2H21 net profit fell 61% year-on-year
Tianneng Power (Tianneng) announced its 2021 results on March 30: total sales revenue rose 60 per cent year-on-year to 85.6 billion yuan, while net profit fell 48 per cent year-on-year to 1.3 billion yuan, below Huatai's forecast of 2.2 billion yuan. We believe that the weak performance is mainly due to the rising cost of raw materials in 2021. 2H21 revenue rose 60 per cent year-on-year to 49.3 billion yuan, while net profit fell 61 per cent to 639 million yuan. We estimate that the EPS of Tian Neng 2022 Universe 2023 ax 2024 will be RMB1.95max 2.32 PE 2.62, and we have a target price of HK $12.68 based on the 5.4x 2022 forecast. Our target multiple is lower than the Wind consensus industry average of 8.3 times the 2022 forecast PE, mainly due to large fluctuations in the company's profitability. Maintain "buy".
2H21 gross profit margin fell sharply, dragged down by the rising cost of raw materials, Tianneng has two major business sectors: battery manufacturing and battery raw material trade. Sales revenue from 2H21 battery manufacturing rose 15 per cent year-on-year to 21.8 billion yuan, with a gross profit margin of 12.4 per cent, 5.2 percentage points lower than 2H20's 17.6 per cent, mainly due to higher raw material costs. The sales revenue of the battery raw material trading business increased by 130% to RMB 27.5 billion over the same period last year, with a low gross profit margin (1H21VO0.3% X 2H21:
0%). As a result, the company's 2H21 consolidated gross margin fell sharply to 5.4 per cent from 10.9 per cent of 2H20.
Operating expenses are well controlled and new business is on the right track
The gross profit margin of Tianneng 2H21 fell to 5.4% (2H20 2H21 10.9%). Despite the decline in gross profit margin, the cost of Tian Neng 2H21 is well controlled. The rate of sales and distribution expenses is 1.3% (2H20VOR 1.8%), the rate of management expenses is 1.1% (2H20VRO 1.4%), and the rate of R & D expenses is 1.8% (2H20VRV 2.4%). The net profit margin is 1.3% (2H20VOR 5.3%). We believe that the decline in gross profit margin is partially offset by the company's cost control measures. Although downside factors remain, Tianneng continues to expand new businesses, such as start-up and shutdown batteries, energy storage batteries, lithium-ion batteries and recycling businesses.
Based on the rising cost of raw materials, lower the profit forecast, maintain the "buy"
Taking into account the weak performance in 2021, we reduced the gross profit forecast for 2022 Universe by 0.89 per cent to 6.7 per cent and the net profit forecast by 16.3 per cent to 2.3 billion / 2.7 billion yuan. We expect the net profit to be 3 billion yuan in 2024. We lowered the target price to HK $12.68 based on the 5.4x 2022 forecast PE (previous target price: HK $17.15X, based on the 7.5x 2021 forecast PE). Our target multiple is lower than the Wind consensus forecast industry average of 8.3 times the 2022 forecast PE (previous value: 9.1 times the 2021 forecast PE), mainly due to large fluctuations in the company's profitability.
Risk tips: 1) the demand for electric bicycles is weaker than we expected; 2) there is a major shift from lead-acid batteries to lithium batteries.