Recently, Longpan Technology (603906.SH) submitted an IPO application to the Hong Kong Stock Exchange and plans to list “A+H” on both sides.

As the top three global sales of lithium iron phosphate cathode materials, Longpan Technology's performance was affected by the price of the raw material lithium carbonate, and continued to lose performance in the first half of this year.

In the first half of 2023, Longpan Technology's revenue and net loss was 3,814 million yuan and 654 million yuan respectively, down 36.54% and 250.97% year-on-year respectively.

At present, the raw material price of lithium carbonate has not stopped falling.

According to data from the Changjiang Nonferrous Metals Network, at the close of trading on October 26, the price of battery-grade lithium carbonate was only 165,500 yuan/ton, down more than 70% from the price of 600,000 yuan/ton in December 2022.

In this context, Longpan Technology's visit to the Hong Kong Stock Exchange has received market attention.

Judging from the IPO's fund-raising plan, Longpan Technology aims to “go overseas.”

According to the prospectus, Longpan Technology's proposed IPO capital will be invested in the construction of a new lithium manganese-ferrophosphate production line for the second phase of the lithium iron phosphate cathode material plant and the Xiangyang plant in Indonesia, as well as loan repayment and additional working capital.

TradeWind01 (ID: TradeWind01) called Longpan Technology to seek evidence of the Hong Kong Stock Exchange's market downturn. The submission to the Hong Kong Stock Exchange expressed approval as to whether the Hong Kong Stock Exchange was based on considerations of entering overseas markets.

“Because our current plan is a plan to expand overseas, it is a bit more advantageous in terms of Hong Kong stocks.” Longpan Technology told TradeWind01 (ID: TradeWind01).

Whether overseas markets can boost Longpan Technology's performance has attracted much attention.

The continuous decline of lithium carbonate

One person wins, and chicken and dog ascend to heaven.

The high prosperity of the NEV industry has promoted the development of the entire industry chain, and lithium batteries are also among the beneficiaries.

Lithium batteries are composed of cathode materials, diaphragms, anode materials, and electrolytes. Among them, the cost of cathode materials accounts for about 40% of lithium batteries.

According to the different cathode materials, lithium batteries can be divided into categories such as lithium iron phosphate, ternary lithium batteries, lithium manganate batteries, and lithium cobalt acid batteries, while lithium iron phosphate batteries and ternary lithium batteries are currently the mainstream options for lithium batteries.

Longpan Technology, which is in the upper reaches of the lithium battery industry, produces and sells lithium iron phosphate cathode materials through its subsidiary Changzhou Lithium Source New Energy Technology Co., Ltd. (“Changzhou Lithium Source”). In 2022, sales volume reached 951,000 tons, ranking third in the world, with a market share of 8.6%.

In the same period, Hunan Yuneng (301358.SZ) and German Nano (300769.SZ) ranked first and second with shipments of 324,000 tons and 172,000 tons of lithium iron phosphate, respectively.

Over the past three years, Longpan Technology's performance has been impressive. Revenue from 2020 to 2022 was 1,915 billion yuan, 4,054 million yuan, and 14.072 billion yuan respectively. Net profit for the same period was 203 million yuan, 351 million yuan and 753 million yuan respectively. Among them, 2022 revenue and net profit from the mother increased by 247.15% and 114.61% year-on-year respectively.

This growth rate is due to an acquisition by Longpan Technology in 2021.

In April of that year, Changzhou Lithium, a subsidiary of Longpan Technology, spent 844 million yuan to acquire 100% of the shares of Betteri (Tianjin) Nanomaterials Manufacturing Co., Ltd., a subsidiary of Betray (835185.BJ), and Jiangsu Betray Nano Technology Co., Ltd., while Betray participated in Changzhou Lithium and had the right to appoint a director to the latter.

At this point, Longpan Technology has entered the lithium iron phosphate cathode materials industry.

In 2021 and 2022, the supply of “lithium carbonate”, a raw material for lithium iron phosphate cathodes, was tight, and driven by demand in the NEV market, cathode material shipments increased. When supply and demand were unbalanced, lithium carbonate once rose to 600,000 yuan/ton.

As a result, lithium iron phosphate cathode materials ushered in a sharp rise in value.

In 2022, the average price of Longpan Technology's lithium iron phosphate cathode material products was as high as 128,700 yuan/ton, an increase of 109.18% over the previous year.

So far, the revenue of Changzhou lithium source has surged from 1,895 billion yuan in 2021 to 12.287 billion yuan in 2022, which has led to the take-off of Longpan Technology's performance.

“This is mainly because since we acquired the lithium iron phosphate cathode materials business in June 2021, there has been a strong increase in average sales price and sales volume due to tight upstream supply, rapid development and growth in demand in the downstream NEV and energy storage industries, and a sharp rise in the prices of major raw materials (such as lithium carbonate).” Longpan Technology said.

It is against this background that Longpan Technology, which is worried about being out of stock, is preparing to “stock up” in 2022.

In 2022, the cost of lithium iron phosphate cathode materials from Longpan Technology reached 10.245 billion yuan, an increase of 619.88% over the previous year.

“We purchased lithium carbonate at a high price in the fourth quarter of 2022.” Longpan Technology said.

But the moment of collapse came too fast.

After entering 2023, due to the slump in the domestic NEV market, the entire industry is in the stage of removing inventory, but the supply of lithium iron phosphate cathode materials continues to increase, and the situation where supply exceeds demand has caused the price of lithium carbonate to plummet.

According to data from the Changjiang Nonferrous Metals Network, at the close of trading on October 26, the price of battery-grade lithium carbonate was only 165,500 yuan/ton, down more than 70% from the price of 600,000 yuan/ton in December 2022.

As a result, Longpan Technology's performance also declined. Revenue for the first half of 2023 and net loss of net loss due to the mother were 3,814 million yuan and -654 million yuan respectively, down 36.54% and 250.97% from the previous year, respectively.

There is still great uncertainty about whether Longpan Technology is expected to turn a loss into a profit during the year.

Currently, all parties agree that the price of lithium carbonate may continue to decline.

“Overall, the supply of lithium carbonate is sufficient, terminal demand has not recovered significantly, lithium carbonate cost support is gradually becoming prominent, and market games are intensifying. It is expected that the price of lithium carbonate may rebound slightly in the short term, but there is not much room for growth, and it is still weak in the long run.” Yang Lihong, a nonferrous metals industry analyst at Shanxi Securities, pointed out.

Wang Baoqing, a nonferrous steel industry analyst at Huafu Securities, said bluntly, “We should have no illusions about the price of lithium carbonate in the next few years.”

Entering overseas markets

Going to the Hong Kong Stock Exchange at this time may not be a good time for Longpan Technology.

Currently, the valuation of Longpan Technology has plummeted. As of the close of trading on October 26, the total market value was only 6.594 billion yuan, down nearly 50% from the market value of 13.052 billion yuan at the end of 2022.

Coupled with the sluggish performance of the Hong Kong stock market, Longpan Technology's issuance scale and market valuation will probably be tested in the future.

Longpan Technology is not short of money. As of the end of June this year, it still had a cash balance of 1,793 billion yuan.

Moreover, it was only in 2020 and 2022 that Longpan Technology raised 393 million yuan and 2.176 billion yuan respectively through the issuance of convertible bonds and fixed increases.

As of the end of June this year, the balance of fund-raising accounts issued with convertible bonds and fixed increases (including the unredeemed principal amount for temporary purchases of wealth management products) was still 172 million yuan and 357 million yuan respectively, reaching a total of 529 million yuan.

Under these circumstances, Longpan Technology's submission to the Hong Kong Stock Exchange may be intending to enter overseas markets.

According to the prospectus, Longpan Technology plans to invest the capital raised from this IPO into the construction of a new lithium manganese iron phosphate production line at the second phase of the lithium iron phosphate cathode material plant and the Xiangyang plant in Indonesia, as well as loan repayment and additional working capital.

TradeWind01 (ID: TradeWind01) called Longpan Technology to seek evidence of the Hong Kong Stock Exchange's market downturn. The submission to the Hong Kong Stock Exchange expressed approval as to whether the Hong Kong Stock Exchange was based on considerations of entering overseas markets.

“Because our current plan is a plan to expand overseas, it is a bit more advantageous in terms of Hong Kong stocks.” Longpan Technology told TradeWind01 (ID: TradeWind01).

Investment bankers also pointed out that an overseas listing can expand overseas popularity.

“Overseas listings can expand overseas popularity and optimize shareholder structure, all of which are beneficial to enterprises in deploying overseas markets.” An investment banker in Shenzhen explained to TradeWind01 (ID: TradeWind01).

The Indonesian factory carries Longpan Technology's ambition to go overseas.

When explaining the rationality of building overseas factories, Longpan Technology pointed out that the sales growth rate of the overseas lithium iron phosphate cathode materials industry may be higher than that at home.

“According to Frost & Sullivan, the sales volume of the global lithium iron phosphate cathode materials industry is expected to grow at a compound annual growth rate of 20.9% from 2023 to 2027, which is higher than the 19% in mainland China.” Longpan Technology stated, “This growth is mainly due to several lithium iron phosphate cathode material manufacturers and major lithium battery manufacturers expanding or planning to expand their production to the global market. Indonesia has been selected as a favorable overseas destination due to its complete NEV industry value chain, investment-friendly policies, and favorable geographical location.”

According to public reports, the Indonesian government intends to push well-known car companies such as Tesla and BYD to build local factories, and has set a goal of producing 1 million electric vehicles nationwide by 2035.

Opening up popularity overseas by entering the Hong Kong Stock Exchange may be the next growth point that Longpan Technology is looking for for for its performance growth.

Longpan Technology's move is probably also following the pace of its first customer, Ningde Era (300750.SZ) — from 2021 to 2022, Ningde Times contributed 1.16 billion yuan and 7.487 billion yuan respectively, accounting for 28.6% and 53.2% respectively.

In 2022, Guangdong Bangpu Recycling Technology Co., Ltd., a subsidiary of Ningde Times Holdings, invested in the construction of a power battery industry chain project in Indonesia, with a total investment of about US$5.968 billion, or approximately RMB 43.679 billion.

However, Longpan Technology does not agree with the statement that this is following a major customer plan.

“We still want to try our best to expand some overseas customers, because currently the domestic lithium iron phosphate market also tends to be saturated, but there is a wider overseas market. So we still want to keep that focus overseas.” Longpan Technology told TradeWind01 (ID: TradeWind01).

Some people in the lithium battery industry explained to TradeWind01 (ID: TradeWind01) that at present, Indonesia's relevant policy dividends have indeed become a popular choice for the NEV industry to build overseas factories.

“One is that China has some experience in Indonesia, and the Indonesian government has introduced many support policies; the key point is that the domestic cathode materials industry is too popular. Everyone wants to go overseas to see if they can open up more markets.” A Beijing-based lithium battery industry analyst explained to Xinfeng (ID: TradeWind01).

At the same time, the person also pointed out, “The current background is that car manufacturers, battery factories, etc. are all deployed in Indonesia. Everyone goes. If you don't go or don't go early, you probably won't be able to tell the cake by then. Longpan Technology may also be planning ahead of the rain.”

Whether going overseas can save Longpan Technology's performance is receiving attention.