China Clean Energy_ Wind_ Riding three tailwinds from grid parity; initiate on Orient Cable, Mingyang, Xinqianglian at Buy(1)

With the expiration of on-shore and off-shore subsidies in 2020/21, end-2021 marked an inflection point for China wind, to move from being subsidy-driven to cost-driven and entering a grid-parity era (see our report in Jan 2022). We believe the market is underestimating the growth potential, and we expect China wind installation to accelerate at a 22% CAGR over 2022E-25E from 6% in 2015-21, on the back of rising cost competitiveness and the global carbon neutrality initiative. In our view, the market is missing the impact of 3 structural tailwinds from grid parity, namely turbine technology upgrades, import substitution and rising off-shore applications. Incorporating those, we raise our 2022E-25E wind installation forecasts by 4-27%, and expect China to add a total 242GW/50GW of onshore/offshore wind installation over the period, with 20% potential upside from replacement demand. We see this inflection point as being similar to solar 3 years back, and expect the share price drivers to move from top line to margin. While we believe rising competition and supply chain disruptions could arise from the accelerating demand growth, we see leaders with exposure to the three above-mentioned tailwinds with strong pricing power and cost leadership as best positioned – and initiate on Mingyang, Xinqianglian, Orient Cable at Buy, and Three Gorges Renewables at Neutral – while continuing to like Riyue (Buy, on CL). Our 2023E-24E NI forecasts are 7-17% higher vs. the Wind consensus with c.46% upside (56% for Buy names) implied by our 12m TPs for our 3 Buy initiations. We like Mingyang, the third largest wind turbine maker in China with 14%/6% China/global market share, as it offers the highest exposure to large-size/off-shore turbines with continued innovation on new product launches. is one of Xinqianglianthe very few domestic manufacturers who can supply main shaft bearings to leading turbine makers. We expect XQL to drive high-end main bearing import substitution with its growing product portfolio, supported by strong R&D. Orient Cable is one of the largest Chinese submarine cable solutions providers – and benefits from rising off-shore wind installation. We initiate on , China Three Gorges Corporation’s TGRsubsidiary which specializes in new energy business, at Neutral, largely on valuation despite strong installation growth in wind and solar. Main risks relate to lower market demand, lower turbine ASP/shipments, slower Chao Ji +86(21)2401-8936 chao.ji@gsgh.cn | Beijing Gao Hua Securities Company Limited Chelsea Zhai, CFA +86(21)2401-8679 | chelsea.zhai@gsgh.cn Beijing Gao Hua Securities Company Limited Yawen Wang +86(21)2401-8779 | yawen.x.wang@gsgh.cn Beijing Gao Hua Securities Company LimitedChina Clean Energy: Wind Riding three tailwinds from grid parity; initiate on Orient Cable, Mingyang, Xinqianglian at Buy12 October 2022 | 10:00PM CST Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors