CICC has released a research report stating that, considering the slowdown in demand for two-wheelers and rising raw material costs, it has lowered its 2026 net profit forecast for TIANNENG POWER (00819) by 22% to RMB 1.678 billion and introduced a 2027 net profit forecast of RMB 1.840 billion. The firm remains optimistic about the company's leading position in the two-wheeler battery market and the potential for improved profitability from its lithium battery business. It maintains a target price of HK$8.5. The current share price implies 2026/2027 P/E ratios of 4.5x and 4.0x, respectively, while the target price implies P/E ratios of 5.1x and 4.6x, representing an upside potential of 14.1%. An Outperform rating is maintained. Key points from CICC are as follows:
2025 performance fell short of the firm's expectations. The company reported 2025 results: revenue of RMB 53.80 billion, down 29.8% year-on-year; net profit attributable to shareholders was RMB 1.437 billion, up 25.8% year-on-year. Due to generally weak demand for two-wheelers and factors such as reduced government subsidies and interest income, the company's 2025 performance was below the firm's expectations.
Lead-acid battery business showed steady growth in 2025, with a recovery in profitability. Revenue from lead-acid batteries in 2025 was RMB 39.77 billion, down 0.2% year-on-year. Within this, revenue from electric two-/three-wheelers was approximately RMB 37.6 billion, up 1.4% year-on-year, with shipments of about 390 million units, up 2.4% year-on-year. In terms of revenue, demand for two-/three-wheelers was generally subdued throughout the year. While the pre-installation market saw better growth benefiting from new national standards and policies, the aftermarket was under pressure due to macroeconomic factors. Profitability-wise, the average price of lead, a key raw material, was stable to slightly lower in 2025, leading to a 0.8 percentage point year-on-year increase in the gross profit margin for lead-acid batteries to 12.9%.
Lithium battery and recycling businesses delivered strong performance, with expectations for continued profitability improvement in 2026. Benefiting from positive spillover from strong domestic energy storage demand, the company's lithium battery business achieved revenue of RMB 1.541 billion in 2025, surging 222.2% year-on-year. In terms of profitability, improved capacity utilization led to significant scale effects, resulting in a substantial reduction in losses for the lithium battery business. Looking ahead to 2026, the firm is optimistic that, driven by energy security and economic factors, the energy storage sector's growth will accelerate, further enhancing the company's scale effects. It expects further improvement in the profitability of the lithium battery business. The company's recycling business revenue reached RMB 5.55 billion in 2025, up 104.0% year-on-year. Profitability from lead-acid battery recycling remained stable, while lithium battery recycling benefited from rising lithium carbonate prices, leading to reduced losses. For 2026, the firm believes the recycling business should continue to benefit from rising resource prices, supporting ongoing profit improvement.
Operating cash flow performance was strong, capital expenditure peak has passed, and dividend payout ratio is expected to increase further. In non-operating items, government grants and VAT deduction refunds decreased by RMB 184 million year-on-year due to the deferral of some subsidies. Lower deposit interest rates led to a year-on-year decline in interest income of approximately RMB 200 million. The company's cash flow improved significantly in 2025, with net operating cash flow reaching RMB 5.191 billion, an increase of 845% year-on-year. Capital expenditure decreased by approximately RMB 1 billion year-on-year to the RMB 1.5 billion range. The dividend payout ratio increased by 10.6 percentage points year-on-year to 26.0%. With the peak in capital expenditure behind it and profitability recovering, the firm expects the dividend payout ratio to increase further.
Risk warnings include weaker-than-expected demand for electric two-wheelers in China, a macroeconomic downturn, and significant fluctuations in raw material prices.
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