Main points of investment:
With the rapid development of electric light vehicles, short-distance distribution such as takeout and express delivery provide the basis for its long-term demand. Electric bicycles and tricycles have become the main means of transportation for people to travel because of their advantages such as economy, labor saving, load, and convenience, and have a high popularization rate in second-and third-tier cities and townships. The domestic output of electric bicycles in 2019 was 36.093 million, an increase of 10.1 percent over the same period last year. During the epidemic, production and sales showed blowout growth. In May this year, the output of electric bicycles was 2.627 million, an increase of 45.4 percent over the same period last year. The takeout and express delivery industry is booming, and it is highly dependent on electric light vehicles. Electric light vehicle batteries have been lead-acid batteries for a long time. One year after the implementation of the new national standard in 2019, the permeability of lead-acid batteries remains at about 95%. The advantage of lead-acid batteries lies in low initial cost, and the disadvantage lies in the small number of cycles. because of its large recovery value, its comprehensive cost advantage in electric light vehicles is outstanding, we believe that personal travel electric bicycles will still be dominated by lead-acid batteries in the future.
Electric light vehicle battery is a durable consumer goods, Tianneng brand battery has strong customer stickiness. Different from the battery of four-wheeled vehicle, the replacement cycle of electric light vehicle battery is shorter, with an average of 1-2 years, and has obvious to C brand attribute. Consumers can either replace batteries in stores or buy batteries at Taobao Tianneng's official flagship store and enjoy door-to-door installation services. The company's market share in electric light vehicles is about 45-50%, and together with Chaowei, it accounts for more than 80% of the market share. The company enhances consumer stickiness through 3000 dealers and 400000 downstream terminals across the country. Consumers prefer to choose the original Tianneng brand battery when replacing batteries, and it is estimated that about 80% of the company's shipments come from the replacement market. The market space of electric light vehicles continues to improve, and the company will continue to benefit from its replacement market.
Electric tricycle batteries have better profitability and are expected to drive the company's performance flexibility. Electric tricycles are more suitable for scenarios such as express delivery. From January to June, the national express delivery volume increased by 22% compared with the same period last year. Among them, the business volume of companies such as Shunfeng and Yuantong grew by 84% and 55% respectively in June. The express industry continues to benefit from the online penetration of traditional commerce. The development of express delivery will lead to the demand for batteries for electric tricycles, which are more profitable than two-wheelers (larger batteries, convergent unit prices, and lower unit costs). We believe that the company in the tricycle market will replicate its advantages in driving the two-wheeler market and bring performance flexibility for the company.
The company cooperates with Shuai Fudi in the layout of lithium power, and plans to split the battery business to be listed on the market by Science and Technology Innovation Board. The company has formed a joint venture with SAFT, owned by French oil giant TotalEnergies SE, to expand its lithium battery business. Tianneng holds a 60 per cent stake in the joint venture based in Changxing with potential production capacity of 5.5Gwh. Shuai Fude has a good reputation in the battery field, providing battery solutions in aerospace, shipping, medical, energy and other market segments. The target market of the joint venture company is electric vehicles, electric bicycles, energy storage and other fields.
The company announced at the end of 2019 that the proposed spin-off of the company's battery business was listed in Science and Technology Innovation Board, and the company announced on July 6 that the spin-off and listing had been approved by the listing committee. The company plans to issue no more than 117 million shares and raise 3.6 billion yuan, of which 860 million yuan is invested in the industrial upgrading of intelligent manufacturing of lead-acid batteries, and 850 million yuan is invested in high-energy lithium battery cells and PACK projects. After completion, it will form the production capacity of 0.5Gwh lithium ion soft package VDA battery, four-wheel PACK, 1Gwh square aluminum shell battery, two-wheeled PACK, 2.5Gwh cylindrical battery and two-wheeled PACK. The listing of the spin-off of the battery business in Science and Technology Innovation Board is conducive to the company's battery business expansion and valuation.
Lead recycling to create an integrated recycling industry chain to improve the operational efficiency of the company. Lead-acid battery has great recycling value. The recycled lead recovery base in Wushan, Zhejiang Province is the only unit in Zhejiang Province that holds the recycling license of recycled lead business, with license advantages. The company has established lead recovery bases in Changxing, Zhejiang and Puyang, Henan, with a radiation radius of 500-600 km. The company is based on lead recovery, lithium recovery, smelting and purification, steadily expanding production capacity, building recycling industrial clusters and supporting company battery business. improve overall operational efficiency.
The company has good management quality and growth ability. Since 2010, the company's revenue end compound growth rate has reached 30%, and net profit compound growth rate has reached 19%. Since 2015, ROE has remained above 20%. Thanks to the promotion of intelligent manufacturing and positive feedback from the channel side, the company's per capita income has increased rapidly, from 980000 yuan in 2015 to 1.98 million yuan in 2019, and the net interest rate has risen synchronously with the asset turnover. The company's gross profit margin excluding trade manufacturing was 15.39% in 2019, an increase of 2.7% over the same period last year. It is expected that the scale effect of the company is expected to show further in the future. On June 1, the company announced that it is expected that the company's home net profit in the first half of 2020 will increase by no less than 30% compared with the same period last year. Electric light vehicle sales in the first half of the year are booming, and the company's performance is expected to exceed expectations.
Profit forecast and investment rating: we believe that: 1) electric light vehicle batteries are consumer goods, short-distance distribution brings its long-term demand growth, Tianneng brand batteries have strong customer stickiness; 2) express business is developing rapidly. Electric tricycle batteries are expected to bring performance elasticity. 3) the company cooperates with Shuaifu to lay out the lithium business, locate electric vehicles + electric bicycles + energy storage, improve the battery system of lead storage + lithium batteries; 4) lead recycling to build an integrated recycling industry chain to improve the company's operational efficiency. The company plans to split the battery business to be listed in Science and Technology Innovation Board, and the long-term valuation is expected to improve.
It is estimated that the company's homing net profit from 2020 to 2022 will be RMB 21.5, 27.1 PE, respectively, which is 339 million yuan, corresponding to that of 8-6-5. The company will be given a "buy" rating for the first time, and a target price of HK $40 will be given with reference to the comparable company's 19X valuation in 2020. The sales of electric light vehicles are not as expected; Science and Technology Innovation Board's split listing is not as expected; the company's lithium business expansion is not as expected; the market is systemic risk.
Risk Tips:. The sales of electric light vehicles are not as expected; Science and Technology Innovation Board's split listing is not as expected; the company's lithium business expansion is not as expected; the valuations of Hong Kong stocks and A shares are not completely comparable; the market systemic risk.