Company Profile ZHEJIANG NARADA POWER SOURCE Co., Ltd. is a China-based company principally engaged in the construction of data centers and Internet infrastructure, as well as the provision of power systems and power solutions. The Company operates its business through the provision of motive power, reserve power and specialty batteries with a range of integrated services and systems. The Company’s main products include valve-regulated sealed batteries, lithium-ion batteries and recycled lead products, among others. The Company distributes its products in domestic market and to

overseas markets. （Source: Reuters）

Investment Highlights

A veteran of energy storage focuses on energy storage and split off part of its lead-acid batteries.

ZHEJIANG NARADA POWER SOURCE Co., Ltd. （“NARADA” / the company） whose clients are mainly operators and data centers, started from industrial storage in 1994.

It snatched the third spot in market share of communication backup batteries in China and ranked the first in overseas market share among Chinese manufacturers before it floated its securities.

At present, the company mainly focuses on energy storage business.

It transferred a respective 21% stake in two subsidiaries to Yadea, its largest clients, at the end of 2021. After the transaction, the company takes a 30% stake in the above two subsidiaries, no longer a controlling shareholder. It means the two subsidiaries will not be consolidated into the company’s statements.

In a bid to accelerate business roll-outs in lithium, the company actively　　promotes production capacity building and channel expansion.

It focuses on energy storage business, including new power energy storage, industrial energy storage, household energy storage, and its production capacity of lithium is expected to reach 5.2GWh/ 10.2GWh/ 13.2GWh in 2021/2022/2023. The company has announced the order of power energy storage reached 1.3GWh and order of industrial energy storage achieved CNY 3.9 billion, showing abundant demand in the downstream.

It has released the production capacity of lithium recycling and its integration business landscape helps boost its profits The company’s lithium battery recycling project with production capacity reaching 25,000 tons has completed and been put into operation, making the entire industrial chain of lithium realize a closed loop and upgrading. This helps ensure raw materials supply and efficiently boost the company’s profits.

Earnings forecast and investment recommendation With the split-off of its lead-acid battery, NARADA focuses on its energy storage business. And as its lithium recycling business helps boost its profits, we estimate its net income attributable to shareholders at CNY 676 million / CNY 884 million/ CNY 1.38 billion for 2022/2023/ 2024, implying a P/E ratio to 30.8x/ 23.5x/ 15.1x, based on the closing price on August 12th of 2022. We give it an “Outperform” rating with the first coverage.

Potential risks cyclical fluctuations in the downstream; intensified competition; price swing of raw materials; less-than-expected overseas demand; slower-than-expected progress of lithium recycling business