Lead-acid batteries are leading the way, and profitability rebounded steadily in Q2. The company is deeply involved in the battery industry and has now formed a battery product system for the collaborative development of lead-acid batteries and lithium-ion batteries, and the development of new material battery reserves such as hydrogen fuel cells and sodium-ion batteries. The company has a leading position in the industry, with a share of over 45% in the lead-acid power battery market for electric light vehicles. 2024H1 achieved operating income of 21.622 billion yuan, +0.30% year over year; net profit to mother of 1.194 billion yuan, +9.32% year over year; gross profit margin of 17.13%, -1.83 pct year on year. In 2024Q2, the company adopted a series of price adjustment measures. The gross profit margin was 18.09%, +2.23pct compared to the previous month, and profitability rebounded steadily.

There are frequent favorable policies in the industry, and the company is expected to be the first to benefit. On August 24, the Ministry of Commerce and 5 other departments issued the “Implementation Plan for Promoting Trade-in of Electric Bicycles”, which provided subsidies for electric vehicles, and proposed an appropriate increase in subsidies for consumers returning old lithium-ion battery electric bicycles and buying lead-acid battery electric bicycles; on September 19, 5 departments including the Ministry of Industry and Information Technology announced the newly revised “Electric Bicycle Safety Technical Specification (Draft for Comments)”, which broadened the vehicle weight limit for lead-acid battery models from 55 kg to 63 kg. With favorable policies, the company is expected to be the first to benefit as an industry leader.

The product continues to be upgraded and iterated, and cutting-edge technology is actively deployed. 1) Lead electricity: Released the original Tianguan electric motorcycle battery to support ultra-high current and ultra-high power electric motorcycle riding; 2) Lithium battery: released a next-generation 5MWH smart liquid-cooled energy storage system, and also accelerated market development and became a supplier to ZTE; 3) Hydrogen power: Accelerated application, and vehicles equipped with Tianneng's 80kW hydrogen-electric engine system were listed in the 384th batch of product announcements issued by the Ministry of Industry and Information Technology in June 2024; 4) Sodium: Released Tianneng T2 batteries, which ensured the high performance and reliability of the battery through the use of advanced layered oxide technology. Launched for the energy storage market NFPP polyanionic sodium ion battery.

Firmly promote the global strategy and accelerate the expansion of overseas markets. The company accelerated production capacity building overseas. In July 2024, the Vietnamese assembly plant officially completed trial production. Currently, the production capacity is 5,000 units/day; the first planned self-built factory with an annual production capacity of 10 million units is also progressing steadily, and is expected to be completed in 2025. At the same time, the company is actively building and optimizing overall sales channels. As of June 30, 2024, it has successfully opened and operated local offices in 7 countries and signed more than 30 overseas brand dealers. 2024H1 achieved overseas sales revenue of 0.129 billion yuan, +34.57% year-on-year.

Profit forecast and rating: We expect the company's net profit to be 2.514, 3.092, and 3.472 billion yuan respectively for 24-26, +9.1%, +23.0%, and +12.3% year-on-year. As a leader in lead-acid batteries, the company gave the company a PE valuation of 19-21 times in 2024, corresponding to a reasonable value range of 49.21-54.39 yuan, giving it a “superior to the market” rating.

Risk warning: risk of fluctuations in raw material prices; risk of changes in industrial policy.