The new national standard has a slight impact on the electric bicycle industry-the new national standard will be implemented on April 15. The biggest challenge for battery makers is making lightweight batteries for price-sensitive customers. Although switching to lithium-ion batteries can solve all technical problems, the battery cost per bicycle can be as high as 1000 yuan, or 2-2.5 times that of lead-acid batteries. Therefore, both Tianneng and Chaowei are committed to improving their lead-acid battery products to meet the requirements of the new GB, while at the same time forcing away smaller competitors.
Overseas markets are full of opportunities-contrary to popular belief, the e-bike industry still has room for growth. South-East Asia is the largest market for lead-acid batteries, with an annual demand of 15 million units and an average annual growth rate of more than 6 per cent until 2023. Tianneng sold less than 1 million batteries in overseas markets in 2018. Tianneng is considering setting up a lead-acid battery plant in Southeast Asia, with the goal of occupying more than half of the local market.
Demand for lithium-battery-powered electric bicycles has also increased in developed countries such as Germany, the Netherlands, Spain and Belgium, mainly replacing second passenger cars to save money and avoid traffic jams. For example, Germany sold 980000 e-bikes in 2018, up 36% from a year earlier and accounting for 23.5% of total bike sales.
It may be feasible to invest in the power exchange business-China Tower Corporation and start-ups such as e-change and Hello Travel are setting up "change cabinets" for electric bicycles. Tianneng may be able to participate because it already has battery-related core technology and capacity. We think that the power exchange business may improve Tianneng's profit ability, because takeout and logistics companies will tend to pay a little more in exchange for saving charging time. The power exchange service charge starts from 99 yuan per month, and the profit will be increased by up to 30% for the whole year.
The proposal to list the battery production business on the Shanghai Stock Exchange as early as the end of 2020 has been approved by shareholders and the Hong Kong Stock Exchange. The Shanghai Stock Exchange has begun to review Tianneng's application. We expect the divestment to be completed by the end of 2020 or early 2021. At present, some investors have subscribed for the business to be spun off, and the subscription extension is valued at 10.9 billion yuan, equivalent to twice the market capitalization of Tian Neng Power.
Maintain the "long position" rating-our latest annual revenue and net profit forecasts for 2019-20-21 are 41.9 billion / 46.9 billion / 49.6 billion and 1.24 billion / 1.3 billion / 1.62 billion respectively. Our target price is equivalent to 7 times the 2020 forecast price-to-earnings ratio (previously: 7 times the 2019 forecast price-earnings ratio). The "low" price-to-earnings ratio already reflects China's stability and management's lack of experience in operating overseas markets.