Key points of investment:

Leading lead-acid battery enterprise, with strong channel and production capacity advantages. The performance of lead-acid batteries is adapted to the safety, security, and economy required for electric two-wheelers, and is difficult to replace with lithium batteries. With the end of the temporary domestic license transition period in '22, electric two-wheelers ushered in a boom in new vehicle exchanges, and a steady increase in sales volume plus stock replacement guarantee market growth. Tianneng Co., Ltd. is a leading lead-acid battery company, and the total market share of Chaowei Group is about 85%. The industry has an oligopoly pattern. The company mainly uses a distribution model for motorcycle batteries. It has built an integrated marketing and after-sales network covering more than 3,000 dealers in 32 provinces, autonomous regions and municipalities directly under the Central Government. The channel advantages are remarkable. Furthermore, the company has the largest lead-acid battery production capacity in the country and has a strong leading position.

Lead-carbon energy storage projects have blossomed in many places and are expected to open up a new situation in the energy storage market. The safety of lead-carbon batteries is much higher than lithium batteries, while the cost of raw materials is far lower than lithium batteries. Since 2021, the state has issued several policies emphasizing the safety of energy storage, and the prospects for lead-carbon energy storage are optimistic. The company has deeply cooperated with energy companies such as Taihu Energy Valley and signed a 3-year framework agreement to ship 30 GWh lead-carbon batteries. The lead-carbon energy storage project has been implemented since 22 years ago, and future development can be expected.

Accelerate the expansion of lithium battery and energy storage production capacity, and actively expand research and development of new sodium and hydrogen batteries. The company is actively developing new material batteries. Currently, it includes businesses such as lithium battery, hydrogen energy, sodium power, and energy storage. The company started lithium-ion battery technology R&D and production around 2010. In 2019, it cooperated with Shuai Fude to accelerate the expansion of the lithium battery business and increase technical reserves. It has now established a business product system where lead-acid and lithium-ion batteries collaborate to drive the development of batteries with other new materials, and has greatly increased lithium battery energy storage production capacity, which is expected to become a vital force in domestic lithium battery energy storage. In addition, the company also has an in-depth layout in sodium-ion batteries and hydrogen fuel cells.

Profit forecast and investment suggestions: The company's operating income in 2023-2025 is expected to be 529.25, 629.53 and 70.2 billion yuan, respectively, up 26.37%, 18.95%, and 11.51% year on year; net profit from 2023-2025 is 24.67, 29.77, and 3.428 billion yuan respectively, up 29.29%, 20.67% and 15.14% year on year, respectively. EPS is expected to be 2.54, 3.06, and 3.53 yuan respectively in 2023-2025, and corresponding PE is 13.31, 11.03, and 9.58 times, respectively. The target price was 45.68 yuan (18 times PE in 23), covered for the first time, and given a “buy” rating.

Risk warning: the risk that lead-acid batteries will be replaced; the risk that production capacity will not be released as expected; the risk of large fluctuations in the price of raw materials for lithium batteries; there may be a risk that the public information used in the research report may be out of date or not updated in a timely manner.