Borodino to Moscow
“We must reckon the Battle of Borodino amongst battles never completely fought out... the conqueror
preferred to content himself with a half victory, not because the decision appeared doubtful, but because
a total victory would have cost him more than he was able to pay” On War, Carl von Clausewitz
In the 15 months since we wrote Austerlitz to Borodino there have, we think, been no fewer than six
important developments in the global power tech sector from an investor’s perspective. These have, in our
view, changed the timeframe for strategic developments – western vendors of thermal technologies have
been given more breathing space – but not the likely ultimate direction.
1 The global footprint of coal-fired capacity rollout has changed significantly, thanks to: a) a downturn
in the Chinese market (the world’s largest coal-fired market), which contracted some 15-20% y-o-y
in GW terms in 2007; and b) an acceleration in coal-fired orders in RoW (worldwide steam boiler
orders rose 56% y-o-y in January-September 2007). We see growing spare capacity among Chinese
OEMs as a latent threat to coal-fired specialists in the rest of the world.
2 The gas turbine has staged a recovery worthy of Lazarus, with worldwide gas turbine orders rising
57% y-o-y in January-September 2007. Established western OEMs continue to dominate this
technology, with the big three (GE, Siemens and Alstom) collectively accounting for around 80% of
orders. This is, first and foremost, good news for the two world market leaders GE and Siemens,
though Alstom’s gas market share in 2007 beat our expectations and is not far behind Siemens’.
3 Nuclear renaissance edges ever closer. Since October 2006, the Chinese have ordered eight reactors
(four from Toshiba, two from Areva, two from Atomstroyexport) and raised their 2020 target for
nuclear build-out by 70%, implying an average order rate of three to four reactors every year for the
next decade. Meanwhile western markets edge closer to a new nuclear age, with planning approvals
now sought for two US reactors (both GE boiling water reactor (BWR) designs, both in Bay City,
Texas), while the UK government’s much-delayed decision on nuclear replacement is now imminent
(due January 2008).
4 Worldwide spending on power grids continues to head northwards, the world’s only three global
transmission equipment supplies (ABB, Siemens and Areva) recording aggregate order growth of
23% in January-September. We still see demand-side dynamics as robust over the coming two to
three years while supply-side dynamics remain perennially attractive.
5 Windpower has gone from strength to strength: 2007 was the third year in a row with triple-digit
market growth in China, and EU member states agreed to a legally binding commitment for
renewables to account for 20% of power generation by 2020. HSBC has raised its 2006-2016e wind
turbine demand CAGR to 10% from 8.5%.
6 Global power tech vendors’ stock prices have continued upwards, eating into the bulk of the value
opportunity created by sustained market growth. The poorest performer has been GE, down 1% since
we wrote Austerlitz to Borodino, while the strongest performer has been Doosan Heavy, up 278%.
The median stock in our global power tech coverage has gained 134% in USD terms in the past 15
months. This leaves some of the stocks overbought, hence our selective stance on stock-picking.

Contents

Borodino to Moscow 2
Investing in power technology: three golden rules 3
Five stock picks in the global power technology space 4
HSBC global power tech coverage 5
HSBC power technology market estimates: key highlights 6
Winners and losers 9
Siemens (OW, TP EUR120) 10
General Electric (nr) 11
ABB (N, TP CHF34) 12
Alstom (N, TP EUR135) 13
Areva (nr) 14
Mitsubishi Heavy Inds (nr) 15
Toshiba (nr) 16
Shanghai Electric (OW (V), TP HKD10.00) 18
Hitachi (nr) 19
Harbin Power (N (V), TP HKD28.00) 21
BHEL (OW, TP INR3,250) 22
Doosan Heavy Inds (UW (V), TP KRW119,000) 23
DongFang Electric (nr) 25
Atomstroyexport (nr) 26
The HSBC Power Tech
Demand Model 27
Consumption growth 28
Middling growth 28
HSBC global consumption growth estimates 30
Installed base: age profile 32
One-third of total demand 32
Reserve margins 33
The grid 35
The synchronised AC grid 35
The distributed grid 35
Key transmission products and technologies 36
Grid spending – outlook by region 38
Fuel/Technology Choices 43
Summary 43
Outlook: coal-fired 45
Outlook: gas-fired 45
Outlook: nuclear 46
Outlook: renewables 46
Glossary 48
Disclosure appendix 53
Disclaimer 56