On March 12, the prospectus of Ningde Times was updated, providing additional details on its 2017 performance. Recently, Foxconn's rapid "customs clearance" process was seen as a model for the listing of industrial unicorn companies, and Ningde, as the "unicorn" in the lithium battery industry, has also drawn high expectations.
If Ningde is treated similarly to Foxconn, its time to market could be cut from the original 1-2 years down to just a few months. This would definitely be a big win for the capital market. Indeed, after the update of the Ningde Times prospectus, several related concept stocks saw multiple surges in trading activity.
Many of these concept stocks have issued statements emphasizing their readiness to "keep warm" with Ningde. However, Ningde itself has remained relatively low-key. The updated prospectus also reveals some underlying challenges that the company faces.
Performance affected by policy
According to the Ningde Times prospectus, the net profit attributable to shareholders of the parent company was 931 million yuan in 2015, 3.022 billion yuan in 2016, and 3.972 billion yuan in 2017, showing year-on-year growth of 224.60% and 31.44%, respectively. The company maintained a strong growth rate over those years.
In 2017, Ningde’s operating revenue reached 19.997 billion yuan, up 34.40% year-on-year, matching the growth in net profit. However, when non-recurring gains and losses were excluded, the net profit attributable to the parent company dropped to 2.47 billion yuan, reflecting a 16.47% decline compared to the previous year.
Although the report doesn’t explicitly explain the reasons, many investors and analysts believe this drop is linked to the sharp reduction in government subsidies for new energy vehicles. The prospectus also warns about the risks posed by potential changes in the new energy vehicle industry policies.
Another indicator of this challenge is the proportion of power battery system revenue within the company’s total income and the fluctuation in gross margin over the past three years. In 2015, 2016, and 2017, the power battery system accounted for 87.98%, 95.55%, and 87.01% of the main business revenue, respectively—making it the primary source of income.
The consolidated gross profit margin for Ningde was 38.64% in 2015, 43.70% in 2016, and 36.29% in 2017. Despite a significant increase in sales volume of power battery systems, the gross margin decreased in 2017. Analysts attribute this decline partly to the reduction in subsidies.
Some securities analysts suggest that the sharp drop in subsidies in 2017 led to a 25%-30% decrease in power battery prices, and this trend is expected to continue into 2018.
Moreover, the growth in power battery sales is closely tied to policy support. Ningde has quickly attracted many car manufacturers, but this success is largely due to China’s supportive policies for domestic battery companies. Without such protection, it remains uncertain whether Ningde can compete effectively with foreign battery giants.
Looking ahead, the future risks of the new energy vehicle industry are likely to grow. Although the sector remains popular, concerns about long-term sustainability are increasing, and these risks may soon affect Ningde.
According to the prospectus, once the “Ningde Huxi Lithium-ion Power Battery Production Base Project†becomes operational, the company will add 24GWh of new production capacity, more than double its 2017 sales volume. By 2020, total production capacity is expected to reach 50GWh.
This rapid expansion is not unique to Ningde; the entire new energy battery industry is experiencing similar growth. According to open data, China’s power battery capacity is expected to have a surplus of up to 257% in 2018, with excess capacity likely to persist until 2025.
Meanwhile, the surge in demand for new energy vehicles has driven up raw material prices at the upstream level, while downstream vehicle manufacturers keep pushing prices down. This squeeze between rising costs and falling prices makes it difficult for battery manufacturers.
Competition within the power battery industry is intensifying, with rivals like BYD and Guoxuan Hi-Tech posing a growing threat to Ningde.
Additionally, questions remain about whether electric vehicles can truly replace fuel vehicles. Some analysts point out that lithium and cobalt resources are scarcer than crude oil, and China lacks sufficient reserves. Even with the development of new energy vehicles, the country may still rely heavily on imported materials.
In China, the policy-driven nature of the new energy vehicle industry is undeniable. If policy directions change or if the "protection umbrella" weakens, Ningde—supported by policy—could face significant risks.
While Ningde currently holds a leading position in the industry, BYD’s market value, which spans both battery and vehicle sectors, exceeds 80 billion yuan. Can Ningde sustain a valuation over 130 billion? Only time will tell after its listing.
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