Wednesday, May 12, 2021

Company prospecting: Tianneng Power 0819

 TianNeng Power is a company that I recently accumulated due to price weakness. It is the only company nearing the Threshold of 5% of my Portfolio now, and is particularly rare, as it is a Hong Kong Counter, but I find it too attractive to ignore. 

First, a few pictures.




Number wise, earning is improving over the last 5 years, FCF is stable over the last 5 years, debt is stable or reducing over the last 3 years. In fact, if you look at the latest Q1 results of TianNeng Battery listed in STAR, which is a subsidiary but form 80-90% of its earning, it is again an impressive Q1 of more than 40% growth. 

Valuation use, PE trailing is 5X, if you expect the earning growth to continue, it will be even lower than this. Dividends is low but decent, 3% with about 20% payout (Hardly punishing.) FCF yield is so-so, in the 7-8% range, but not too shabby, given ROE is 32%. Debt is low, with debt to equity at 0.19. 

Valuation of Tianneng Battery is double or triple of what it is doing in HKEX, which does not make a lot of sense to me. 

So the number part is pretty impressive. 

So the story part? 

It is even more puzzling that TianNeng is flying under the radar. In the years where ESG and EV are all the rage, it is very puzzling than Tian Neng is so grossly neglected by investors. 

Granted its battery is used mainly for light electric vehicle, bicycles etc, which is lead-battery powered, but Tianneng has moved into Lithium-ion Battery business and also in Oct 2020, supplied storage battery for a Power Plant. Both sector has the hottest theme and story of ESG. Granted competition is going to be stiff, but the pie is growing, and its low valuation should provide the buffer. 

The lead battery market is Hugh, and battery need replacement every 0.5 years to 3 years. It is the market leader in these area. 

China is promising to be a carbon peak country at 2030, and neutral at 2060. EVs and renewables are 2 ways which there are moving towards. Tianneng is going to have a bite at both pies, and is not like the core business of lead battery is being disrupted as they pursuit growth. 

They have been growing at 30-40% for that last few years, and for such a grower, you get PE at 5 times?

Yes, it has almost double from its 52 weeks low, this is the only explanation I can find, where traders rotate out of it. However, I find value and is willing to get 3% yield as I wait for capital gain as well as dividend growth. 

It will be a matter of time market rerate this counter if it continues its growth. 

13 comments:

  1. Thanks for sharing the stock. I went to do some basic research and came across this article : https://www.gmtresearch.com/en/about-us/hall-of-shame/tianneng-power-international-819-hk/

    I didn't explore further but you may want to take a read, and perhaps do a follow-up article ? :)

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  2. hi Anon, thank you for your alert. First of all, I find Tianneng explanation logical and convincing, having read both articles.

    https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1014/2020101401055.pdf

    Next, my own checks on schips used to be dividends (Tianneng passed), and taxes paid. Sadly, China Province do not delcare the top payers anymore. I could not find in Baidu. But I do find articles from tax breau of Zhejiang, quoting Tianneng Chairman of how he has benefitted from tax break.

    http://www.chinatax.gov.cn/n810219/n810724/c2494529/content.html

    Next, if cash balance is a problem, I wonder how are they investing in wealth products and clarifying that they misclassified in as cash, and duly corrected in 2020 AR.

    https://baike.baidu.com/reference/8833337/dffdXmDJuTVp3zfGYTdZaUhIwZx9lWS8ZztWEzHke_osk2ZD_t-fz1EmGMANI-dnGCOOeZArwner2OwDa-U3EQu3vYSYMMfABLU3qXTwl70KRQ

    https://baike.baidu.com/reference/8833337/c911s7mR7vaYD59S_lvoosqLt8lxXFm17ifKcEZI9JrNn9OV4SweiM_hxDlrhGujvLEwJNHEHZ260g6sQK8AdvEY52txtvtU8afgAw1PSg

    SOme of the latest awards show industry leadership and affirmation by Beijing party leader. I would think it is difficult to be a operating fraud with cash flow tricks to be expanding in this way and working smoothly with French SAFT to develop new products

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  6. i will avoid after reading GMT research.
    The books look good but its hard to detect fraud

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