“Investors Network” Ding Wanping

On the evening of October 29, Suzhou Tianhua New Energy Technology Co., Ltd. (hereinafter referred to as “Tianhua New Energy”, 300390.SZ) disclosed that Pei Zhenhua, the company's controlling shareholder and actual controller, proposed that the company repurchase the company's shares for no less than 150 million yuan and no more than 250 million yuan, and that the repurchased shares would be used for equity incentives or cancellation.

In the first three quarters of 2023, Tianhua Xinneng's revenue was 8.91 billion yuan, down nearly 30% year on year, and net profit was 1,822 billion yuan, down more than 60% year on year.

After the “fever” of lithium batteries is reduced, can Tianhua Xinneng, which had previously placed a heavy focus on, seek a breakthrough in performance through upstream and downstream integration?

The actual controller proposed a repurchase

According to Tianhua Xinneng's latest announcement, on October 27, Tianhua Xinneng received a letter from Pei Zhenhua proposing that the company buy back publicly issued shares through the secondary market.

Based on confidence in the company's future development prospects and recognition of the company's long-term value, in order to effectively enhance investor confidence, Pei Zhenhua proposed that the company buy back some of the company's shares through centralized bidding transactions, and use the repurchase of shares at an appropriate time in the future to reduce the company's registered capital or employee stock ownership plans or equity incentives, so as to enhance long-term shareholder returns, improve the company's incentive mechanism, and enhance the company's competitiveness and overall value.

According to public information, Pei Zhenhua is the founder, actual controller, controlling shareholder, and chairman of Tianhua Xinneng. The main content of Pei Zhenhua's proposal is that Tianhua Xinneng will invest no less than 150 million yuan and no more than 250 million yuan with its own capital to buy back A-shares that have already been publicly issued by the company. The maximum price limit for repurchasing shares is not higher than 150% of the average price of the company's stock trading in the 30 trading days before the company's board of directors deliberates and approves the repurchase plan. The repurchase period is within 12 months from the date the company's board of directors or shareholders' meeting reviews and approves the repurchase plan.

It is worth mentioning that before proposing the company's repurchase, Pei Zhenhua had already taken steps to increase his holdings.

From January 10 to July 9 of this year, Pei Zhenhua funded the establishment of an asset management product (product name “Huatai Exclusive Stable Progress No. 66 Single Asset Management Plan”) through centralized bidding transactions to increase Tianhua Xinneng's shares by a total of 2,091,700 shares (adjusted to 2,7192 million shares according to the company's 2022 equity distribution and transfer content), accounting for 0.32% of the company's total share capital, and the increase amount was about 130 million yuan per share. The average price increase in holdings was 62.14 yuan/share (adjusted to 46.26 yuan/share according to the company's 2022 equity distribution and interest rate adjustment to 46.26/share)).

Investment analysts believe that the repurchase of shares by an enterprise means that an enterprise uses cash to buy back a certain amount of shares issued by the enterprise. The effects of a company's share repurchase usually include enhancing market confidence, stabilizing stock prices, optimizing the capital structure, adjusting the ownership structure, and preventing malicious acquisitions, etc. However, Pei Zhenhua's efforts to increase holdings and propose that the company buy back shares are mostly aimed at enhancing market confidence and stabilizing stock prices.

In the announcement, Tianhua Xinneng mentioned that the purpose of Pei Zhenhua's share repurchase was to “effectively enhance investor confidence.”

In fact, Tianhua Xinneng's stock price has declined quite a bit. On September 10, 2021, Tianhua Xinneng's stock price was 137.60 yuan/share, and on November 3, 2023, the closing price was 26.46 yuan/share. Calculated before and after restoration, the range decline was nearly 70%.

According to public information, from January 10, 2023 to July 9, 2023, through the asset management product “Huatai Exclusive Stable Progress No. 66 Single Asset Management Plan”, the actual controller and chairman Pei Zhenhua paid out of his own real money to increase his holdings by a total of 130 million yuan and increased his holdings of the company's shares by 2,091,709 shares (adjusted to 2,719,222 shares according to the company's 2022 equity distribution and transfer), accounting for 0.32% of the company's total share capital. Based on the number of shares after transfer, the total amount is 47.81 yuan/share per share.

However, the increase in holdings by the company's actual controllers has not been able to reverse the decline in stock prices. This has something to do with Tianhua Xinneng's operating performance.

Increased cost of raw materials

According to public information, Tianhua Xinneng's predecessor was Tianhua Ultra Clean, which entered the A-share market in 2014. The company's main business is anti-static ultra-clean process protection. Currently, its main products include: self-destructing syringes, safety syringes, high-pressure syringes, lithium hydroxide, lithium carbonate, and anti-static ultra-clean technology products.

In the first three quarters of 2023, Tianhua Xinneng's revenue was 8.910 billion yuan, compared with 12.573 billion yuan in the same period last year, a decrease of 3.663 billion yuan, a year-on-year decrease of 29.13%; net profit was 1,822 billion yuan, compared with 5.155 billion yuan in the same period last year, a decrease of 3.333 billion yuan, a year-on-year decrease of 64.66%; deducted non-net profit was 1,536 billion yuan, a year-on-year decrease of 3.638 billion yuan, a decrease of 70.32%.

On a quarterly basis, in the first, second, and third quarters of this year, the company achieved operating income of 3,538 billion yuan, 3.104 billion yuan, and 2.269 billion yuan, respectively, with year-on-year changes of 4.42%, -29.26%, and -52.71%. The corresponding net profit was 881 million yuan, 493 million yuan, and 447 million yuan, down 41.95%, 75.26%, and 72.79%, respectively. After deducting non-net profit, it was 858 million yuan, 329 million yuan, and 349 million yuan, respectively, down 43.26%, 83.46%, and 79.16% from the previous year.

Quarterly performance data shows that in the second and third quarters, the company's operating income turned negative year over year, and net profit and net profit after deducting non-net profit all fell by more than 70% year on year.

One of the major reasons for the sharp decline in net profit is that the cost of raw materials for Tianyi Lithium increased significantly compared to the previous period. The company's operating costs in the first three quarters of 2023 reached 6.254 billion yuan, compared to only 3,967 billion yuan in the same period last year, a year-on-year increase of 57.66%.

In recent years, with the rapid rise of new energy vehicles, Tianhua Xinneng has once again carried out industrial transformation and entered the field of new energy. In April and December 2021, the company completed two fixed increases successively, raising 780 million yuan for the first time to carry out the construction of a battery-grade lithium hydroxide phase II project.

The second fixed capital increase was 2,766 billion yuan for the construction project of Sichuan Tianhua Times Lithium Energy Co., Ltd. with an annual output of 60,000 tons of battery-grade lithium hydroxide, the first phase of the battery-grade lithium hydroxide project of Yibin Weineng Lithium Science and Technology Innovation Co., Ltd. with an annual output of 25,000 tons, and the acquisition of 7% of the shares of Yibin Tianyi Lithium Science and Technology Innovation Co., Ltd. to supplement working capital.

The intensive deployment of lithium battery materials has enabled lithium battery materials to rapidly become Tianhua Xinneng's largest main business, and has contributed huge operating income and net profit to it.

In 2022, benefiting from the high price of lithium salt, Tianhua Xinneng's operating income was 17.030 billion yuan and net profit was 6.586 billion yuan, up 401.26% and 623.16% respectively from the previous year, both of which increased sharply.

However, since this year, the price of lithium salt has dived, and Tianhua Xinneng's business performance has also been impacted as a result.

In this year's semi-annual report, Tianhua Xinneng explained that the decline in performance was due to the impact of the market environment in the new energy lithium battery industry. The price of lithium salt decreased year on year, and the cost increased year on year. In the future, the company will continue to improve the level of management, strengthen cost reduction and efficiency, enhance market competitiveness through excellent product quality, advanced technology and excellent service, actively expand and maintain high-quality customer resources, and steadily advance the company's established business strategy.

Judging from the operating results for the third quarter, the measures promoted by Tianhua Xinneng did not have a positive effect on improving performance.

Faced with fluctuations in lithium salt prices at low levels, how should industry players seek change? Is the highlight of lithium salt “over and over”?

Fluctuations in low prices of main products

After intensive production expansion in the early stages, Tianhua Xinneng's lithium salt production capacity will reach 165,000 tons/year by the end of 2023, ranking in the first tier of the industry.

Faced with fluctuations in low lithium salt prices, some enterprises in the industry are actively seeking change and expanding upstream and downstream. Ganfeng Lithium and Tianqi Lithium have all entered the automotive industry through investment.

According to information, new energy vehicles are currently the main driving force for the growth of lithium consumption. Whether it is the continued rise in demand in the NEV market or the rise of lithium in the field of electrochemical energy storage, it will strongly drive the market demand for lithium-ion batteries to surge. It is estimated that by 2025 and 2030, global lithium-ion battery shipments will reach 2,211.8 GWh and 6,080.4 GWh, respectively, with a compound growth rate of 22.8%.

Tianhua Xinneng said that the new energy lithium battery materials business is the company's core industry and strategic direction for future development. The company and new energy power lithium battery suppliers will strengthen exchanges and cooperation, dig deeper and maximize the resources and advantages of both partners, and expand the company's industrial planning and strategic layout.

Industry insiders said that Tianhua Xinneng's new energy lithium battery material products are mainly used to produce ternary cathode materials for power batteries for new energy vehicles, and have a certain influence within the industry.

Whether Tianhua Xinneng can rely on its accumulated influence and competitive advantages in the market through breakthroughs in upstream and downstream industrial planning and strategic layout of the industry remains to be further verified by the market. (Produced by Thinking Finance) ■