Huayuan Securities: Commercialization of nuclear fusion accelerates, focusing on industries benefiting from the supply chain.

Huayuan Securities released a research report stating that with the exponential growth in energy demand for artificial intelligence, the existing energy system is facing challenges, and nuclear fusion is becoming the solution to the global energy crisis. Currently, with the escalating tensions between China and the United States, nuclear fusion is expected to become the next competitive focus after artificial intelligence. According to data from the Fusion Industry Association (FIA), as of April 2024, the total investment in the global controlled nuclear fusion industry has reached $7.1 billion, an increase of $900 million compared to the same period in 2023, achieving a significant increase in financing for three consecutive years. The commercial process of nuclear fusion is accelerating, and the competition between China and the United States may accelerate domestic capital expenditure, benefiting the industry chain. Huayuan Securities' main points are as follows: Event: On April 8th, Xinhua News Agency's English channel reported on the development of commercial nuclear fusion in China under the title "China edges closer to commercial nuclear fusion", indicating China's progress in commercial nuclear fusion. The industrial revolution brings about the need for an energy revolution, and nuclear fusion is the ideal ultimate energy for the future. With the exponential growth in energy demand for artificial intelligence, the existing energy system is facing challenges, and nuclear fusion is becoming the solution to the global energy crisis. Compared to the existing energy system, nuclear fusion has three major advantages: 1) Abundant and environmentally friendly raw materials: Nuclear fusion's raw materials mainly come from seawater and lithium mines, which are almost inexhaustible on Earth. Unlike fossil fuels, nuclear fusion does not produce greenhouse gas emissions, and its reaction products are mainly helium gas, which is a harmless, non-polluting gas and environmentally friendly. 2) Large and sustainable energy: Nuclear fusion is the process of combining light atomic nuclei into heavy atomic nuclei and releasing energy under high temperature and pressure conditions. According to Einstein's mass-energy equation, the mass lost in this process is converted into energy and released. The energy density of nuclear fusion reactions is extremely high, providing stable and sustainable energy supply. 3) High safety: Nuclear fusion reactions require continuous external energy input (such as heating and magnetic confinement) to maintain. Once the input is stopped, the reaction stops immediately and does not trigger a chain reaction, making it much safer than nuclear fission. Nuclear fusion is the battleground for the next generation energy revolution, and as commercialization approaches, the competition between China and the United States may accelerate, and the industry chain's capital expenditure is expected to increase. There are three main ways to achieve controlled fusion: gravitational (gravity) confinement, inertial confinement, and magnetic confinement. After years of exploration, tokamak (magnetic confinement nuclear fusion) has become the main approach to controlled fusion, and the International Thermonuclear Experimental Reactor (ITER), jointly built by China, the United States, the European Union, Russia, Japan, South Korea, and India, has demonstrated the scientific feasibility of magnetic confinement fusion on tokamak-type devices, ushering in a new stage of fusion energy development research. Currently, with the escalating tensions between China and the United States, nuclear fusion is expected to become the next competitive focus after artificial intelligence. According to data from the Fusion Industry Association (FIA), as of April 2024, the total investment in the global controlled nuclear fusion industry has reached $7.1 billion, an increase of $900 million compared to the same period in 2023, achieving a significant increase in financing for three consecutive years, China and the United States have made progress: 1) The EAST device in Hefei maintained stable operation at over 100 million degrees Celsius for more than 1066 seconds in January, setting a new world record for high-confinement mode operation on tokamak devices. 2) In March, the first slab of the BEST project in Hefei was successfully poured, signaling that the BEST project has entered the phase of completion and delivery of the division. As a follow-up project to EAST, once the BEST project is completed, it will demonstrate fusion energy production for the first time based on the first-generation EAST device and is expected to be the first compact fusion energy experimental device in the world. 3) HL-3 achieves "double hundred million degree" for the first time in March: China's new generation artificial sun "Chinese Circulation No. 3" in Chengdu, Sichuan achieved a breakthrough in both atomic nucleus and electron temperature exceeding 100 million degrees Celsius for the first time. 4) Helion Energy, an American company: completed a new round of financing of $425 million in January and received support from renowned investors including the CEO of OpenAI, Sam Altman, with the goal of building and operating the world's first commercial fusion power plant capable of delivering electricity to the grid by 2028. Huayuan Securities believes that nuclear fusion, as the breakthrough point of the next generation energy revolution, is a battleground for major power games, and with the approaching commercialization, capital expenditure is expected to accelerate. The core cost of nuclear fusion mainly lies in magnets, internal components, and vacuum chambers, and the industry chain is expected to benefit. The five main components of the tokamak are the vacuum chamber, magnet system, blanket module, divertor, and vacuum feedthrough. Taking ITER's costs as an example, magnets account for 28%, internal components and vacuum chambers account for 25% collectively, construction accounts for 14%, and power, instrumentation and control, as well as other support systems, account for 33%. Targets to watch include Guoguang Electric (688776.SH) (ITER supporting equipment, specialized pumps and valves in the nuclear industry), Hefei Metalforming Intelligent Manufacturing (603011.SH) (awarded the manufacturing tasks of core components for the BEST fusion project - vacuum chamber sectors, window extension segments, and gravity supports), Advanced Technology & Materials (000969.SZ) (tungsten-copper composite diverters), China Nuclear Engineering Corporation (601611.SH) (a leader in the domestic nuclear power engineering construction sector), and companies related to magnets such as Western Superconducting Technologies (688122.SH) and Jiangxi Lian Chuang Optoelectronic Science And Techno.Logy (600363.SH)Risk warning: The progress of nuclear fusion technology is lower than expected, the progress of related projects is not as expected, and there are safety and environmental risks in the field of nuclear power.