1H17 earnings in line with expectation
　　Tianneng Power International announced its 1H17results: revenue was Rmb11.36bn, up 24.8% YoY; net profitwas Rmb439mn, up 10.2% YoY to Rmb0.39/share.
　　Trends to watch
　　Solid lead acid battery sales. In 1H17, revenues from e-bikeand e-tricycle batteries were Rmb7.1bn and Rmb2.1bn, up24.6% and 28.3% YoY, mainly on higher ASP. Blended grossmargin was 12.7%, down 1.8ppt YoY, mainly due to costlier lead.
　　Lithium battery sales beat expectations. 1H17 lithiumbattery sales were Rmb455mn, up 57.5% YoY. Tianneng’s newlyestablished lithium battery capacity of 3GWh has commencedproduction in phases. In addition, Tianneng has successfullybroadened its client base to various well-known new-energy automakers in China, such as Chery, Kandi, Lifan Motor, Zotye,Brilliance, and Nanjing Golden Dragon Bus. We expect lithiumbattery sales to sustain high growth in 2H17.
　　Recycling business to benefit from rising lead prices in3Q. 1H recycling revenue came in at Rmb548mn, up 34%. Witha capacity of 400k tons, we believe Tianneng’s recycling businessis well-positioned to benefit from rising lead prices in 3Q17.
　　Earnings forecast
　　To reflect a lower GPM in 1H17, we lower our 2017/18earnings forecasts by 2.6%/2.0% to
　　Rmb10.63bn/14.07bn.
　　Valuation and recommendation
　　The stock is trading at 5.8x 2017e P/E, 1sd below the average ofthe past 3-year trading range. We maintain our BUY rating and TP of HK$9.50 （6.5x 2018e P/E）。
　　Risks
　　Raw material prices more volatile than expected