The revenue from its core lead-acid battery business has been declining for consecutive years.

When "plummeting revenue" and "profit growth" appear simultaneously in a financial report, it often creates a sense of dissonance. Recently, the Hong Kong-listed company TIANNENG POWER (0819.HK) released its 2025 annual report. The data shows that the company's annual operating revenue was approximately 53.799 billion yuan, a significant decrease of 29.83% year-on-year; however, its net profit attributable to shareholders grew against the trend by 25.77%, reaching 1.437 billion yuan.

This phenomenon of "profit growth without revenue growth" stems from an active "financial surgery" - the divestiture of inefficient trading operations. After removing this "water content," TIANNENG POWER appears "healthier," but underlying concerns deep within its business structure have also surfaced.

As the leader in lead-acid batteries, this established giant is facing a significant test, grappling with the transition between old and new growth drivers, new businesses that are "losing money to build presence," and the long journey ahead in overseas markets.

01 Aggressive Financial "Water Squeezing" TIANNENG POWER was founded in 1986 and listed on the main board of the Hong Kong Stock Exchange in 2007. The company has built a business system based on lead-acid batteries, developing systematically across multiple technological pathways. Its business covers research and development, manufacturing, sales, recycling, regeneration, and related services.

As mentioned, TIANNENG POWER experienced "profit growth without revenue growth" in 2025, with operating revenue sharply decreasing by 29.83%. This represents a reduction of 22.878 billion yuan compared to the previous year, which is not a small amount and marks the largest revenue contraction for the company in recent years.

TIANNENG POWER divides its business into two main segments: "Manufacturing Business" and "Trading Business." In 2024 and prior years, to scale up its operations, TIANNENG POWER engaged in large-scale raw material trading. Data shows that trading business revenue was 32.628 billion yuan, 36.494 billion yuan, and 33.11 billion yuan in 2022, 2023, and 2024 respectively, accounting for over 40% of operating revenue.

However, the gross profit margin of this trading business was extremely low, even negative in 2023 and 2024 at -0.21% and -0.07% respectively. While it generated hundreds of billions in turnover, it failed to provide high-quality cash flow and even tied up significant working capital.

In 2025, management implemented a contraction strategy focused on "concentrating on the core business." The annual report shows that the company's trading business revenue plummeted from 33.11 billion yuan in 2024 to 5.881 billion yuan in 2025, a drop of over 82%. The proportion of trading business revenue in 2025 also rapidly shrank to 10.9%.

This focus on the core business yielded some results. In 2025, TIANNENG POWER's manufacturing business achieved revenue of 47.918 billion yuan, a steady increase of 10.01% year-on-year. Unfortunately, this was insufficient to fill the massive gap left by the trading business. After losing the turnover support from trading, the company's growth engine now rests entirely on its physical manufacturing operations.

Even breaking down the manufacturing business into traditional lead-acid batteries and new businesses presents an unfavorable picture.

02 Declining Revenue from the "Ballast" Lead-Acid Battery Business Within TIANNENG POWER's manufacturing business, lead-acid battery products serve as the revenue "ballast," generating 39.766 billion yuan in 2025, accounting for approximately 74% of total revenue. Although this traditional business has a large volume, it is showing signs of growth fatigue.

Data shows that lead-acid battery product revenue was 39.854 billion yuan in 2024. In 2025, it not only failed to grow but experienced a slight decline. Looking at 2023 data makes the trend more evident; the revenue for this business was 42.423 billion yuan in 2023. This indicates that the business's revenue scale has declined for two consecutive years.

The market is not without positive factors. The "New National Standard" for electric bicycles implemented in 2025 increased the maximum vehicle weight limit from 55 kg to 63 kg, which actually benefits lead-acid batteries that have lower energy density but are safer. Additionally, "replacement" policies are stimulating demand from the existing stock.

However, despite these benefits, revenue decreased instead of increasing, revealing a deeper crisis.

Firstly, the market has entered a phase of competition for existing market share. Although the inventory of electric two-wheelers is high, the market is already saturated, and demand is steadily declining. While the 2025 policy implementation brought short-term stimulus, this is highly dependent on policy support. Once subsidy policies phase out or the window for standard transition passes, market demand is highly susceptible to a "cliff-like" drop.

Secondly, the "Sword of Damocles" of raw material prices hangs overhead. TIANNENG POWER mentioned in its annual report that since 2023, significant changes in the macroeconomic environment and industry have led to, among other consequences, fluctuations in raw material prices. This even caused the company to abandon its plan for TIANNENG New Materials to achieve a qualified listing by the end of 2026. In response, TIANNENG POWER is dynamically adjusting its procurement and inventory strategies and promoting technological cost reductions.

The heaviest cost component for lead-acid batteries comes from lead. As a commodity, lead prices are beyond manufacturers' control, and fluctuations are inevitable. Observing the primary lead futures contract on the Shanghai Futures Exchange reveals that the sharp surge in the first half of 2024, followed by a steep drop in the third quarter of that year, posed significant cost control challenges for companies within the industrial chain.

Therefore, under these various pressures, can TIANNENG POWER's lead-acid battery "ballast" hold firm?

03 The Dilemma of the "Second Curve" Lithium Battery Business To break through its ceiling, TIANNENG POWER once invested tens of billions betting on lithium batteries, attempting to establish it as a "second growth curve." It is reported that the company has now built vertical capabilities ranging from battery cells to system integration, energy storage power station construction, delivery, and operation and maintenance.

The 2025 data is indeed impressive. The company's lithium battery business achieved revenue of 1.541 billion yuan, a year-on-year increase of over 222%, with its revenue share reaching 2.9%. Particularly amid the energy storage trend, TIANNENG POWER successfully penetrated some markets.

However, high growth did not translate into high returns. The 2023 and 2024 annual reports both contained phrases like "declining gross margin for lithium batteries." Although the gross margin for the lithium battery sub-business increased in 2025, management recognized an impairment loss on some lithium battery production equipment, amounting to a significant 71.69 million yuan, which is a concerning signal. "As intensified competition in the lithium-ion battery market led to decreased demand and reduced production, management identified indicators of impairment," TIANNENG POWER stated.

Beyond lithium batteries, TIANNENG POWER also emphasized its布局 in solid-state batteries, sodium-ion batteries, and hydrogen fuel cells in its annual report.

Undeniably, TIANNENG does possess technical reserves in these areas. For instance, its solid-state batteries have begun addressing market demands, with related products entering the sampling and small-batch trial sales stage; sodium-ion batteries have been validated in the automotive start-stop field; hydrogen fuel cells have established a fully self-developed and industrialized system covering membrane electrodes, bipolar plates, stacks, to fuel cell systems. In the capital market, these concepts are highly imaginative.

But the journey from "samples" to "mass production" is separated by a vast chasm involving process stability, cost control, and industrial chain support. According to general market consensus, the full industrialization of solid-state batteries still requires 5-7 years. This also means that the money TIANNENG POWER is currently investing in R&D (R&D expenditure was 2.013 billion yuan in 2025) is unlikely to be converted into actual revenue and profit in the short term.

For investors, while these frontier stories sound appealing, until they are truly reflected in the profit and loss statement, they remain merely "stories." Whether the company has sufficient financial strength to support the long-term cash burn of these cutting-edge technologies is a significant question mark.

04 Hidden Issues Beneath Improved Cash Flow Reading through the annual report, the most encouraging aspect is arguably the cash flow: net cash flow from operating activities was 5.191 billion yuan, an increase of 4.642 billion yuan compared to the same period last year, surging by 845%.

So, where did the money come from? Besides increased profit, it primarily came from two sources: a decrease in inventory and an increase in accounts payable.

Data shows that inventory in 2025 was 7.696 billion yuan, a decrease of 588 million yuan from 2024; accounts payable were 16.556 billion yuan, an increase of 3.263 billion yuan from 2024. Simply put, in 2025, TIANNENG POWER "squeezed" out substantial cash flow by significantly reducing inventory while, to an even greater extent, utilizing funds from upstream suppliers (by extending payment terms).

While this can beautify the financial statements, the sustainability of this improvement depends entirely on how long the company can continue to leverage its bargaining power over upstream suppliers.

Furthermore, TIANNENG POWER remains highly reliant on "external boosts." In 2025, government grants and VAT additional deductions included in profit or loss still amounted to a significant 1.292 billion yuan; simultaneously, the company's interest income was 273 million yuan, both classified under other income. However, TIANNENG POWER's total other income in 2024 was as high as 2.101 billion yuan, which decreased to 1.639 billion yuan in 2025, a reduction of approximately 22%, partly due to the phase-out of government subsidies.

In the future, as government subsidies continue to phase out further, how will the company respond?