The company's 2020 performance exceeded our expectations.
The company's 2020 income was 53.53 billion yuan, an increase of 32%, and a net profit of 2.48 billion yuan, an increase of 47%. Corresponding to the 2H20 income of 30.89 billion yuan, 51% per cent, 1.64 billion yuan and 40 per cent respectively, the company's performance exceeded our expectations due to the increase in profit margin and lithium electricity business.
Trend of development
The company has a comprehensive layout in the field of two-wheelers, with robust traditional lead-acid batteries and high growth of lithium batteries:
The overall growth of traditional lead-acid business is steady, the structure is high, and the price of lead goes down unilaterally with both momentum and profit. The company's lead-acid battery business achieved revenue of 28.34 billion yuan in 2020, a slight increase of 0.4% over the same period last year. In terms of business, electric bicycles and tricycles / mini electric vehicles slightly decreased / slightly increased by 0.5% 0.6% to 25.56 billion yuan. Special purpose batteries (start-stop / energy storage, etc.) reached 710 million yuan, an increase of 47.9% The sales of lead-acid batteries for the whole year reached 8397.2 million kWh, an increase of 16.3%. The main benefits are as follows: 1) the epidemic affected some individuals to switch to two-wheeled electric vehicles in 2020 and increased demand for external sales, driving the sales of two-wheeled electric vehicles to grow against the trend; 2) the strong recovery of the domestic automobile industry and the rise of energy storage market in the second half of 2020 catalyzed the demand for start-stop / energy storage backup batteries. But at the same time, brazing prices continued to decline in 2020, driving down the price of lead-acid batteries, so that lead-acid battery revenue growth was not as fast as sales growth; but the company achieved better gross profit performance through stage price control, pushing lead-acid battery gross profit margin higher to 17.08 per cent.
Benefiting from the accelerated lithium penetration of the two-wheeler, the company's lithium business performance is outstanding. The company's lithium electricity revenue in 2020 was 1.06 billion yuan, an increase of 69%, while subsidiary Tianneng's lithium electricity sales 1.69GWh increased by 120.60%, mainly due to the increase in lithium electricity permeability of two-wheelers. GGII predicted that the output of lithium-electric two-wheelers in 2020 would reach 10.25 million, and the permeability would increase to 27%.
We believe that after the epidemic, the growth rate of lead and acid sales slowed down, the number of two-wheelers in the market peaked and replaced as the main logic, and the annual demand for lead-acid two-wheelers maintained an increase of 2-3% in the short term; medium-and long-term lithium permeability benefits from the decline in supply-side costs, demand-side shared electric vehicles and export growth, lithium penetration trend is significant, is expected to become a new driving force for growth.
Continue to improve business efficiency and strengthen channel brand control. In 2020, the speed of inventory turnover increased, the number of days of accounts receivable turnover decreased, and the expense rate decreased by 0.84ppt to 3.63%. The company has laid out more than 3000 dealers in the country in 2020, and continue to promote the channel cloud, improve the dealer management ability, strengthen the company brand management. We believe that the improvement of the company's operating efficiency and the strengthening of brand control will help to maintain a leading position in the industry for a long time and continue to increase the market share of the emerging two-wheeler lithium battery segment.
Profit forecast and valuation
We are optimistic that the company will make steady progress, raising its profit forecast for 2021 by 8% to 2.631 billion yuan, and introducing a profit forecast of 2.864 billion yuan for 2022. Due to the decline in the valuation center of the industry, we maintain the target price of HK $20. The current stock price / target price corresponds to 2021 5.6X/5.2X E and 7.2X/6.6X P E in 2022, with 30.2% upside space, maintaining an industry rating that outperforms.
Risk.
Lead prices rose rapidly, the output of two-wheelers fell short of expectations, lithium penetration in the two-wheeler market accelerated and the company's share fell short of expectations.