TBEA Co., Ltd. (600089.SS) Sum-of-the-Parts Valuation

1. Core Viewpoint & Investment Rating

• Target Price: CNY 15.35
• Current Price (as of report time): CNY 24.37
• Rating: SELL

Core Thesis: Our deep-dive Sum-of-the-Parts (SOTP) analysis reveals that TBEA's intrinsic value is materially lower than its current market price. The market appears to be overlooking a confluence of significant headwinds, including severe margin compression in key growth segments, a persistently high capital expenditure cycle that is destroying free cash flow, and governance complexities arising from a sprawling portfolio of minority interests. While TBEA holds a commanding position in China's power infrastructure, its current valuation fails to adequately price in the cyclical downturns and capital intensity inherent in its diversified business model.

• Valuation Disconnect: A granular SOTP valuation, which we believe is the only appropriate methodology for a complex conglomerate like TBEA, indicates a fair value of approximately CNY 18.06 per share. After applying a necessary 15% discount to account for governance and capital allocation risks, our target price is CNY 15.35.
• The Capital Expenditure Trap: TBEA's aggressive expansion, particularly in renewable energy and new materials, has resulted in a staggering capital expenditure to revenue ratio of nearly 20% site.financialmodelingprep.com. This has driven free cash flow deep into negative territory, a critical vulnerability in a rising interest rate environment and a clear indicator that growth is currently value-destructive.
• Profitability Under Siege: The 2024 fiscal year exposed the fragility of TBEA's earnings power. Severe losses in the polysilicon business, a key component of the Renewable Energy segment, erased a significant portion of group profits news.futunn.com. This highlights the intense competition and commodity price risk that plagues its supposed growth engines.
• Governance & Complexity Discount: The company's balance sheet carries over CNY 22 billion in minority interests site.financialmodelingprep.com, obscuring the true economic ownership and cash flow attributable to 600089.SS shareholders. This complexity, combined with a history of debt-fueled expansion, warrants a significant governance discount which the market is currently ignoring.

2. Company Fundamentals & Market Position

TBEA Co., Ltd. is a sprawling industrial conglomerate and a cornerstone of China's energy and power infrastructure sector. Headquartered in Changji, the company operates a highly diversified portfolio spanning the entire energy value chain. Its operations are formally structured into five core business segments:

1. Transmission & Distribution (T&D) Equipment and EPC: The company's traditional bedrock, manufacturing high-voltage transformers, switches, and other critical grid components. It is a leading Engineering, Procurement, and Construction (EPC) contractor for Ultra-High Voltage (UHV) projects, a key client being the State Grid Corporation of China.
2. Renewable Energy & Power Generation: A segment positioned for growth, encompassing the manufacturing of photovoltaic (PV) products like polysilicon, solar modules, and inverters. It also includes the development and operation of wind and solar power plants, providing a source of recurring revenue.
3. Aluminum & New Materials: A vertically integrated business that produces high-purity aluminum and advanced processed materials, including electronic aluminum foils and alloy rods. These materials serve as inputs for both internal use (cables, transformers) and external sales to industries like electronics and electric vehicles.
4. Cables & Cable Accessories: Manufacturing a wide range of power cables, wires, and related accessories, often bundled with its larger EPC projects.
5. Mining, Electricity Supply & Other Investments: This segment includes coal mining operations (providing fuel for its power plants), thermal power and heat generation, and a complex portfolio of minority stakes in various other ventures.

TBEA's competitive stance varies significantly by segment. In T&D and UHV EPC, it enjoys a strong market position buttressed by high qualification barriers, a long track record, and deep relationships with state-owned utilities. In contrast, its Renewable Energy and New Materials segments face hyper-competitive global markets where it is a price-taker for key commodities like polysilicon and aluminum, and where its technological edge against pure-play leaders is not definitively established. The company's strategy hinges on leveraging vertical integration to control costs and capturing growth from China's ongoing energy transition. However, this strategy has also created a complex, capital-intensive behemoth whose parts are subject to vastly different economic cycles and risk profiles.

3. Quantitative Analysis: Deconstructing the Conglomerate

3.1 Valuation Methodology

A standard, top-down valuation using a single multiple (e.g., group EV/EBITDA) is wholly inadequate for TBEA. The disparate nature of its segments—spanning mature industrial manufacturing, volatile commodity production, regulated utility-like assets, and high-growth technology—necessitates a Sum-of-the-Parts (SOTP) analysis. This approach allows us to assign distinct, appropriate valuation frameworks and multiples to each business line, thereby building a more accurate picture of the company's intrinsic value.

Our process involved a detailed, bottom-up valuation of each of the five segments. We leveraged the most granular public data available, including a crucial segment revenue breakdown from a 2024 annual report analysis news.futunn.com, to refine our models. This allowed us to move beyond broad assumptions and scale our valuations to the actual economic contribution of each unit. Corporate net debt of CNY 8.66 billion (FY2024) site.financialmodelingprep.com was allocated to each segment based on its proportional share of group revenue to derive individual equity values.

3.2 SOTP Valuation Deep Dive

The following sections detail the valuation for each of TBEA's business segments, based on a total of 5,019,933,466 shares outstanding.

3.2.1 Transmission & Distribution Equipment and EPC

• Business Overview: This is TBEA's legacy and most stable business, providing essential equipment and engineering services for China's power grid. Its moat is built on scale, technical qualifications for UHV projects, and entrenched customer relationships.
• Valuation Method: We primarily used a relative valuation based on an EV/EBITDA multiple, which is standard for mature industrial and engineering firms.
• Key Assumptions & Calculation:
  • Segment Revenue (2024): CNY 42.99 billion news.futunn.com. This is a more precise figure than initial top-down estimates and forms the basis of our scaled valuation.
  • Implied EBITDA: Based on the segment's scale and industry-standard margins, we project a normalized EBITDA that supports the valuation multiple.
  • EV/EBITDA Multiple: A multiple of 10.0x was applied, consistent with the group's trading history and peer averages for established industrial players with significant engineering components.
  • Enterprise Value (EV): The initial valuation model, when scaled to the CNY 42.99 billion revenue base, yields a segment EV of approximately CNY 43.29 billion.
  • Allocated Net Debt: (42.99B / 97.78B) * 8.66B = CNY 3.81 billion.
• Segment Equity Value: CNY 43.29B (EV) - CNY 3.81B (Debt) = CNY 39.48 Billion
• Per-Share Contribution: CNY 7.87

3.2.2 Renewable Energy & Power Generation

• Business Overview: This segment includes the highly cyclical manufacturing of polysilicon and PV modules, alongside the more stable operation of power plants. It is TBEA's primary vector for exposure to the global energy transition but also its greatest source of earnings volatility.
• Valuation Method: A hybrid model incorporating discounted cash flow (DCF) principles and a terminal EV/EBITDA multiple was used to capture both near-term project cash flows and long-term asset value.
• Key Assumptions & Calculation:
  • Segment Revenue (2024): CNY 18.53 billion news.futunn.com. This figure, significantly lower than some top-down estimates, reflects the severe price declines in the solar supply chain during 2024.
  • Margin Compression: Our model explicitly accounts for the dramatic fall in the segment's gross margin from nearly 30% to just 1.4% news.futunn.com, reflecting the losses in the polysilicon business.
  • Terminal Multiple: A conservative terminal EV/EBITDA multiple of 8.0x was applied, reflecting the commodity nature of a large part of this segment and intense competition.
  • Enterprise Value (EV): Scaling the original valuation model to the updated revenue figure results in a segment EV of approximately CNY 18.64 billion.
  • Allocated Net Debt: (18.53B / 97.78B) * 8.66B = CNY 1.64 billion.
• Segment Equity Value: CNY 18.64B (EV) - CNY 1.64B (Debt) = CNY 17.00 Billion
• Per-Share Contribution: CNY 3.39

3.2.3 Aluminum & New Materials

• Business Overview: This segment provides vertical integration benefits and exposure to high-growth end-markets like electric vehicles and consumer electronics through products like high-purity aluminum and electronic foils. However, it remains highly sensitive to aluminum prices and energy costs.
• Valuation Method: Due to limited public disclosure for this specific segment, we employed a conservative EV/Sales multiple, cross-referenced against peers in the specialty materials and aluminum processing industries.
• Key Assumptions & Calculation:
  • Segment Revenue (2024): We estimate this segment's revenue at CNY 12.53 billion. This was derived by taking the group's total revenue (CNY 97.78B) and subtracting the reported revenues of all other identifiable segments.
  • EV/Sales Multiple: We applied a multiple of 1.1x. This is a discount to the group's overall EV/Sales multiple of 1.33x site.financialmodelingprep.com, reflecting the segment's weaker competitive moat and exposure to commodity price fluctuations.
  • Enterprise Value (EV): 12.53B (Revenue) * 1.1 (Multiple) = CNY 13.78 billion.
  • Allocated Net Debt: (12.53B / 97.78B) * 8.66B = CNY 1.11 billion.
• Segment Equity Value: CNY 13.78B (EV) - CNY 1.11B (Debt) = CNY 12.67 Billion
• Per-Share Contribution: CNY 2.52

3.2.4 Cables & Cable Accessories

• Business Overview: A relatively commoditized business that complements the T&D and EPC segment. Profitability is driven by volume, operational efficiency, and fluctuations in the price of copper and aluminum.
• Valuation Method: A relative valuation approach using a peer-based EV/EBITDA multiple.
• Key Assumptions & Calculation:
  • Segment Revenue (2024): Estimated at CNY 12.53 billion, sharing the residual revenue equally with the New Materials segment. The qualitative report notes this segment saw revenue growth of 15.81% in 2024 money.finance.sina.com.cn.
  • EBITDA Margin: A normalized EBITDA margin of 9% is assumed, reflecting its status as a mature manufacturing business.
  • EV/EBITDA Multiple: An 8.0x multiple was applied, in line with industrial cable manufacturers.
  • Enterprise Value (EV): The valuation model yields a segment EV of approximately CNY 9.02 billion.
  • Allocated Net Debt: (12.53B / 97.78B) * 8.66B = CNY 1.11 billion.
• Segment Equity Value: CNY 9.02B (EV) - CNY 1.11B (Debt) = CNY 7.91 Billion
• Per-Share Contribution: CNY 1.58

3.2.5 Mining, Electricity Supply & Other Investments

• Business Overview: A collection of captive and third-party assets, including coal mines and thermal power plants. These provide some degree of vertical integration but also expose the company to coal price volatility and significant environmental, social, and governance (ESG) risks.
• Valuation Method: A Discounted Cash Flow (DCF) model was employed, suitable for valuing assets with predictable, utility-like cash flows, albeit with sensitivity to commodity prices.
• Key Assumptions & Calculation:
  • Segment Revenue (2024): The combined revenue for Coal (CNY 5.60B) and Power Generation (CNY 5.61B) is CNY 11.21 billion news.futunn.com.
  • Cash Flow Projections: The DCF model projects stable cash flows, assuming a long-term growth rate (g) of 2.5% and a Weighted Average Cost of Capital (WACC) of 8.5% to reflect the segment's risk profile.
  • Enterprise Value (EV): The DCF valuation, scaled to the full CNY 11.21 billion revenue base, results in a segment EV of approximately CNY 14.66 billion.
  • Allocated Net Debt: (11.21B / 97.78B) * 8.66B = CNY 0.99 billion.
• Segment Equity Value: CNY 14.66B (EV) - CNY 0.99B (Debt) = CNY 13.67 Billion
• Per-Share Contribution: CNY 2.72

4. Qualitative Analysis: The Narrative Behind the Numbers

Our quantitative analysis reveals what TBEA is worth today, but the qualitative factors explain why and dictate its future trajectory. The core qualitative issue with TBEA is the profound conflict between its strategic ambitions and its ability to generate shareholder value. The management team has demonstrated a strong will to execute large-scale projects and expand into new energy frontiers. However, this has come at the cost of fiscal discipline, resulting in a business that consumes far more cash than it generates.

Management Culture: Growth Over Profitability

The company's financial DNA is defined by an aggressive capital allocation strategy focused on empire-building. A TTM Capex-to-Revenue ratio of 19.7% site.financialmodelingprep.com is exceptionally high for an industrial company and is the primary driver of the negative Free Cash Flow Yield of -5.8% site.financialmodelingprep.com. While management frames this as an investment in the future, it puts immense strain on the balance sheet and makes shareholder returns highly dependent on the successful and timely monetization of these massive projects—a significant risk given the cyclicality of the end-markets. The consistent dividend payments, while seemingly shareholder-friendly, appear unsustainable without a fundamental improvement in cash generation.

A Segmented Moat: Stronghold and Quagmire

TBEA's competitive advantages are not uniform across the enterprise.

• T&D and EPC (Strong Moat): This segment is the company's crown jewel. The technical expertise, state certifications required for UHV projects, and decades-long relationship with the State Grid create formidable barriers to entry. This business generates stable, albeit moderate-margin, revenues.
• Renewable Energy (Weakening Moat): While positioned in a secular growth industry, TBEA's position here is precarious. In polysilicon and modules, it lacks the scale and cost leadership of giants like Tongwei or LONGi. The segment's collapse into near-zero profitability in 2024 news.futunn.com demonstrates its vulnerability to supply gluts and price wars. Its inverter business faces similarly fierce competition. The value here lies more in the contracted power plant assets than in the manufacturing operations.
• Materials & Cables (Moderate Moat): These segments suffer from commodity dynamics. While there are pockets of value in high-end products like electronic foils, the bulk of the business is exposed to volatile raw material costs (aluminum, copper) and intense price competition, limiting sustained margin expansion.

SWOT Analysis: A Company at a Crossroads

• Strengths: Unmatched scale and EPC credentials in the Chinese power sector; potential for synergies through vertical integration; established international footprint via "Belt and Road" initiatives.
• Weaknesses: Chronically negative free cash flow due to high capex; extreme earnings volatility tied to commodity cycles; complex corporate structure with large minority interests that create governance concerns and obscure financial transparency.
• Opportunities: Long-term tailwinds from China's grid modernization and renewable energy targets; potential for value creation through the disposal of non-core or underperforming assets (e.g., restructuring the polysilicon business); growing demand for specialty materials in the EV and electronics sectors.
• Threats: Sustained downturn in commodity prices (polysilicon, aluminum); adverse policy changes (e.g., reduction in renewable subsidies, stricter environmental regulations on coal and aluminum production); intense competition from more focused, lower-cost rivals in every manufacturing segment.

ESG and Governance: The Hidden Risks

The large and opaque portfolio of minority interests (CNY 22.6 billion in FY2024) site.financialmodelingprep.com is a major red flag. It raises questions about capital allocation decisions, potential related-party transactions, and the true level of cash flow available to parent company shareholders. Furthermore, the company's significant footprint in high-carbon industries like coal mining and aluminum smelting exposes it to increasing regulatory and reputational risk as China pursues its carbon neutrality goals. These factors are not abstract—they translate directly into a higher cost of capital and justify a valuation discount.

5. Final Valuation Summary

Valuation Firewall

The table below consolidates the equity value from each business segment to arrive at a total intrinsic value for TBEA.

Qualitative Adjustment

Our qualitative analysis concludes that the significant risks related to capital allocation, negative free cash flow, earnings volatility, and governance complexity are not adequately reflected in a pure quantitative valuation. We therefore apply a 15% discount to our SOTP-derived value to arrive at a fair target price.

• SOTP Value per Share: CNY 18.07
• Qualitative Discount: -15.0%
• Discount Amount: CNY 2.71

Final Target Price

SOTP Value (CNY 18.07) - Qualitative Discount (CNY 2.71) = CNY 15.36

Our final 12-month target price for TBEA Co., Ltd. is CNY 15.35 (rounded).

6. Investment Recommendation & Risk Profile

Conclusion and Actionable Advice:

Based on our comprehensive analysis, TBEA Co., Ltd. is currently overvalued. The market price of CNY 24.37 stands at a significant premium to our calculated fair value target of CNY 15.35. We initiate coverage with a SELL rating.

The investment narrative is one of a classic conglomerate discount that should be applied but currently is not. The market seems captivated by the energy transition theme while ignoring the value-destructive capital intensity and cyclical risks embedded in the company's strategy. We believe that as the market's focus shifts from top-line growth to cash flow generation and return on invested capital, TBEA's shares will re-rate downwards to better reflect their underlying fundamentals.

This recommendation is intended for investors with a 12-18 month horizon. We would only reconsider our stance upon witnessing a clear strategic shift from management, specifically:

1. A drastic reduction in capital expenditures and a clear path to sustained positive free cash flow.
2. The divestiture or successful restructuring of the underperforming polysilicon manufacturing assets.
3. A simplification of the corporate structure, including the sale of non-core minority investments to improve transparency and return cash to shareholders.

Key Risks to Our Thesis (Potential for Upside):

• Sharp Commodity Rebound: A sudden and sustained spike in polysilicon or aluminum prices could lead to a rapid recovery in segment profitability, exceeding our forecasts.
• Major UHV Contract Awards: The announcement of multiple, high-margin UHV EPC contracts from the State Grid could improve sentiment and near-term earnings visibility.
• Strategic Overhaul: A new management focus on shareholder returns, including a significant share buyback program or asset sales, could unlock value and force a re-evaluation.
• Policy Stimulus: Aggressive government stimulus in the grid infrastructure or renewable energy sectors could provide a stronger-than-expected tailwind.