The long-sluggish stock market finally rebounded last week, with five consecutive positive days, the Shanghai Composite Index rebounding 6% and the Shenzhen Component Index rebounding 17%. Various sectors took turns leading the charge, with market highlights coming one after another, and enthusiasm rising accordingly. However, the most eye-catching sector was undoubtedly new energy.
On the 20th, at a press conference on the energy and economic situation in the first half of 2010, Jiang Bing, Director of the Planning Department of the National Energy Administration, disclosed information regarding the "Emerging Energy Industry Plan." Benefiting from this positive news, the new energy sector surged, and the development of new energy vehicles is one of the key components of the plan. Among these, the lithium battery industry is undoubtedly the most promising sector within the new energy vehicle industry.
Just as the lithium battery concept was gaining momentum, a peculiar listed company emerged: Southern Huatong (600920), which announced on Wednesday its withdrawal from the lithium battery industry. Why would Southern Huatong choose to exit the lithium battery field when both policy and market conditions are favorable? What impact will this withdrawal have on Southern Huatong? And what is the future of the lithium battery industry? To address these questions, our reporter conducted interviews and investigations.
The lithium battery business has been losing money for a long time.
On July 21, Southern Huatong held its eighth meeting of the third board of directors, at which it approved a proposal to withdraw from the lithium battery business. Specifically, Southern Huatong plans to transfer all of its shares in Guizhou Aerospace Power Technology Co., Ltd. (hereinafter referred to as Aerospace Power). Southern Huatong's announcement stated that this decision was primarily due to Aerospace Power's poor performance. In 2009, the company's operating revenue was 87.66 million yuan, with a loss of 17.46 million yuan. The substantial losses dragged down the company's profitability. Moreover, this situation has not improved significantly this year; Aerospace Power's operating revenue in the first quarter of this year was 20.66 million yuan, with a loss of 1.46 million yuan. The prolonged losses finally caused Southern Huatong to lose patience with the lithium battery business, and the company decided to sell all of its shares in Aerospace Power. Currently, Southern Huatong holds 37.81% of the company's shares and has provided a loan guarantee of 12.9 million yuan for it.
Reporters contacted Southern Huatong Company by phone regarding this matter, but the company insisted that all information should be based on official announcements. Southern Huatong recently announced that due to severe losses at Aerospace Power, the company has decided to transfer all of its shares in the company to improve profitability. This transfer of Aerospace Power's shares aligns with the company's development strategy, helps improve resource allocation efficiency, allows the company to focus on its core strategic business units, and enhances its core competitiveness. After the transfer, Southern Huatong will no longer be a shareholder of Aerospace Power, and Aerospace Power will no longer be included in the company's consolidated financial statements, which will improve the company's overall operating efficiency. Furthermore, the company will release the 12.9 million yuan loan guarantee provided to Aerospace Power, which will help reduce the company's operating risks. This is in line with the company's development strategy and the interests of all shareholders.
Transferring shares was a wise move.
So how should we view Southern Huatong's actions? Mao Rui, a new energy analyst at Guojin Securities, believes that this is a perfectly normal behavior.
The long-term losses of Aerospace Power have had a significant negative impact on Southern Huatong's performance. Although policy support is expected, Aerospace Power may not necessarily benefit from it. Aerospace Power's main business is the production of lithium batteries for domestic mobile phones. Due to the consistently weak competitiveness and limited market share of domestic mobile phones, Aerospace Power has suffered losses for many years. Furthermore, the production of mobile phone lithium batteries has very low barriers to entry, requiring little start-up capital and low technical levels, leading to fierce market competition. The recent surge in the capital market's focus on lithium battery concepts is on other power batteries such as automotive batteries. These types of power batteries have very high upfront R&D costs and demanding requirements in terms of capital and technology. Coupled with Aerospace Power's outdated equipment and insufficient capital and technology, transformation is difficult, making the equity transfer a last resort.
It is generally believed that the equity transfer can indeed eliminate the negative impact of Aerospace Power's operating losses on the company's performance. However, given the current popularity of the lithium battery concept in the market, it will reduce the company's stock price's potential for speculative trading to some extent. This approach has two sides. Meanwhile, Southern Huatong's stock price did not plummet due to its withdrawal from the lithium battery hot topic. After the announcement on the 21st, although the company's stock price fluctuated, it still closed at 7.52 yuan on Friday, only two cents less than the opening price of 7.72 yuan on the 21st.
Mao Rui pointed out that this phenomenon is quite normal. Although the Shanghai Composite Index saw five consecutive days of gains last week, this rebound mainly targeted oversold sectors, representing a valuation adjustment of oversold stocks. There wasn't much short-term speculative trading, while the lithium battery concept, as a long-term hot theme, will continue to be hyped by the market as national new energy policies are implemented. In fact, even stocks related to the lithium battery concept have not performed well recently, merely rebounding in tandem with the broader market without showing many highlights. The market's perception that the lithium battery industry is "good-looking but not profitable" should be quite clear.
The lithium battery industry still needs development.
Lithium battery companies targeting the mobile phone market have been losing money for years. What about lithium battery companies targeting the power battery market? Are they just a mirage, all show and no substance? The reporter conducted the following investigation.
Mao Rui pointed out that the lithium battery industry started relatively late. Although the country has increased policy support, the marketization process of new energy vehicles has been slow, and there has been no large-scale listing plan to date. In addition, due to policy influence, many lithium battery projects have been launched in various regions, which has intensified market competition in the lithium battery industry to a certain extent, resulting in a structural overcapacity and a supply exceeding demand. As a result, the marketing of lithium battery companies is generally sluggish.
Ultimately, the lack of core technologies among Chinese lithium battery companies is the fundamental reason for the poor operational level and excessively low-end competition in my country's lithium battery industry. The lithium battery industry chain mainly consists of three parts: upstream lithium ore resources, lithium battery raw materials (including cathode materials, anode materials, separators, and electrolytes), and battery manufacturing and packaging. Technically, battery film technology has the highest technological threshold among lithium battery materials and is currently largely dependent on imports. Domestically, only companies such as Foshan Plastics Group Co., Ltd. (000973)'s subsidiary Jinhui High-Tech, Dongguan Xingyuan Technology, Henan Xinxiang Green Energy, and Zhongke Laifang can currently provide separators for small lithium batteries. Lithium carbonate is a key upstream raw material for lithium batteries, and its production is currently dominated by a foreign oligopoly.
