Main points of investment:
Lead-acid battery leading enterprise. The company is mainly based on the green power battery business of electric light vehicles, and is one of the leading enterprises in the domestic battery industry, which integrates the production and sales of green power batteries for electric special vehicles, power batteries for new energy vehicles, starting and stopping batteries for vehicles, energy storage batteries and so on. In 2019, the company achieved 40.61 billion yuan in main business income, including 25.68 billion yuan in lead-acid batteries for electric bicycles (tricycles), accounting for 63 percent.
Revenue and net profit continue to grow rapidly, and dividends are steady. From 2015 to 2019, the company's revenue grew at a compound annual rate of 22.9%, and net profit grew at a compound annual rate of 28.8%. 2) low gross margin and net profit margin.
From 2015 to 2019, the company's ROE remained above 20%, and the return on capital was at a relatively high level.
Since 2010, with the exception of negative net profit in 2014 and no dividend payout, the dividend payout ratio in other years has been around 30%, which is very solid.
Lead-acid battery industry: the epidemic promotes the growth of downstream demand for electric bicycles, and the duopoly pattern is stable. According to Tencent Dayu, SUNING's post-holiday shopping market big data showed that sales of electric motorcycle products increased by 413% year-on-year, with 8000 electric bicycles sold. According to Sina Finance and 36Kr Holdings, citing data from BABA's cross-border e-commerce platform AliExpress, bicycle sales in Spain rose more than 22 times in May, while Italy and the UK also increased by about 4 times. Us commuter and fitness bike sales are up 66 per cent, leisure bike sales are up 121 per cent and e-bike sales are up 85 per cent, according to N.P.D, a market consultancy cited by fast technology. The main participants in the domestic lead-acid battery market for electric bicycles include Tianneng Power, Super Power and so on, and the duopoly pattern is relatively stable.
Tianneng Power: cost control drives profit growth. Since the establishment of the company, the production capacity has gradually expanded. In the first half of 2019, the production capacity of lead battery reached 3952 million kV Ah, and the capacity of lithium-ion battery reached 0.89GWh. According to the Tianneng share prospectus, the company plans to issue no more than 117 million shares, no less than 10% of the total share capital after the issue, and plans to continue to expand production capacity in the areas of lead batteries and power lithium batteries, as well as increase investment in research and development. Since 2015-2019, the rate of sales and management expenses has continued to improve. With the rapid expansion of revenue, the proportion of sales and management expenses has declined. The rate of R & D expenditure remained stable in 2015-2018 and decreased in 2019. We believe that with the further expansion of the company's size and the growth of sales revenue, expense rate control is expected to continue the previous trend, thus contributing to the improvement of profits.
Profit forecast and investment rating. We expect to achieve net profit of 21.18,25.51 and 2.937 billion yuan per share from 2020 to 2022, and earnings per share of 1.88,2.27 and 2.61 yuan. It is given 10-12X PE in 2020, corresponding to a reasonable value range of RMB18.8022. 56RMB / share. According to the estimate of HK $1 = RMB0.90HK / share, the corresponding reasonable value range of HK $20.89x / share is covered for the first time and is rated better than that of the big city.
Risk hint. Policy risk; sales of electric bicycles fell short of expectations.