CICC issued a research report stating that due to TIANNENG POWER's (00819) focus on core business and gradual contraction of trading operations, the firm has lowered its 2025/2026 revenue forecasts by 30%/28% to RMB61.21/65.51 billion respectively. Considering the slower-than-expected recovery in the aftermarket demand with higher profitability and non-recurring fluctuations, CICC has reduced its 2025/2026 net profit forecasts by 17%/17% to RMB1.803/2.157 billion. However, the firm remains optimistic about the company's market position in the two-wheeler sector and the growth potential from reduced losses in the lithium battery business. The company is also actively expanding overseas markets and exploring new scenarios for additional growth drivers. CICC maintains its HK$8.5 target price and outperform industry rating unchanged. The current stock price corresponds to 4.6x/3.8x P/E for 2025/2026, while the target price implies 4.8x/4.0x P/E, representing 4.8% upside potential.
CICC's main viewpoints are as follows:
1H25 Results Below Expectations
The company announced 1H25 results: revenue of RMB24.19 billion, down 51.5% year-over-year and 9.6% quarter-over-quarter; net profit attributable to shareholders of RMB820 million, down 11.7% year-over-year and up 282.7% quarter-over-quarter. Due to the contraction in trading business scale, the company's 1H25 revenue declined significantly year-over-year. Net profit was affected by slower aftermarket demand and reduced government subsidies, futures gains, and interest income, falling below market expectations.
Lead-acid Battery 1H25 Shipments Declined Slightly, but Gross Margin Improved Significantly
With the implementation of new national standards and stimulus from trade-in policies, the two-wheeler OEM market demand recovered in 1H25, and the company's OEM market shipments achieved solid year-over-year growth. However, the aftermarket was affected by domestic macroeconomic conditions and trade-in policies (replacement to new conversion), showing weak demand. Combined with the high base in 1H24, the company's aftermarket shipments declined year-over-year. Overall, the company's lead-acid battery shipments in 1H25 were 53.5-54GWh, down 4.5-5%, corresponding to revenue of RMB18.29 billion, down approximately 5%. In terms of profitability, lead prices in 1H25 fluctuated significantly less than the same period last year, driving improvement in the company's lead-acid battery gross margin. The firm estimates 1H gross margin was approximately 14.5-15%, up 1.5-2ppt year-over-year.
Lithium Battery Business 1H25 Revenue Grew Significantly, Loss Margin Narrowed
The company's 1H25 lithium battery business revenue reached RMB501 million, up 174.6%, mainly benefiting from domestic and US export rush orders for new energy in 1H25 and spillover effects from industry prosperity, driving growth in the company's energy storage battery shipments. In terms of profitability, with improved capacity utilization and economies of scale, the company's lithium battery business achieved significant loss reduction in 1H25.
Non-recurring Items and Interest Income Reduction Also Dragged Down Apparent Performance
Regarding non-recurring items, due to deferred subsidies, the company's government subsidies plus VAT additional deduction refunds in 1H25 decreased by RMB175 million compared to the same period last year. Meanwhile, futures gains decreased by approximately RMB150 million compared to the same period last year. Additionally, due to deposit rate cuts, 1H25 interest income decreased by approximately RMB176 million compared to the same period last year, further reducing apparent profits.
Risk Factors: China two-wheeler demand falling short of expectations, macroeconomic downturn, significant fluctuations in lead prices.