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Text | Lao Yuer Editor | Yang Xuran
Source: Juchao WAVE
The third largest new energy battery manufacturer in China, the first show of innovation aviation port stocks, immediately encountered three consecutive hits.
The first blow: China Innovation Airlines obtained 3,245 valid applications during the public offering in Hong Kong, and subscribed for a total of 2,819,200 Hong Kong offering shares, which is only 21% of the total 13,292,300 H shares. In other words, nearly 80% of the public offering shares were not subscribed.
The second blow: On October 6, China Innovation Airlines suffered a break after its listing, falling by more than 2% at one point, and the lowest price was HK$37.15. As of the close, the share price of China Innovation Airlines closed flat to the issue price of HK$38 per share.
The third blow: On October 7th and 8th, China Innovation Airlines did not rebound at all, but fell 3.55% and 5.59%, and quickly broke.
In fact, it is not surprising that Hong Kong stock IPOs have broken frequently this year. For example, in July, 14 of the 16 new stocks listed on Hong Kong stocks fell below the issue price, with a breakout rate of 87% and an average drop of 6.4% for each new stock.
However, China Innovation Airlines suffered a break, which was somewhat unexpected.
Not only because there are many well-known big names such as Tianqi Lithium, Xiaopeng Motors, Vivo Mobile (VIVO) among the cornerstone investors who “support” China Chuanghang, but more importantly, the “domestic” above China Chuanghang’s head. The title of “the third largest power battery manufacturer” is a thoroughly strategic emerging industry, a popular sector, and a high-growth enterprise, which is highly anticipated.
However, the high valuation set at the IPO, the industry game that must be faced as the industry’s third-largest, and the capital market’s increasing sensitivity to risks and lower and lower tolerance all determine China Innovation Aviation. The journey in the capital market will not be too smooth, and a break may be just a “starter”.
High expectations under the prestige
Under the current situation of the global capital market, this valuation is slightly “inflated”.
Encountering a black door does not mean that China Innovation Airlines is not good enough. On the contrary, this old-fashioned company in the industry also once had a glorious “blowable history”.
AVIC, formerly known as AVIC Lithium Battery, was established in 2007 and is one of the earliest domestic enterprises engaged in the research and development and production of new energy batteries.
At first, China Innovation Aviation mainly developed lithium iron phosphate batteries in the field of passenger cars, and has maintained rapid growth in the next 10 years. Until 2018, China Innovation Airlines turned its bow and began to attack the field of passenger car power batteries.
According to the prospectus of China Innovation Airlines, in the three years from 2019 to 2021, the operating income of China Innovation Airlines soared from 1.734 billion yuan to 6.817 billion yuan. %, the cumulative revenue in three years exceeded 10 billion yuan; the company’s power battery product sales increased from 1.62GWh to 9.31GWh, with a compound annual growth rate of 139.7%; in 2021, the installed capacity of China’s innovative power battery reached 9.05GWh, ranking first in China third.
If you consider that BYD’s batteries are mainly self-supplied, China Innovation Airlines is actually the second largest new energy battery company currently facing the market. With this performance as an endorsement, the issue price of China Innovation Airlines was HK$38, corresponding to a value of HK$67.347 billion.
However, under the current situation of strong winds and waves in the global capital market, this valuation is slightly “inflated”.
For example, CATL’s revenue in 2021 will be as high as 130.356 billion yuan, nearly 20 times that of China Innovation Airlines, and its net profit will be 15.93 billion yuan, 141 times that of China Innovation Airlines. In 2021, CATL will see revenue and net profit growth of 159% and 185%.
On August 23, 2022, CATL released its 2022 semi-annual report. In the first half of 2022, the company’s revenue was 112.97 billion yuan, a year-on-year increase of 156.3%, and its net profit was 8.17 billion yuan, a year-on-year increase of 82.2%.
Even under such a performance that leads the industry, the market value of CATL still fell by more than 30% this year, and it is regrettable to withdraw from the “trillion club”. In contrast to the Ningde era, if the market value of China Innovation Airlines is proportionally enlarged, it has already surpassed Ning Wang by a lot.
If the comparison with the Ningde era is not enough to explain the problem, you can also compare with other power battery manufacturers.
Guoxuan Hi-Tech is larger than China Innovation Aviation, with a similar installed capacity and a market value of about 50 billion. The market value of Xinwangda is about 40 billion, and Funeng Technology is about 20 billion, all of which are left behind by China Innovation Airlines.
Not to mention that these opponents are in A shares, and their liquidity is much greater than that of Hong Kong stocks.
Therefore, although China Innovation Airlines is already the third most expensive in the industry, it is very difficult to meet the high expectations of capital.
Moreover, the earning ability of China Innovation Airlines is indeed a bit inferior.
The price of high revenue growth
The upstream is chilling, but China Innovation Airlines is unable to transmit the pressure to the downstream.
The core of the profitability issue is increasing revenue without increasing profits.
From 2019 to 2021, the operating income of China Innovation Airlines was 1.734 billion yuan, 2.825 billion yuan, and 6.817 billion yuan respectively. The revenue increased by nearly 300% in the past three years, but the net profit was -156 million yuan, -0.18 billion yuan, 112 million yuan, a three-year growth of only 171.18%.
And in 2021, China Innovation Airlines will turn losses into profits with government subsidies of 365 million yuan.
For growing companies, it is more suitable to measure profitability with the gross profit margin level. The data shows that from 2019 to 2021, the overall gross profit margin of Chuangxin Airlines is 4.8%, 13.6% and 5.5% respectively, while the gross profit margin of CATL is as high as 29.06%, 27.76% and 26.28% in the same period, while the gross profit rate of Guoxuan Hi-Tech is 32.54%, 25.23%, and 18.61%. In the past 6 years, Funeng Technology has only been less than 10% in two years, and the remaining years are above 15%.
Such profitability is relatively low among industry-scale enterprises.
The expanding AVIC needs to be listed for financing
The difficulty in making profits may be related to the low right of China Innovation Airlines to speak to customers.
According to the prospectus, from 2019 to 2021, the revenue of the top five customers of China Innovation Airlines accounted for 80.7%, 83.2% and 82.9% of the total revenue respectively. During the same period, the revenue from the largest customer of China Innovation Airlines accounted for 39.6%, 55.1% and 51.9% of the total revenue respectively, and the customer concentration has not been low.
Although large customers can bring large revenue increments, they also reduce the bargaining power of China Innovation Airlines.
At the end of 2021, the price of power battery raw materials has risen sharply, and the average price of industrial-grade lithium carbonate has reached 266,000 yuan / ton – 282,000 yuan / ton, and the price has increased by about 5 times compared with the beginning of the year.
The upstream is chilling, but China Innovation Airlines is unable to transmit the pressure to the downstream. The “Prospectus” shows that the unit price of Chuangxinhang’s power battery in 2021 is 0.65 yuan/Wh, which is almost the same as 0.64 yuan/Wh in 2020.
This is much lower than the average price of Funeng Technology in the fourth quarter of 2021 of 0.84 yuan/Wh, and the average price of power batteries in the fourth quarter of CATL at 0.79 yuan/Wh.
The result of the price impulse is that the price of high revenue growth is the continued weakness of profitability, which also indirectly squeezes the space for some important expenses.
From 2019 to 2021, the R&D expenses of China Innovation Aviation were 136 million, 202 million and 285 million respectively. With the revenue nearly tripled, the R&D expenses only doubled. And in 2021, the proportion of research and development expenses will only be 4.18%, which is 3 percentage points lower than that in 2019 and 2020.
Compared with its peers, in 2021, Guoxuan Hi-Tech’s R&D expenses will account for 6.45%, CATL will be 5.9%, and Yiwei Lithium will be 7.75%.
The lack of R&D investment brings a series of chain reactions.
The prospectus shows that as of December 31, 2021, China Innovation Airlines has 1,435 R&D technicians, and the salary of R&D personnel in 2021 will be 86 million yuan, with a monthly average of 4,994 yuan.
R&D is the key for automotive and battery companies to resist technology route risks
In a technology-intensive industry, such salary appeal is hardly attractive. The patented technology developed under such conditions has some unclear entanglements.
In August and October last year, Ningde Times successively filed a lawsuit with the Intermediate People’s Court of Fuzhou City, Fujian Province, suing Chuangxinhang for infringing five of its patents, including “positive pole pieces and batteries”, “explosion-proof devices” and “current collectors”. Components and Batteries”, “Lithium Ion Batteries”, “Power Battery Top Cover Structure and Power Batteries”. CATL demanded that China Innovation Airlines immediately stop the infringement, and claimed 518 million yuan, which is almost five times the annual profit of China Innovation Airlines.
The lack of core competitiveness is not a good phenomenon in the upcoming “roll era” of power batteries.
Hard to get a spare tire
The scenery and anxiety of “Second Offering”.
Zeng Qinghong, chairman of GAC, once publicly complained: “The cost of power batteries accounts for 60% of the total cost of a car, and car companies are OEMs for the Ningde era.”
This sentence has two meanings. The first is that the power battery is too expensive, and the second is that the share of the Ningde era is too high.
How high is the market share of CATL? According to the latest global power battery data released by SNE Research, the total installed capacity of CATL has exceeded 100 GWh in the first 8 months of this year, reaching 102.2GWh, a year-on-year increase of 114.7%. Its share ranks first in the world, reaching 35.5%.
In August, the installed capacity of CATL was even greater than the sum of the bottom four.
According to the data released by the China Automotive Power Battery Industry Innovation Alliance, from January to August this year, the market share of CATL was as high as 47.45%, which can almost be said to be sitting on half of the country.
Under such circumstances, although many downstream manufacturers did not dare to say, “It has been a long time since the bitterness of Ningde”, they were always anxious and fearful that their lifeline would be taken away.
As a result, China Innovation Airlines, as the second choice of supply for many auto manufacturers, has quietly become popular.
In just a few years, the customers of China Innovation Aviation have covered GAC, Xpeng, Changan, Leapmotor, Geely, Hechuang, Dongfeng, Honda, SAIC-GM-Wuling, Chery, Rich, Dongfeng Xiaokang, etc. Power Battery.
There are many customers who intersect with the Ningde era, but the “second supply” attribute is obvious.
According to the statistics of the starting point research institute, in the supply relationship table of installed capacity between top 10 power battery companies and top 15 car companies from January to April 2022, among the supply customers of China Innovation Aviation, only GAC Passenger Cars and Leap Motor Vehicles occupy a larger share. The share of other customers is relatively weak.
In fact, it is not only China Innovation Airlines. In this table, we can see that in addition to BYD’s “hiding in a small building and becoming unified”, almost all other power battery manufacturers have become the second choice of car manufacturers except the Ningde era.
The customers of CATL have basically covered mainstream car companies at home and abroad, and most of them are the main supplier. And BYD’s batteries are exclusively for its own use, which is already a volume that is difficult for others to reach, and BYD is also expanding its customers.
This is the embarrassment faced by China Innovation Airlines: in the face of the first and second place, there is basically no hope of catching up, but in the face of the following four, five, six, seven, eight, etc., there is a possibility of being caught up at any time:
Sunwoda plans to have a production capacity of 138GWh by 2025, and a total planned global capacity of 500GWh;
Guoxuan Hi-Tech is expected to reach a production capacity of 100GWh in 2025;
Honeycomb Energy plans to challenge the global production capacity target of 600GWh in 2025.
Of course, China Innovation Airlines also significantly increased its production capacity planning target in November last year, and plans to achieve a production capacity of 500GWh in 2025.
Wu Hui, president of the China Battery Industry Research Institute, once predicted that the global demand for power batteries will reach 1,268.4GWh in 2025. Together with small batteries and energy storage batteries, the total shipments will reach 1,615GWh.
However, as long as the production capacity plans of the above-mentioned companies are followed, the total global power battery demand in 2025 will already be exceeded. This means that the most “rolling” moment of the power battery is coming.
In December 2021, 47 power battery companies realized vehicle installation, and this number became 37 by August this year. In the next period of time, it is not surprising that any powerful player will be eliminated from the game.
write at the end
Outside the Chinese market, power batteries are actually a global competition.
When talking about the company’s future goals, Liu Jingyu, chairman of China Innovation Airlines, said that in the future, China Innovation Airlines hopes to become the top three in the world. But now, there are few overseas car companies in the customer group of China Innovation Airlines.
Whether it is in the global market or on the domestic stage, it is irreproachable to play the role of secondary supplier, and it has clear practical value for OEMs and the entire industry. This is also the reason that China Innovation Airlines dares to IPO with a high valuation in the bear market of Hong Kong stocks. where the foundation lies. But the question is, how can we go further, challenge the head and throw off the competition.
Otherwise, the “Second Child Must Die” curse will always be worn on the head.
Today, when the power battery industry has a huge head effect, it is impossible to have the courage to expand, but only the courage to expand is not omnipotent.
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