Hall of Shame

Consumer Discretionary

Tianneng Power International (819 HK)

Year: 2020

Tianneng Power International Limited is a Hong Kong-based investment holding company principally engaged in the manufacture and sales of lead-acid batteries and battery-related accessories. The main products of the Company include lead-acid motive battery products, such as electrical bicycle batteries, electrical tricycle batteries and pure electric car batteries. Its products also include recycled lead products, lithium battery products, as well as new energy storage battery products for wind and solar power generation systems. The Company operates its businesses in China.

It started trading on the Hong Kong Exchange (HKEx) in June 2007, raising HK$576M in its IPO.  A share offering in October 2009 raised HK$387.80M.

April 22, 2016 An article was published on Capital Week, a mainland Chinese media; "Do Tianneng Power’s surprising results have enough power?".  It casted doubts on Tianneng Power swinging into profit of over RMB600 million in 2015.

April 27, 2016 Tianneng Power issues an Announcement; "Clarification of certain information contained in a media report" in response to the report.

May 27, 2020 Cloudy Thunder Research (CTR) released a report "Tianneng Power (819.HK): A Blatant Fraud and Dying Business".  In its report, it listed it's core findings as:-

  1. Overstatement of profits by understating rebates to distributors. It believed that Tianneng had understated approximately RMB600-700 million in accrued rebates liabilities to distributors, representing an understatement of approximately 60% in 2019.
  2. Overstatement of Average Selling Price (ASP) and Sales Volume. It estimated Tianneng’s ASP in direct sales, excluding large batteries, in 2018, should be no more than RMB109 to RMB111, while the Company reported an ASP of RMB117. This would result in an overstatement in revenue and profits of RMB200-300 million in 2018.
  3. Round-trip dividends distribution that potentially washed fake cash balance. In 2018 and 2019, Tianneng Battery declared RMB1.8 billion more in dividends to its holding companies than what Tianneng Power paid to its Hong Kong shareholders. Evidence clearly showed that RMB535 million of dividends retained by Tianneng Battery’s holding companies in 2018 flew back to Tianneng Battery.
  4. The Company’s pending application to spin-off and list Tianneng Battery on Shanghai's STAR Board. CTR suspected that the Remaining Group transferred its 2018's profitability to the STAR Board applicant for the purpose of boosting valuation at STAR Board.
  5. Tianneng told the Shanghai Stock Exchange that its recycling business is a manufacturing business. CTR believed that almost 80% of the Recycling Business was essentially a trading business in which used batteries were processed by outside recycling factories.
  6. Tianneng Power concealed its related party transactions with Shuyang Xintian, Zhejiang Changtong and Changxing Changshun for about a decade.
  7. Despite fat cash balances and claimed strong cash flows, Tianneng’s borrowings had been increasing significantly.
  8. Accounting Red Flags including fabricated prepayments, expenditure on CAPEX on PP&E and inventory turnover days.
  9. Auditor changed three days prior to the submission of STAR Board listing application for Tianneng Battery.

In conclusion CTR suspected the Company was dangerously levered, and may fail to pay off its debt in the near future. It also believed that the company was a fraud and that its stock value was worth close to zero.

May 27, 2020 Tianneng Power issued a Clarification announcement saying that the allegations in the report were untrue and that further clarification would be made by the Company in due course.
 


Capital Week: Do Tianneng Power’s surprising results have enough power? (translated) 22 Apr 2016 (Original)
Tianneng Power: Clarification of certain information contained in a media report, 27 Apr 2016
Cloudy Thunder Research:
 Tianneng Power (819.HK): A Blatant Fraud and Dying Business, 27 May 2020
Bloomberg: China Battery Maker Suspended as Short Seller Questions Profits, 27 May 2020
Tianneng Power: Clarification, 27 May 2020
Tianneng Power: Annual Report 2019
Tianneng Power: Annual Report 2018


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