Core views:

Greenway is a leading domestic light-duty power lithium battery producer with its business covering lithium-ion batteries (LIBs) for light vehicles, energy storage batteries, consumer batteries and lithium-ion cells. In 2021, its overseas operating revenue accounted for about 52%, and its market share in the European electric bicycle lithium battery market reached 20%, ranking at the forefront of the industry. With the continuous prosperity of the electric two-wheeler industry at home and abroad as well as the boost from policies and consumption upgrades, we expect that Greenway will maintain steady growth in the field of LIBs for light vehicles. At the same time, Greenway has seized the development opportunities of the energy storage industry with a focus on portable and household energy storage products, where the capacity utilization rate is relatively flexible. We expect Greenway to present impressive growth prospects, benefiting from surging demand in the energy storage industry. We adopt the PE valuation method based on the valuation of comparable companies and assign 26x 2023E PE to derive a 2023E target market cap of Rmb7.8bn, corresponding to a target price of Rmb78, and initiate coverage with a "BUY" rating.

Abstract:

The domestic light power lithium battery leader

Greenway was established in 2010 and started with consumer LIBs as its main products. Subsequently, it launched a series of products such as electric bicycle batteries, mobile power supplies, and automotive jump starter batteries. Since 2016, the Company has adjusted its development strategy and focused on LIBs for light vehicles. In 2017, the Company ventured into the upstream LIB cell manufacturing field through the acquisition of K-Tech New Energy and has grown into a leading LIB producer for light-duty electric vehicles. In 2021, the Company took a market share of about 20% in the European electric bicycle lithium battery market, ranking at the forefront of the industry. Benefiting from the growing demand in the domestic and foreign electric two-wheeler market and the energy storage market, Greenway achieved operating revenue of Rmb1.431bn/Rmb2.217bn (+39.44%/+54.91% YoY) and attributable net profit (ANP) of Rmb123mn/126mn (+75.25%/+1.95% YoY) in 2020/2021, respectively. Affected by the global macroeconomic environment and the Covid-19 pandemic, coupled with factors such as price hikes of raw materials, the Company posted operating revenue and ANP of Rmb1.231bn/Rmb79mn (+20.51%/-8.00% YoY) in 1H22, respectively.

We see sustained high prosperity for electric two-wheelers and expect policy and consumption upgrades to drive industry growth.

From the perspective of driving factors, China's new national standard introduced in 2019 caps the mass of electric bicycles below 55kg. Lithium batteries have certain advantages over lead-acid batteries in terms of quality, performance, service life and average cost and are likely to gradually replace the latter. In terms of overseas markets, there is a strong cycling culture in Europe, and major countries have successively launched electric bicycle subsidy programs, with the amount ranging fromEURO50-1,000 per unit. The Biden administration of the US proposed the "Build Back Better Framework" in 2021, which provided a refundable tax credit of 30% of the price for the purchase of electric bicycles and electric motorcycles. Under the incentive of the subsidy policies, overseas electric bicycle sales are likely to continue to grow and maintain the momentum of sustainable development. With the catalysts of the pandemic and the upgrading of consumption around the world, the electrification process of the bicycle industry has accelerated. We predict that the global sales of electric bicycles are likely to reach 14.3mn units by 2025, implying a 19% CAGR in 2021-25, which will effectively drive the demand for LIBs required for electric bicycles to warrant broad market space in the future.

The energy storage industry has broad prospects, and the market demand for small- and medium-sized energy storage is strong.

According to different application scenarios, the energy storage market is mainly divided into three categories: energy storage on the power generation/grid/user side. Among them, small-/medium-sized energy storage such as portable energy storage and household energy storage are in strong demand. 1) Portable energy storage: On the one hand, under the normalized Covid-19 prevention and control, the enthusiasm for outdoor sports around the world is high, and outdoor power supply has become the mainstream of short-distance power consumption. On the other hand, uncertain factors such as the pandemic and power outages have pushed up the demand for backup in emergency scenarios, and the use of portable energy storage has increased. According to GGII data, the global shipment of portable energy storage devices reached 4.838mn units/1.3GWh in 2021. GGII predicts that the global shipment of portable energy storage devices will reach 31.1mn units/8.4GWh by 2026, corresponding to a 5-year CAGR of 45%. 2) Household energy storage: High electricity prices faced by residents in Europe and other regions, coupled with a drop in the price of electricity brought by feed-in tariff (FiT) subsidies, have highlighted the economics of the self-generation and self-consumption of photovoltaic energy storage. According to GGII, the newly installed capacity of global household storage in 2021 was about 6.4GWh, an increase of 156% YoY. GGII predicts that by 2025, the global installed capacity is likely to reach 100GWh, corresponding to a CAGR of 98.8% in 2021-25.

The light power leader is poised for rapid growth in its portable and household energy storage business.

Greenway is a domestic light power leader in the industry, and its main advantages are as follows. 1) Technology: Greenway's LIB pack for light vehicles adopts a 36V nominal voltage with a maximum capacity of 20Ah. The communication methods are more diverse, and the system is compatible and flexible. The waterproof level can reach IPX7, higher than that of the products of Bosch and BMZ. Greenway's products are in a leading position in terms of performance in the industry. 2) Customers: Greenway has high-quality customer resources. In the field of light electric vehicles, it has high-quality foreign customers such as Prophete in Germany, EUROSPORT in Romania, EB Component in Denmark, and Manufacture Francaise in France. It also provides products to domestic well-known electric two-wheeler companies such as Niu Technologies, Yadea, Aima, Xinri E-Vehicle. In addition, the Company has also successfully developed customers for electric off-road motorcycles such as Surron, as well as customers in the field of consumer electronics and energy storage products such as DJI and Xinbao Electrical Appliances in China and Goal Zero in the US. 3) Supply chain: Greenway's LIB pack products adopt a combination of self-produced and purchased cells. In 2017, Greenway tapped the upstream cell area by acquiring K-Tech New Energy. With its further investment in cell production and application and its migration to a large cell platform, we expect that the proportion of self-produced cells will rise further and improve its profitability. 4) Energy storage: Greenway's energy storage product sales mainly come from portable and household energy storage products. In 2019/20/21/1H22, the Company's energy storage business operating revenue was Rmb15mn/53mn/128mn/124mn (-12.1%/+265%/+140%/+136% YoY), accounting for 1.54%/3.94%/6.10%/10.1% of the operating revenue, respectively. The Company's portable energy storage products entered the US portable energy storage market on the back of its strong ties with the overseas customer Goal Zero. Greenway's household energy storage products boast excellent product power, and with a focus on pack manufacturing, the capacity utilization rate is relatively flexible. The household energy storage business is likely to maintain rapid growth, benefitting from surging demand overseas.

Potential risks: Less-than-expected demand for the light-duty electric two-wheelers; disappointing demand in the energy storage industry; intensified competition in the LIB sector; price hikes of raw materials; disappointing customer expansion; technical route changes.

Investment strategy: Greenway is a leading domestic light-duty power lithium battery producer with its business covering LIBs for light vehicles, energy storage batteries, consumer batteries and lithium-ion cells. In 2021, its overseas operating revenue accounted for about 52%, and its market share in the European electric bicycle lithium battery market reached 20%, ranking at the forefront of the industry. With the continuous prosperity of the electric two-wheeler industry at home and abroad as well as the boost from policies and consumption upgrades, we expect that Greenway will maintain steady growth in the field of LIBs for light vehicles. At the same time, Greenway has seized the development opportunities of the energy storage industry with a focus on portable and household energy storage products, where the capacity utilization rate is relatively flexible. We expect Greenway to present impressive growth prospects, benefiting from surging demand in the energy storage industry. We forecast the Company's ANP to be Rmb183mn/302mn/412mn in 2022E/23E/24E, corresponding to EPS forecasts of Rmb1.83/3.02/4.12 and 33x/20x/15x 2022E/23E/24E PE at the current price. We select Great Power Energy (300438.SZ), Eve Energy (300014.SZ), Sunwoda (300207.SZ), and Pylon Technologies (688063.SH) as comparable companies, which are the players along the LIB industry chain currently trading at an average 2023E PE of about 26x (based on Wind consensus estimates for the first three companies). We assign 26x 2023E PE to derive a 2023E target market cap of Rmb7.8bn, corresponding to a target price of Rmb78, and initiate coverage with a "BUY" rating.