Sectors:

Air & Automobiles (Zhang Jing),

Automobile & Air (ZhangJing)

This month I released 4 updated reports of SIA (600009.CH), Tianneng Power (819.HK), Yongda (3669.HK), and Weichai (2338.HK), which got success by their unique Competitive edge. Among them, we highly recommend Tianneng Power and Yongda.Tianneng Power's 2019 revenue and net profit increased by 17% and 42%, respectively. Basic EPS were RMB1.49. The proposed final dividend was HKD0.39 per share. The dividend payout ratio reached 23%. In 2019, the Company's market share in the domestic lead-acid battery of light electric vehicle has exceeded 44%, more than 3 ppts higher than in 2018. In H1, due to some changes in the industry policies, customers` wait-and-see attitude led to a drop in the demand for the lead-acid battery. With further integration in the industry, the demand recovered in H2, resulting in a better sales situation than in H1. Battery sales revenue increased by about 25% hoh and the net profit doubled to RMB1.14 billion hoh. The full-year profit contribution was RMB1.71 billion. With the increasing requirements of environmental protection in domestic, the concentration of the lead-acid battery industry will continue to improve. As the leading enterprise, Tianneng Power's "cash cow" — lead-acid battery business will remain stable. The Company plans to spin off the subsidiaries and list on the Sci-Tech innovation board in Shanghai. We believe that current valuation near a decade low, which does not reflect the company's leading position in domestic lead-acid battery market and expectation of stable growth. For valuation we cut our target price to HK$8.51 to reflect the possible challenge of the Company, maintain a Buy rating.

The revenue of Yongda Automobiles was RMB62.71 billion in 2019, up 13.4% yoy; the profit attributable to shareholders stood at RMB1.473 billion, up 17.6% yoy, with the EPS of RMB0.8. In 2019, the sales volume of the premium cars in China increased against the trend. Benefiting from the prosperity in the premium cars market and channel expansion, the Company's overall sales volume of new cars was up 11.6% yoy to 197,400, with the sales volume of the premium cars up 15.5% yoy to 128,600, faster than the industry average of 9.7%.

By the end of 2019, the number of dealerships increased to 208, with a net increase of 14. Among them, there was 119 luxury brands, which had a net increase of 8. The number of those who had got licenses was 12. Within the year, there was 13 new self-built dealerships and 6 by mergers and acquisitions, including luxury brands as Porsche/Mercedes-Benz/Lexus/Volvo/Lincoln/Aston Martin as well as the new energy brands like Tesla/WM/Xpeng/Byton. The outbreak affected the sales in the first quarter, but now, as things get better, the Company is rapidly recovering orders and store visitors, and is expected to return to normal levels in the past in April. In view of the favourable factors such as the newly acquired stores, the increased license plate quota in Shanghai and the support policies of the automobile manufacturers, the management still maintains the original operational objectives.

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