1H20 performance is in line with company guidelines
The company's 1H20 income was 22.635 billion yuan, up 14%, of which the lead-acid battery business income was 11.64 billion yuan, down 5%, and the lithium battery business income was 397 million yuan, up 48%. The net profit returned to the mother was 837 million yuan, an increase of 40%, of which the adjusted EBIT (excluding other income effects) was 883 million yuan, an increase of 32%. The interim results were in line with the company's previous performance forecast guidelines.
Trend of development
The epidemic affected the reverse growth of battery demand for bicycles in the mode of travel, and the decline in lead prices increased gross profit margin, driving both the volume and profit of 1H20. We believe that under the influence of the epidemic, some personal travel scenes have been switched from public transportation to two-wheeled electric vehicles, while the demand for two-wheeled electric vehicles has been further accelerated under the rise of takeout. Data from the Ministry of Industry and Information Technology show that sales of electric bicycles above the size of 1H20 also increased by 10.3%. Considering the increase in the frequency of usage, we believe that demand in both the short-term OEM market and the replacement market has been boosted. The company's 1H20 lead-acid battery sales fell 5%, including 6.1% in two / three rounds. Considering that 1H20 lead prices fell 15% year-on-year, assuming that battery prices and lead prices follow, 1H20 shipments increased by 6-10%. At the same time, due to the rapid unilateral decline in 1Q20 lead prices, we believe that the company can achieve better gross profit performance through periodic price control, driving the gross profit margin of 1H20 manufacturing to 16.3%, which is higher than the same period last year. 2.3ppt. 1H20 increases both in volume and profit, driving high profit growth.
After the break-up, it may usher in a further revaluation. Tianneng Power proposed to spin off Tianneng battery (lead-acid battery business and trading business) to Kechuang board listing was formally examined and approved. The average TTM of Camel, which is also engaged in lead-acid batteries and recycled lead, is only 7.5pm 4.95x, while Camel shares, which are also lead-acid batteries and recycled lead, correspond to 18.4max 15.8x in A shares, with a significant valuation difference. The company's spin-off subsidiary Tianneng Battery intends to raise 3.59 billion yuan (assuming a full offer), with a total post-issue share capital of up to 12% (972.1 million shares), and the listed market capitalization of the corresponding Kechuangzi company is 29.9 billion yuan. Tianneng Power, which currently has a market capitalization of HK $18.7 billion, will still hold more than 80 per cent of Tianneng Battery, a spin-off subsidiary, after the split is completed.
We believe that the overall value of Tianneng Power can be revalued.
Pay attention to the lithium electrochemical penetration of the two-wheeler industry and the progress of the company, the short-term lead-acid market will continue to maintain steady growth. We believe that the overall stock has increased steadily, and the overall sales of OEM have continued to grow after the epidemic, and the overall annual demand for lead-acid two-wheeler batteries can maintain a growth of 3-5%. We have also observed that lithium batteries for two-wheelers accelerate their penetration in the OEM market or through top-down scenarios (such as shared electric power, etc.) and high-end demand, but the demand of residents in low-line cities is limited due to price sensitivity.
Profit forecast and valuation
Considering the improvement of demand and profitability in the industry boom, we raised the company's profit forecast of 2020Unix 2021E by 13% to 2.426 billion yuan. In view of the company's improved profits, further recognition of the industry growth space, and a spin-off revaluation, we raised the company's target price by 150% to HK $20. The current share price corresponds to 2020x2021e 7.9xPmax E and 9.5max 8.3x Pmax E respectively, with 20.2% upside space to maintain an outperforming industry rating.
Risk
The price of lead rose rapidly, the output of electric bicycles fell short of expectations, the penetration speed of lithium batteries of electric bicycles increased and the company's share fell short of expectations.