"One day back to the liberation front", it is not something new in the Hong Kong stock market. This scene was prominently staged today (September 24) on Sinosynergy (09633).

On that day, Sinosynergy (09633) plunged rapidly in the morning session, quickly dropping from about 1% increase to over 18% decrease, followed by a further decline, dropping over 23% at one point during the session. By the closing bell, its stock price plummeted by 22.27%, closing at 19.2 Hong Kong dollars, with a total market value of 9.946 billion yuan.

Shortly before this, Sinosynergy's stock price had just experienced a wave of increases, from September 10 to September 23, showing a continuous upward trend, with the stock price rising by more than 37% during this period. Now, a drop of over 22% in a day has almost wiped out the cumulative gains of the previous 9 trading days. It is worth noting that on that day, the sentiment of the Hong Kong stock hydrogen energy concept was still warming up, with the sector as a whole rising by 3.69%. Such a contrasting trend cannot help but attract attention.

From a news perspective, the significant drop in Sinosynergy's stock price this time did not stem from any major bearish news impact, hence there is no shortage of profit-taking by investors.

However, it is worth noting that as a newly listed stock on the Hong Kong stock market, Sinosynergy has not been the first time to experience a market 'cold water' treatment - from April 2 to July 2 this year, its stock price continued to decline, with a cumulative decline of more than 50% during that period.

So, behind the frequent 'cold water' splashing on Sinosynergy by the market, what secrets are truly hidden?

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

Sinosynergy is a leading technology 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 now produced a group of outstanding hydrogen energy enterprises, among which Sinosynergy is one of them.

According to Frost & Sullivan data, based on the shipment volume of hydrogen fuel cell stacks, Sinosynergy has ranked first for six consecutive years from 2017 to 2022, making it one of the domestically leading hydrogen fuel cell enterprises. In addition, Sinosynergy's fuel cell products are widely used in various vehicle types such as buses, logistics vehicles, tractors, dump trucks, mixers, sanitation vehicles, with a total of over 5,000 vehicles delivered, covering more than 40 regions in 20 provinces nationwide, and with a relatively wide range of overall business coverage.

However, despite the leading position of Sinosynergy, the top challenge it faces - 'profit difficulty', remains the primary unresolved issue.

According to the latest mid-term financial report, in the first half of 2024, Sinosynergy achieved a revenue of 0.133 billion yuan, a decrease of 37.3% compared to the previous period. The net loss attributable to the owners of the company was approximately 0.212 billion yuan, while in the previous period, the net loss attributable to the owners of the company was approximately 0.124 billion yuan, indicating a further increase in losses.

Regarding the decline in performance in the first half of this year, Sinosynergy stated in the announcement that the new generation products have entered the mass production introduction stage, resulting in a continuous increase in R&D expenses for various key projects such as hydrogen fuel cell stacks, systems, power generation systems, and electrolytic water hydrogen production, as well as an increase in credit impairment allowance due to the extension of the accounts receivable age in the first half of the year.

In fact, looking at the extended timeline, profitability has always been a difficult issue for the company. According to financial data, from 2020 to 2023, Sinosynergy's net loss after tax was 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 Sinosynergy are also related to its high accounts receivable and research and development investment.

According to the financial report, in 2023, Sinosynergy's research and development investment was 0.151 billion yuan, accounting for 21.57% of revenue. At the same time, accounts receivable and bills receivable reached as high as 1.443 billion yuan, more than twice the revenue, evidently exacerbating 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 Sinosynergy, 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, with accumulated administrative expenses totaling 1 billion yuan in three years and five months.

Under the continuous losses, it is understandable that investors are not enthusiastic about Sinosynergy.

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

As an important component of clean energy, from the perspective of industry development potential, sinosynergy's hydrogen fuel cell industry is clearly a major "long uphill thick snow" track.

It is reported that the hydrogen energy industry chain is divided into the upstream hydrogen production, the midstream hydrogen storage and transportation, and hydrogenation, and the downstream hydrogen energy application as the three main parts. Sinosynergy 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-duty 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 sinosynergy has a significant market position and strong technological capabilities, investors in the secondary market may have valid reasons for their decreased investment confidence due to industry uncertainty, lingering losses, and expanding financial deficits.