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Hong Kong Results Review
FY15: beat consensus but missed ours Industrial Misc. Manufacturer Neutral (Maintained)
Tianneng Power
Decent Outlook Priced In
Bloomberg Ticker: In the post results meeting, management highlighted the aggressive Share Data
lithium batteries capacity expansion plan and the auto industry's Avg Daily Turnover (HKD/USD)
electrification trend. Many large automakers in China/overseas are liaising 52-wk Price low/high (HKD)
with Tianneng for potential battery supply. We tweak our FY15 earnings
for missing our estimates and maintain NEUTRAL, with a HKD5.72 TP Free Float (%)
(from HKD5.20, 9% downside) based on 1.25x FY16F P/BV. We believe the Shares outstanding (m)
recent rally already priced in the strong lithium growth story, the Estimated Return
continuous cost reductions and one-off higher dividend payout for FY15.
Shareholders (%)
The future growth driver. Tianneng Power (Tianneng) plans to add 80% Zhang Tianren
more lithium battery capacity pa in FY16-17F (end-FY15: 1,250 megawatt hour UBS AG or MWh). It has a top research & development (R&D) team and can produce high-quality batteries that have high consistency and power competiveness, and fast recharging. Many automakers are planning to enter the electric vehicle Share Performance (%) (EV) market and are likely to outsource their battery production to makers like Tianneng. Lithium batteries accounted for 3% of FY15 revenue and its contribution is likely to rise to 4%/6% in FY16-17F respectively, in our view. E-bike battery prices stable. Tianneng slightly lowered ASP in 2H15 to
Source: Bloomberg stimulate sales and expand market share. Thus, 2H15 gross margins fell HoH. Looking ahead, the ASP is likely to be stable, given that Tianneng is satisfied with its market share. ASP hiked YoY in Jan-Feb 2016, according to the firm. Tianneng Power (819 HK)
Relative to Hang Seng Index (RHS) Cost controls to continue in FY16. FY16 capex is CNY600m-800m, of which
70% is to be allocated for lithium batteries. Tianneng also said that the administrative expenses/revenue ratio is likely to fall this year on better management and larger operating scale. Risk: The resumption of an e-bike lead acid battery price war.
FY15 Results: beat consensus but miss our estimates Comments
Lead-acid battery growth Higher market share on Slightly lower prices Source: Bloomberg Operating profit SG&A well managed Core rolling P/E (x) Recurring earnings Source: Company data, RHB Maintain NEUTRAL with a higher HKD5.72 TP (from HKD5.20). We raise our
TP by 10% to HKD5.72 by raising target P/BV to 1.25x from 1.10x, which is its +0.5SD of the past 5-year P/BV. This is given the firm's improving outlook. As our new TP is 8% below the current share price, we believe its strong recovery is priced in. We stick with P/BV as our valuation methodology (as opposed to Source: Bloomberg P/E), given Tianneng's highly volatile earnings history including losses. Forecasts and Valuations
Total turnover (CNYm) Reported net profit (CNYm) Recurring net profit (CNYm) Recurring net profit growth (%) Recurring EPS (CNY) Recurring P/E (x) Dividend Yield (%) Return on average equity (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) Source: Company data, RHB See important disclosures at the end of this report
Hong Kong Results Review Industrial Misc. Manufacturer Financial Exhibits

Profit & Loss (CNYm)
Cash flow (CNYm)
( 268) 789
( 12,780) ( 15,376) ( 16,325) ( 17,811) ( 18,965) Depreciation & amortisation Gross profit
Change in working capital Gen & admin expenses ( 652) ( 598) ( 648) ( 708) ( 755) Other operating cash flow ( 870) ( 301) 69 ( 123) ( 151) ( 164) ( 179) ( 191) Operating cash flow
Other operating costs ( 756) ( 890) ( 941) ( 1,028) ( 1,096) ( 196) ( 182) ( 159) ( 135) ( 125) ( 268) 789
Cash flow from operations
Depreciation of fixed assets ( 188) ( 220) ( 311) ( 270) ( 302) ( 729) ( 751) ( 422) ( 700) ( 700) Amortisation of intangible assets Other investing cash flow ( 268) 789
Cash flow from investing activities
( 487) ( 829) ( 895) ( 741) ( 741)
Other recurring income ( 206) ( 163) ( 135) ( 125) ( 125) Other non-recurring income Other financing cash flow ( 407) 746
Cash flow from financing activities
( 320) 735
( 1,416) ( 602) ( 298)
( 118) ( 225) ( 251) ( 301) Cash at beginning of period Minority interests Total cash generated
( 302) ( 545) ( 53)
Reported net profit
( 305) 611
Implied cash at end of period
Recurring net profit
( 250) 649
,167 Source: Company data, RHB
Source: Company data, RHB Balance Sheet (CNYm)
Key Ratios
Total cash and equivalents Revenue growth (%) Operating profit growth (%) Accounts receivable Recurring net profit growth (%) Other current assets Recurrent EPS growth (%) Total current assets
Tangible fixed assets Operating EBITDA margin (%) Intangible assets Operating margin (%) Total other assets Recurring net profit margin (%) Total non-current assets Return on average assets (%) Total assets
Return on average equity (%) Net debt to equity (%) Interest cover (x) Other current liabilities Capex/Free cash flow (%) Total current liabilities
Total long-term debt Other liabilities Dividend payout ratio (%) Total non-current liabilities
Free cash flow per share (CNY) 0.26 Total liabilities
Source: Company data, RHB Retained earnings reserve Minority interests Total equity
Total liabilities & equity
Source: Company data, RHB Revenue growth vs Recurring net profit growth
EBITDA margin vs Net profit margin
Recurring net profit growth Operating EBITDA margin Net profit margin Source: Company data, RHB Source: Company data, RHB See important disclosures at the end of this report
Hong Kong Results Review Industrial Misc. Manufacturer FY15 Results Review
FY15 results beat consensus but missed ours. Tianneng's FY15 recurring net profit
turned around from a loss to CNY649m, below our estimates by 11% but better than
Bloomberg consensus by 15%. 2H15 recurring earnings turned around YoY to CNY375m.
FY15 revenue rose 27%YoY, ie above our and consensus estimates by 8% and 6%
respectively. 2H15 topline rose 38%YoY. Lead-acid battery revenue increased 32%YoY in
2H15, ie higher than had been expected, while lithium battery sales surged 288%YoY.
This was slightly below expectations.
Gross margins squeezed in 2H15. Tianneng booked gross margins of 13.6% in FY15,
significantly better than FY14's 9%. However, it fell to 13% in 2H15 vs 14.5% in 1H15.
Sales, general & administrative (SG&A) expenses well managed. Opex/revenue ratio
fell to 9.2% in FY15. By comparison, this stood at 10.9% in FY14, 9.7% in 1H15 and 8.9%
in 2H15. In particular, SG&A expenses declined despite the higher revenue. Meanwhile,
R&D expenses surged 40%YoY, mainly on the lithium battery segment.
Finance costs declined. Finance costs declined by as much as 20%YoY, mainly due to a
debt repayment of CNY1.4bn made in FY15. Tianneng's total debt fell by 40%YoY to
CNY2.2bn in FY15, while gearing fell to only 1%. By comparison, it was 65% as at end-
FY14 and 30% at end-1H15.).
Effective tax rate also fell. Tianneng's effective tax rate lowered to 15.8% in FY15 vs
28% in FY14. This was because some of its subsidiaries were recognised as high-tech
companies, which enjoy a lower tax rate for a certain period.
Final dividend of 31.8 cents per share (nil in 2014). Implied dividend yield is 5.6%.
Payout ratio was 50%, which was above the historical payout of about 30% since
Tianneng's IPO in 2007 (excluding FY14). The higher payout this year was to celebrate
the company's 30th anniversary, according to our discussion with management. Future
payouts, it guided, would be consistent with historical levels.
Decent working capital controls. Inventory days fell to 35 (FY14: 49) and payable days
surged to 85 (FY14: 61). Accounts receivables (AR) days uplifted to normal levels of 42
(FY14: 38). As a result, Tianneng enjoyed operating inflow of as much as CNY2bn, ie
capable of repaying its CNY1.4bn debt to reduce finance expenses and boost earnings.
See important disclosures at the end of this report
Hong Kong Results Review Industrial Misc. Manufacturer Figure 1: Tianneng's FY15 results (CNYm)
Pure electric car Lead-acid battery ( 12,780) ( 15,376) ( 13,812) 1 ( 6,440) ( 8,936) ( 7,372) 2 Gross profit
Selling & distribution expenses ( 652) ( 598) ( 611) ( 2.0) ( 273) ( 325) ( 337) ( 3.7) Administrative expenses ( 352) ( 324) ( 347) ( 6.5) ( 151) ( 173) ( 196) ( 11.6) Other operating expenses ( 1,531) ( 1,639) ( 1,630) 0
( 727) ( 912) ( 903) 1
Opex as % of revenue ( 201) 909
( 206) ( 163) ( 211) ( 22.5) ( 86) ( 77) ( 124) ( 38.2) ( 407) 746
( 118) ( 200) ( 41.1) ( 68) ( 50) ( 132) ( 62.2) Effective tax rate Net profit - reported
( 305) 611
Net profit - recurring
( 250) 649
Source: RHB See important disclosures at the end of this report
Hong Kong Results Review Industrial Misc. Manufacturer Figure 2: Changes to our forecasts (CNYm)
Pure electric car Lead-acid battery ( 16,325) ( 15,171) 7 ( 17,811) ( 16,820) 5 Gross profit
Selling & distribution expenses ( 648) ( 691) ( 6.2) ( 708) ( 767) ( 7.7) ( 755) Administrative expenses ( 328) ( 392) ( 16.4) ( 358) ( 436) ( 17.7) ( 382) Other operating expenses ( 179) ( 182) ( 1.5) ( 191) ( 1,754) ( 1,846) ( 5.0) ( 1,916) ( 2,049) ( 6.5) ( 2,042)
Opex as % of revenue ( 135) ( 189) ( 28.6) ( 125) ( 189) ( 33.9) ( 125) ( 225) ( 397) ( 43.4) ( 251) ( 448) ( 44.1) ( 301) Effective tax rate Net profit - reported
Net profit - recurring
Source: RHB Figure 3: Key assumptions
E-bike battery sales volume growth Tricycle battery sales volume growth Pure eletronic car battery sales volume growth E-bike battery ASP change Lithium battery revenue growth Source: RHB See important disclosures at the end of this report
Hong Kong Results Review Industrial Misc. Manufacturer Figure 4: Tianneng's detailed P&L statement (CNYm)
Pure electric car Lead-acid battery ( 12,231) ( 12,780) ( 15,376) ( 16,325) ( 17,811) ( 18,965) Gross profit
Other operating expenses ( 105) ( 123) ( 151) ( 164) ( 179) ( 191) Selling & distribution expenses ( 413) ( 652) ( 598) ( 648) ( 708) ( 755) Administrative expenses ( 367) ( 352) ( 324) ( 328) ( 358) ( 382) ( 355) ( 405) ( 566) ( 613) ( 670) ( 714) ( 1,240) ( 1,531) ( 1,639) ( 1,754) ( 1,916) ( 2,042)
Opex as % of revenue ( 201) 909
( 144) ( 206) ( 163) ( 135) ( 125) ( 125) Share of associates' profits ( 407) 746
( 118) ( 225) ( 251) ( 301) Effective tax rate Net profit - reported
( 305) 611
Net profit - recurring
( 250) 649
Source: RHB See important disclosures at the end of this report
Hong Kong Results Review Industrial Misc. Manufacturer Figure 5: Tianneng's 5-year forward P/BV band
Source: Bloomberg, RHB Figure 6: Peers comparison I
Price (USDm) (USDm) 2014 (x) FY15 (x) FY16 (x)
YoY% Cagr (%) PEG (x) FY14 (%) FY15 (%) FY15 (x)
HK-listed battery makers
Overseas listed battery makers
China BAK Battery Note: Prices as at 21 Mar 2016 Source: Bloomberg, RHB See important disclosures at the end of this report
Hong Kong Results Review Industrial Misc. Manufacturer Figure 7: Peers comparison II
Rev Hist Rev FY1 NP Hist NP FY1 margin
Beta (USDm) (USDm) (USDm) (USDm) FY14 (%) FY14 (%) FY15 (%) FY14 (%) FY15 (%) FY16 (%) FY14 (%) FY15 (%)
HK-listed battery makers
Overseas listed battery makers
China BAK Battery Note: Prices as at 21 Mar 2016 Source: Bloomberg, RHB See important disclosures at the end of this report
Hong Kong Results Review Industrial Misc. Manufacturer SWOT Analysis

 A key player in the lead acid battery industry, with an estimated 35% share of the electric bike market in from Chaowei Power  E-bike market has been developing for long time and is entering its mature stage  Lithium battery is a new growth driver Government's concerns on air pollution have resulted in more favourable policies on the electric vehicles segment  More stringent environmental protection  High original equipment manufacturer (OEM) proportion increases production costs lead acid batteries squeezing out smaller players Recommendation Chart
Target Price
Recommendations & Tar get Pri ce Source: RHB, Bloomberg Source: RHB, Bloomberg See important disclosures at the end of this report
Hong Kong Results Review Industrial Misc. Manufacturer RHB Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage
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RHB (China) Investment Advisory Co. Ltd.
RHB Securities (Thailand) PCL
Wisma Mulia, 20th Floor Suite 4005, CITIC Square 10th Floor, Sathorn Square Office Tower Jl. Jenderal Gatot Subroto No. 42 1168 Nanjing West Road 98, North Sathorn Road, Silom Jakarta 12710, Indonesia Bangrak, Bangkok 10500 Tel : +(6221) 2783 0888 Fax : +(6221) 2783 0777 Tel : +(8621) 6288 9611 Tel: +(66) 2 862 9999 Fax : +(8621) 6288 9633 Fax : +(66) 2 862 9799

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