipments closely relating to gird investment sustains an upbeat climate and the growth data are in line with our previous expectation.
Movement of raw material prices: cost pressure eased. Prices of copper and aluminum took a tumble, down 40% as compared with ASP in 2007 (copper price fell 48% and aluminum price dropped 31%). If such weakening landscape continues in 2009, the profitability of power transmission and transformation equipment makers from orders on hand will increase notably. Generally speaking, cost pressure on power equipment sector will take on a weakening trend. 
We maintain unchanged out views, and reiterate the "outperform" rating for industries such as wind power equipment and power transmission and transformation equipment and the "neutral" rating for power station equipment industry. The rating of "buy" is assigned to companies including GOLDWIND, HPEC, XJEC and SIEYUAN etc.

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