CICC: Maintaining TIANNENG POWER (00819) Outperform rating with a target price of HK$8.5.

Zhongjin released a research report stating that due to the slowdown in demand for two-wheeled vehicles and rising raw material prices, they have lowered TIANNENG POWER's (00819) 2026 profit forecast by 22% to 1.678 billion yuan and introduced a 2027 profit forecast of 1.84 billion yuan. The bank remains optimistic about the company's leading position in the two-wheeled vehicle battery market and the profit elasticity brought by the improvement in the lithium battery business. They maintain a target price of 8.5 Hong Kong dollars, with the current stock price corresponding to a 2026/2027 P/E of 4.5x/4.0x, and the target price corresponding to a 2026/2027 P/E of 5.1x/4.6x, representing a 14.1% upside potential. They maintain an outperform rating for the industry. Zhongjin's main points are as follows: - Performance in 2025 was lower than expected The company announced its performance in 2025: revenue was 53.8 billion yuan, a year-on-year decrease of 29.8%; net profit attributable to equity holders was 1.437 billion yuan, a year-on-year increase of 25.8%. Due to overall weak demand for two-wheeled vehicles and factors such as reduced government subsidies and interest income, the company's 2025 performance was lower than expected. - Lead-acid battery growth in 2025 was steady, with profit levels showing some improvement In 2025, lead-acid battery revenue was 39.77 billion yuan, a slight decrease of 0.2% year-on-year. Among them, revenue from electric two/three-wheeled vehicles was about 37.6 billion yuan, an increase of 1.4% year-on-year, with shipments of about 390 million units, an increase of 2.4% year-on-year. In terms of revenue, overall demand for two/three-wheeled vehicles was flat during the year, benefiting from new national standards and policies, as well as good growth in the original equipment market, while the retrofit market was under pressure due to macroeconomic factors. In terms of profit, the stable and slightly declining lead price in 2025 drove the company's lead-acid battery gross profit margin up by 0.8 percentage points to 12.9%. - Strong performance in the lithium battery and recycling businesses, optimistic about continued profit improvement in 2026 Benefiting from the overflow of domestic energy storage demand, the company's lithium battery business achieved revenue of 1.541 billion yuan in 2025, a year-on-year increase of 222.2%. In terms of profit, the enhanced capacity utilization led to the release of scale effects, significantly reducing the company's losses in the lithium battery business. Looking ahead to 2026, the bank is optimistic that under the drive of energy security and economy, the prosperity of energy storage will accelerate and the scale effects of the company are expected to be further released. The bank is optimistic about further improvement in the profit of the lithium battery business. The company's recycling business revenue in 2025 was 5.55 billion yuan, a year-on-year increase of 104%, with solid profits in lead acid recycling and benefits from the rise in lithium carbonate prices leading to a reduction in losses. Looking ahead to 2026, the bank believes that the recycling business is expected to continue to benefit from the rise in resource prices and maintain steady profit improvement. - Good operating cash flow performance, peak capital expenditure has passed, dividend payout ratio is expected to further increase Non-operating aspects, due to deferred subsidies, government subsidies + VAT deduction refunds decreased by 184 million yuan in 2025. The lower deposit interest rate led to a year-on-year decline of about 200 million yuan in interest income. The company's cash flow in 2025 rebounded significantly, with net operating cash flow reaching 5.191 billion yuan, a year-on-year increase of 845%. Capital expenditure decreased by about 1 billion to 1.5 billion yuan, and the dividend payout ratio increased by 10.6 percentage points to 26.0% year-on-year. The company's peak capital expenditure is behind us, and with profit recovery, the bank is optimistic about further increases in the dividend payout ratio. Risk warning: Demand for electric two-wheeled vehicles in China falls short of expectations, macroeconomic downturn, significant fluctuations in raw material prices.