2017 earnings beat expectation
　　Tianneng Power International announced 2017 results: revenue wasRmb26.9bn, up 25.2% YoY; net profit was Rmb 11.78bn, up 37.3% YoY,or Rmb1.02per share. The company proposed a final dividend ofHK$0.37/share, representing a payout ratio of 30%Trends to watch
　　Lead-acid batteries continued to lead. Revenue from e-bike &e-tricycle batteries totaled Rmb21.71bn （+26.83% YoY）。 Revenue fromspecial purpose batteries was Rmb2.05bn （+5.10% YoY）， providingstable cash flow.
　　Lithium batteries boost revenue. Revenue from lithium batteriestotaled Rmb1.22bn （+98.68%）， motivated by the sharp increase indomestic EV car market sales （+51% YoY）。 The new 3GWh lithiumbattery facility has gone into production, and Tianneng hassuccessfully broadened its client base to various well-knownnew-energy auto makers in China, such as Chery, Kandi, Lifan Motor,Zotye, Brilliance, and Nanjing Golden Dragon Bus. These shouldprovide robust revenue support in the future.
　　Recycling business kept strong growth. In 2017 the recyclingbusiness contributed Rmb1.49bn to revenue （+56.24% YoY），constituting 5.55% of the gross revenue. Good recycling businessperformance eased the effect of lead price fluctuation. The totalproduction capacity of the battery recycling base in Zhejiang andHenan can reach 0.4mn tons/yr.
　　Earnings forecast
　　We lift our 2018 earnings forecast by 3% to Rmb1,444mn andforecast 2019 earnings at Rmb1,805mn.
　　Valuation and recommendation
　　The stock is trading at 4.7x 2018e P/E. We reiterate our BUY ratingand raise our TP by 5% to HK$10/sh, representing 6.5x 2018e P/E.
　　Risks
　　Raw material prices more volatile than expected