"Reverting to the pre-liberation period in one day" is not a new phenomenon in the Hong Kong stock market. This scene was prominently staged today (September 24) in China Hydrogen Energy (09633).

On that day, China Hydrogen Energy (09633) plummeted rapidly in the morning session, dropping from an increase of about 1% to a decline of over 18% quickly. Subsequently, the stock price continued to decline, falling by more than 23% at one point during the trading session. By the end of the day, its stock price plunged by 22.27%, closing at 19.2 Hong Kong dollars, with a total market value of 9.946 billion yuan.

Not long ago, China Hydrogen Energy had just experienced a period of rising stock prices, from September 10th to September 23rd, showing a continuous upward trend with a cumulative increase of over 37%. Now, a one-day drop of more than 22% has almost wiped out the cumulative gains of the previous 9 trading days. It is worth noting that despite the significant drop, the sentiment for the hydrogen energy concept in the Hong Kong stock market was still warming up that day, with the sector as a whole rising by 3.69%. Such a contrast cannot help but attract attention.

From a news perspective, the significant drop in the stock price of China Hydrogen Energy this time did not have a major bearish news impact, so it is not without reason that profit-taking activities from capital occurred.

However, it is worth noting that as a newly listed stock in the Hong Kong stock market, it is not the first time that China Hydrogen Energy's stock price has been hit with a "cold water" from the market— from April 2nd to July 2nd this year, the stock price continuously declined, falling by more than 50% over this period.

So, behind the market frequently pouring "cold water" on China Hydrogen Energy, what secrets are actually hidden?

The amount of losses has further expanded, 'profit difficulties' remain a challenging issue to be resolved.

Guohong hydrogen energy is a leading technology-based hydrogen fuel cell company in China that focuses on researching, developing, producing, and selling hydrogen fuel cell stacks and hydrogen fuel cell systems.

With the global consensus on the 'dual carbon' strategy, building a new energy system has become an inevitable trend for the future development of all countries. Hydrogen energy, with multiple advantages such as high energy density, good combustion performance, and zero pollution, has gradually become an important part of the global energy transition process.

Thanks to policy support and the continuous progress of the industry, China's hydrogen energy industry has already given birth to a group of outstanding hydrogen energy companies, with Guohong Hydrogen Energy among them.

According to data disclosed by Frost & Sullivan, based on the shipment volume of hydrogen fuel cell stacks, Guohong Hydrogen Energy has ranked first for six consecutive years from 2017 to 2022, making it one of the domestically leading hydrogen fuel cell companies. In addition, Guohong Hydrogen Energy's fuel cell products are widely used in various vehicle types such as public transportation, logistics, traction, self-dumping, mixing, sanitation, with over 5000 vehicles installed nationwide across more than 40 regions in 20 provinces, showing a relatively wide overall business coverage.

However, despite the leading position of Guohong Hydrogen Energy, the top challenge it faces - 'profit difficulty', remains the primary issue to be resolved.

According to the latest mid-term financial report, in the first half of 2024, Guohong Hydrogen Energy realized revenue of 0.133 billion yuan, a decrease of 37.3% compared to the previous period; the company's attributable losses were approximately 0.212 billion yuan, increasing from about 0.124 billion yuan in the previous period, further expanding the loss amount.

Regarding the decline in performance in the first half of this year, Guohong Hydrogen Energy stated in the announcement that the new generation of products entering mass production phase, the company's continued increase in research and development expenses for various key projects such as hydrogen fuel cell stacks, systems, power generation systems, and electrolysis of water resulting in an increase in R&D expenses compared to the same period last year, as well as the extension of the accounts receivable aging in the first half of the year leading to an increase in credit impairment provision.

In fact, looking at the extended timeline, profitability has always been a major issue for the company. According to financial report data, from 2020 to 2023, Guohong Hydrogen Energy's post-tax net losses were 0.221 billion yuan, 0.703 billion yuan, 0.28 billion yuan, and 0.408 billion yuan respectively, accumulating a total loss of 1.612 billion yuan over four years.

(Data source: choice)

The continuous losses of Guohong Hydrogen Energy are also related to its high accounts receivable and research and development investment.

According to the financial report, in 2023, Guohong Hydrogen Energy's research and development investment was 0.151 billion yuan, accounting for 21.57% of the revenue. At the same time, accounts receivable and notes receivable amounted to 1.443 billion yuan, more than double the revenue, which obviously exacerbates the company's profitability issues.

Furthermore, the continuously rising administrative expenses seem to be a major reason for its ongoing losses. According to the previous prospectus, among the expense items of Guohong Hydrogen Energy, administrative expenses are currently the largest. In the first five months of 2020, 2021, 2022, and 2023, the company's administrative expenses were 0.15 billion yuan, 0.616 billion yuan, 0.181 billion yuan, and 65.703 million yuan respectively, accumulating to a total of 1 billion yuan for three years and five months.

Under continuous losses, it is understandable that investors have waning interest in Guohong Hydrogen Energy.

The industry is facing challenges, but restoring investor confidence is still necessary.

As an important part of clean energy, in terms of industry development potential, the hydrogen energy industry where Guohong hydrogen is located is clearly a major "long slope and thick snow" track.

It is reported that the hydrogen energy industry chain is divided into three main parts: upstream hydrogen production, midstream hydrogen storage and transportation with hydrogenation, and downstream hydrogen energy application. Guohong hydrogen is located in the midstream of the industry chain, with the company's main products being hydrogen fuel cell systems, mainly selling buses, logistics vehicles, heavy trucks, trams, and ships.

From the perspective of the overall industry development, both hydrogen energy and hydrogen fuel cells are in the early stages of development. However, due to hydrogen energy being a green energy source, it is also highly supported by national policies and local governments.

The National Development and Reform Commission and the National Energy Administration jointly issued the "Mid- to Long-Term Plan for the Development of the Hydrogen Energy Industry (2021-2035)" on March 23, 2022, approving five hydrogen fuel cell vehicle demonstration city clusters including Guangdong Province, Beijing, Shanghai, Henan Province, and Hebei Province. Many places have also released hydrogen-related industry or subsidy policies, eager to actively participate in the hydrogen energy industry.

With the strong support of national policies and the continued improvement of the industry's commercialization capabilities, the hydrogen fuel cell industry in China is expected to enter a high-growth stage, with promising development prospects.

According to Frost & Sullivan's forecast, the compound annual growth rate of China's hydrogen fuel cell system is expected to be 99.2% from 2023 to 2027, and 46.3% from 2028 to 2030; in terms of sales value, it is expected that the market size of China's hydrogen fuel cell system will increase from 6.2 billion yuan in 2023 to 45 billion yuan in 2027, and 116.7 billion yuan in 2030.

However, it should be noted that although it seems like a "long slope and thick snow," hydrogen energy is still in the early stages of industry development, and profitability is indeed a common challenge in the industry.

From 2020 to 2023, Yihuatong suffered losses of 0.023 billion yuan, 0.162 billion yuan, 0.167 billion yuan, and 0.243 billion yuan respectively, totaling 0.595 billion yuan in losses over 4 years. From 2021 to September 2023, Reshape Energy suffered losses of 0.654 billion yuan, 0.546 billion yuan, and 0.46 billion yuan, totaling 1.66 billion yuan in losses.

And these companies are facing the problem of profitability difficulties due to the concepts of "industry is in the early stage of commercialization" and "uncertainty in the development of hydrogen commercialization scenarios."

Specifically, the fact that the industry is in the early stage of commercialization is reflected in the immature market development, imperfect industry chain, resulting in a relatively small market size, and the development and promotion of application scenarios still need time. For example, inadequate infrastructure construction such as hydrogen refueling stations has limited the convenience and operation range of hydrogen fuel cell vehicles, thereby affecting the sales and market expansion of enterprise products.

The uncertainty in the development of hydrogen commercialization scenarios is manifested in factors such as policy fluctuations, unstable customer demand, etc. For example, changes in subsidy policies, adjustments in the approval process for hydrogen refueling station construction, etc., may affect the market expectations and business layout of enterprises. Some customers may delay or cancel orders due to changes in the market environment, adjustments in their own business, etc., affecting the revenue growth of enterprises.

All these limiting factors clearly add some "fog" to the future development of this industry.

In summary, although Guohong Hydrogen has a significant market position and strong technological capabilities, the investors in the secondary market may have some reason to be concerned as factors such as industry uncertainties, expanding losses, etc., have led to a certain decline in their investment confidence.