In the first quarter of 2007, the China Energy Council reported that China’s electricity consumption has jumped nearly 15% from a year ago. As China’s power consumption grows, the government has been pouring billions of dollars into infrastructure upgrades for the nation’s power grid.
ABB Growth in Power Grids
I believe the best play for power grid development in China and other emerging markets is ABB Ltd (NYSE:ABB). This Swiss company nearly doubled its stock price since last year, and it may still have a long way to go. In 2006 the order backlog increased 41% and net income grew 75%.
ABB’s strongest growing segments have been its power systems and products divisions. China’s need for power infrastructure seems to have helped, as the percentage of revenue from Asia has been accelerating in the past several years.
ABB's Got Guanxi
Why ABB, and not its competitors Siemens (SI) or Areva (OTCPK:ARVCF) you ask? Upon closer look, ABB seems much better positioned in China because of the guanxi. They have won some critical contracts, such as a transformer upgrade in Beijing for the 2008 Olympics. During my recent visit to China, I also learned that ABB installed all the robotics systems for a recently opened Daimler-Chrysler manufacturing plant in Beijing.
Building rapport with local businesses and government officials is critical to succeeding in China. ABB seems to have done so, and its latest set of contracts should help strengthen those relationships.
Disclosure: The author has a long position in ABB/
ABB 1-yr chart