Stock prices surge by over 16%, is the moment of turnaround in distress approach

On September 2nd, several two-wheeled electric vehicle concept stocks experienced a surge, with Xinri Shares (603787.SH) opening with a daily limit up and Aima Technology (603529.SH) closing up nearly 4%.

After a day of jubilation, on September 3rd, the trading sentiment for two-wheeled electric vehicle concept stocks began to cool down. As of the time of writing, the share prices of Xinri Shares and Aima Technology have both declined to varying degrees.

However, the most dazzling increase on September 2nd still belonged to Tianneng Power (00819.HK), a power battery manufacturer in the upstream sector of two-wheeled electric vehicles. The company's stock price rebounded significantly from its low, rising by more than 17% at one point during the trading session, and ultimately closing up 14.18%.

On September 3rd, Tianneng Power maintained its strength, with the stock price continuing to rise. As of the time of writing, it was reported at 6.51 Hong Kong dollars per share, with a change of 2.36%, and a total market value of 7.3 billion Hong Kong dollars, returning to the 7 billion Hong Kong dollar threshold.

Welcoming Policy "Big Gift Package"

The direct driving force behind the active trading of two-wheeled electric vehicle concept stocks on September 2nd was the policy dividend.

On August 30th, five departments including the Ministry of Commerce issued the "Implementation Plan for Promoting the Replacement of Electric Bicycles with Old Ones," organizing qualified products from compliant electric bicycle manufacturing enterprises to participate in the consumer goods replacement activity.

This is also the first time the country has introduced a policy for the replacement of electric bicycles with old ones.

The plan mentions that consumers who return old lithium-ion battery electric bicycles and purchase lead-acid battery electric bicycles may be eligible for increased subsidies.

The plan points out that although the development of lithium-ion batteries in China has been relatively fast in recent years, lead-acid batteries account for nearly 80% of the batteries used in electric bicycles, and they are favored by consumers due to their good safety, low price, and popularity. Increasing the subsidy appropriately is in line with the requirements of the comprehensive safety hazard management actions for electric bicycles and the actual situation.Tianneng Power is the leading company in the lead-acid storage battery industry in our country. In its research report, Huafu Securities stated that the combined market share of Tianneng Power Holdings' Tianneng Shares (688819.SH) and Chaowei Group is about 85%, presenting a duopoly structure in the industry.

In its interim report, Tianneng Power stated that the company focuses on the battery industry, with over 90% of its battery products used for electric light vehicles. In addition, the company has established an extensive distribution and after-sales service network, with more than 3,000 distribution and after-sales service outlets in China, covering over 400,000 terminal stores.

It is not difficult to see that as an important market participant in the upstream power battery for two-wheeled electric vehicles, the subsidy policy for the exchange of lead-acid batteries for electric bicycles has brought great market development opportunities for Tianneng Power.

Interim performance is not satisfactory, and the gross profit margin of lead-acid batteries is under pressure.

The recently released performance for the first half of 2024 continues the weak performance of Tianneng Power in 2023.

In the first half of the year, Tianneng Power achieved a revenue of about 49.915 billion yuan, a year-on-year increase of about 20.36%; the profit attributable to the owners of the company was about 928 million yuan, a year-on-year increase of only about 1.09%, while the profit in the same period last year increased by 20.86%.

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The main reason for the significant slowdown in profits in the first half of this year is the obvious increase in sales costs. In the first half of the year, Tianneng Power's sales costs were 47.369 billion yuan, a year-on-year increase of 23.2%, higher than the revenue growth. The company stated that the gross profit margin of the manufacturing industry in the first half of the year was about 12.12%, a year-on-year decrease of about 2.01 percentage points, mainly due to the increase in the cost of main products compared to the same period last year.

CICC stated that the main material lead price has continued to rise since 2024, and Tianneng Power's price adjustment has been lagging, leading to a phased pressure on the gross profit margin. The company's gross profit margin of lead-acid batteries in the first half of the year decreased by nearly 2.5 percentage points year-on-year.

In fact, the increase in Tianneng Power's revenue in the first half of the year was driven by trade business, with a turnover of 28.704 billion yuan, a year-on-year increase of 44.75%; the turnover of the manufacturing industry was 21.211 billion yuan, a slight year-on-year decrease of 1.99%. On the other hand, government subsidies have increased its performance, with subsidies related to revenue reaching 850 million yuan in the first half of the year, doubling year-on-year.

CICC stated that the electric two-wheeler market in the first half of the year was affected by the early national inspection and the partial dealers' wait-and-see attitude and lack of enthusiasm for picking up goods due to the upgrade of the new national standard, leading to a weakening of the front-end market demand; the after-sales market was also affected by the decline in consumer prosperity, and the performance was flat. The bank pointed out that Tianneng Power's lead-acid battery shipments have slowed down, achieving shipments of 56.3 GWh, which is the same as the previous year.In the first half of the year, within the manufacturing sector, high-end environmental protection battery revenue was 19.252 billion yuan, slightly down year-on-year; lead-acid power battery revenue was 18.884 billion yuan, remaining flat year-on-year; new energy battery revenue was a mere 187 million yuan, which was halved compared to the previous year.

It is worth mentioning that over the past year, the stock price of Tianneng Power has been on a continuous downward trend, leading to a lower valuation and market capitalization. As of the time of writing, Tianneng Power's market capitalization stands at 7.3 billion Hong Kong dollars. However, the company's cash on hand far exceeds its market value, with cash and cash equivalents amounting to 9.795 billion yuan in the first half of this year, equivalent to approximately 10.73 billion Hong Kong dollars, which is more than 3.43 billion Hong Kong dollars higher than its market capitalization.

With promising industry prospects, a relatively low company valuation, and ample cash on hand, can Tianneng Power continue to attract the sustained favor of investors?