On Wednesday, Citi reiterated a Buy rating for Nari Tech (600406:CH), a company specializing in power grid equipment, with a price target set at RMB27.77. Citi has also initiated a 30-Day Catalyst Watch, anticipating a potential increase in the company's share price.
The optimism from Citi stems from the expected positive outcome of the People's Republic of China (PRC) government's approval for the construction of a direct current (DC) ultra-high voltage (UHV) transmission line from Shaanxi to Anhui, anticipated after the Chinese New Year holiday. This project is projected to have a total cost of approximately RMB20.2 billion.
Nari Tech, which manufactures converter valves and protective relay products used in UHV line construction, could significantly benefit from this development. The estimated capital expenditure for converter valves is around RMB2.4 billion, with an additional RMB200-300 million for protective relay products. Historically, Nari Tech has supplied about 50% of these products for similar projects. If this trend continues, the company could secure new orders worth RMB1.3 billion from this project alone, which would represent about 3% of its revenue for the year 2022.
Further expectations set by Citi include the approval of construction for five DC and two alternating current (AC) UHV lines throughout 2024, with four of the DC lines expected in the first half of the year. These developments could present substantial opportunities for Nari Tech to expand its market presence and revenue streams.
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