Asia Primer Construction Transmission Network Boosts on Ex...-110589011

M FoundationAsia Primer: Construction | JapanTransmission Network Boosts on Expanding Renewable Energy, Data Centers Renewable energy and data centers expected to grow but transmission network insufficient; needs to be enhanced in longer term. Amid these circumstances, we look at business opportunities from such network enhancement for the construction/wire & cable industries and firms poised to benefit. Morgan Stanley MUFG Securities Co., Ltd.+Ryo YagiEquity Analyst Ryo.Yagi@morganstanleymufg.com +81 3 6836-8938 Reiji OginoEquity Analyst Reiji.Ogino@morganstanleymufg.com +81 3 6836-8930 Yu ShirakawaEquity Analyst Yu.Shirakawa@morganstanleymufg.com +81 3 6836-5432 ConstructionJapanIndustry ViewAttractiveWith the increase in AI data centers, we expect electricity demand to peak in F30 at 162GW (base case; bull case 165GW, bear case 160GW), up from 159GW in F3/21. METI targets 36-38% of generation from renewables by F30 (vs. 21.7%) with expansion primarily in solar and wind (onshore/offshore). Such developments would necessitate enhanced resilience in the switch to renewables and a stronger DC transmission network, with opportunities for construction names in interconnection/private lines and DC transmission network projects. (Transmission network-related sales at Kandenko, our firm to watch, were ~16% of total sales in F3/24.) We look at business scale for interconnection/private lines and business opportunities from transmission network development for the construction/wire & cable industries and the firms poised to benefit. Our report provides a primer on the strengthening of Japan's transmission network, a potential longer-term focal point.Such network enhancement occurs over the long term, but we expect near-to-medium-term (1-5 yr) boosts from private line work (solar/wind power growth), interconnection lines (investment of ¥1.5-1.8tn in East Japan reinforcement, ¥370-410bn in Kanmon interconnection), and demand for bolstering transmission networks amid increase in data centers. We also think yearly investment of ¥120-175bn in private lines, mainly in wind/solar power (which offer significant business opportunities), will provide order opportunities for industry firms.Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.+= Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to FINRA restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Key Takeawa