Prager Energy rose 27% after U. S. stock trading on Wednesday. According to Prager Energy officials, it will receive US $1.5 billion in strategic investment from South Korea's SK Group and form a strategic partnership with Korea's SK Group to accelerate the expansion of the hydrogen economy in the Asian market.

Prager Energy is a bull stock, rising 973% in 2020. Why is the market so popular?

Forklift fuel cell leader, three-stage strategy step by step

Prager Energy is the world's leading supplier of fuel cell systems with a decentralized stake. Founded in 1997 and headquartered in Latham, New York, USA, the company specializes in the design, development, manufacture and commercialization of hydrogen fuel cell systems. The company is the earliest company to complete the commercialization of hydrogen fuel cell in the world, with 835 employees, 109 patents and accumulated a lot of industry experience.

At present, the company's business focuses on the application of fuel cell material handling, and has deployed more than 32000 fuel cell forklifts worldwide, running more than 1 billion miles and 300 million hours, ranking an absolute leader in the world, with a market share of 95%. At the same time, the company also provides customers with hydrogenation station construction and hydrogen supply services, accumulating more than 80 hydrogenation stations in the camp, with daily hydrogen consumption of 28 tons, becoming the largest liquid hydrogen user at present.

The company is currently involved in three major fuel cell applications: material handling, road vehicles and fixed power stations. In order to promote the commercial development of various fields, the company not only provides fuel cell products, but also provides hydrogen solutions, maintenance and services to form a full ecological solution, namely "turnkey" solution GenKey.

The main customers include retailers such as Walmart Inc, Amazon.Com Inc, Nike Inc, The Home Depot Inc, manufacturers such as Mercedes-Benz, BMW, Procter & Gamble Co, Michelin, and logistics companies such as DHL.

Since its establishment, Prager Energy has adhered to the forward-looking strategic layout and actively accumulated the next stage of technology while focusing on the current field, which can be divided into three major stages of development:

1) 1997-2005: cut into the field of fuel cell power stations with relatively simple technology, the layout of fuel cell forklifts

2) 2006-2015: focus on fuel cell forklift trucks and lay out roads with high market capacity

3) from 2016 to now: the layout of road vehicles has gradually landed on the ground, forming a multi-track situation of forklifts, road vehicles and fixed power stations.

In 2018, the company acquired American fuel Cell Company (AFC) to obtain metal bipolar plate stack technology and self-production capacity of membrane electrodes, which greatly improved product performance and reduced production costs. In 2019, the company partnered with ENGIE to secure global support for hydrogen infrastructure, renewable energy and services to meet the hydrogen needs of the next phase of the company's expansion planning.

Rapid development and expansion, stable cost control

Prager Energy's operating income reached 29% CAGR from 2014 to 2019, maintaining a high-speed growth trend as a whole. Among them, revenue in 2016 and 2017 was relatively low because a large number of products were included in deferred income in the form of after-sale and leaseback. Split by business, sales of the company's products and facilities were the main source of revenue from 2014 to 2019, accounting for more than 60 per cent except 2016.

After 2017, the proportion of revenue from sales of products and facilities will remain between 60% and 65%, while after-sales service and maintenance and energy procurement contracts (Power Purchase Agreement, PPA) will be maintained at 10%, 16%. 2020Q1 site deployment slowed down due to the epidemic, and sales of products and facilities as a percentage of revenue decreased slightly.

The overall gross margin and gross profit margin fluctuated from 2014 to 2017, due to the early stage of the fuel cell forklift industry, the market was small and the investment was large, and part of the income was included in the after-sale and leaseback, and then gross margin continued to rise in 2017-2019.

According to the business split gross profit margin, the company's fuel cell products and facilities in 2014-2019 are priced according to market comparable products, and the gross profit margin is positive; in hydrogen energy related business, as part of hydrogen needs to be purchased from third parties, gross profit is negative all the year round, resulting in major losses.

After 2017, the gross profit margin of sales of products and facilities continued to increase, and the Mesangial electrode realized self-production and scale effect, which reduced the cost; the partial loss of hydrogen energy narrowed, which was due to the expansion of the company's hydrogen sales scale and the increase in the proportion of self-produced hydrogen and on-site hydrogen production.

The decline in 2020Q1's overall gross profit margin was mainly due to a decline in the proportion of revenue from sales of products and facilities, and at the same time, affected by the epidemic, the business volume of major customers such as Walmart Inc and Amazon.Com Inc increased, resulting in an increase in energy procurement contract services and hydrogen costs, which in turn reduced the gross profit margin of this business, which was also a drag on the overall gross profit margin.

Hydrogen energy leads the energy revolution, and the automotive field is facing high growth for the first time.

Hydrogen energy is a renewable energy with high energy storage density, high energy conversion efficiency and zero pollution emission.

According to the World hydrogen Energy Council (Hudrogen Council), hydrogen energy will bear at least 18% of the energy demand in the future, taking the lead in large-scale commercialization in the field of transportation. Forklift trucks, medium and large passenger vehicles and city buses are the preferred application scenarios, and then extended to trucks, light rail, ships and other scenarios.

Fuel cell can efficiently convert hydrogen energy into electric energy, and the conversion efficiency is more than 50%. It is the main grasp of hydrogen energy utilization. According to E4tech data, global fuel cell system shipping capacity has increased rapidly in recent years, with CAGR reaching 29.96% in 2013-2019. In terms of application areas, the proportion of power in the transportation sector has increased rapidly, from 40% in 2013 to 80% in 2019, becoming the main driving force for the increase in installed power in the past five years.

The scene of fuel cell forklift has been verified, and the performance and economy are highlighted.

According to the US Department of Energy (DOE), the cost of purchasing and using the fuel cell forklift fleet is lower than that of the same size lead-acid battery forklift fleet. The application of fuel cells in 10/3kW forklifts can respectively reduce the average annual cost by 9.7%. Among them, the labor cost of charging 10kW/3kW fuel cell forklifts is US $800,500 per vehicle, which is much lower than that of lead-acid battery forklifts (US $3,200 per vehicle). It is due to the fact that the hydrogenation time is lower than the battery replacement time, which is the main driving force for cost reduction.

In addition, the fuel cell is essentially a generator, and the output power is stable when the air and hydrogen supply is stable. The above DOE calculation does not take into account the difference in labor productivity of fuel cell / lead-acid battery forklift trucks. According to Prager Energy Company, after the lead-acid battery forklift truck is replaced by fuel cell in practical application, the overall work efficiency can be increased by 15%, which can bring potential overall sales and profit improvement for the company.

Moreover, the fuel cell can start and maintain stable performance in the environment of-30 ℃, while the performance of lead-acid battery at low temperature is much lower than that at room temperature, which makes the fuel cell forklift truck has an advantage in the field of cold chain logistics transportation.

As early as 2006, Walmart Inc and other North American retailers first began to verify the feasibility and economy of fuel cell forklifts. Under the demonstration effect of the initial leading customers, a large number of new retail customers are attracted; at the same time, manufacturers such as BMW, General Dynamics and logistics companies such as DHL began to try to transform their material handling systems with hydrogen.

At present, the fuel cell forklift truck market opportunity mainly lies in replacing the traditional lead-acid battery forklift truck and competing with the lithium forklift truck. Restricted by the overall market space and electrification process of the forklift industry, the overall effective market size of the world is about 30 billion US dollars.

According to E4tech statistics, North America has more than 30,000 fuel cell forklifts thanks to the developed hydrogen industry and cold chain logistics, far higher than the rest of the world. The number of fuel cell forklifts running in Europe / Japan is about 500 gamma 160 each. The proportion of forklift sales and electrification in China is slow, and China's cold chain logistics is underdeveloped, labor costs are low, fuel cell forklift market opportunities are small, commercialization is still in its infancy.

Forklift trucks develop steadily, and road vehicles can take off.

"closed park / fixed route + full ecological solution" has been recognized by the market. The fuel cell industry chain includes upstream materials, midstream assembly, downstream applications and hydrogen energy supporting facilities. The fuel cell industry track is divided into:

(1) the core technology of card position: it represents the Ballard power of the company. this kind of enterprises have high technical barriers, strong bargaining power and high gross profit, but in the face of the pressure of downstream enterprises extending upstream, revenue stability is poor, and technical advantages need to be maintained continuously.

(2) focus on fuel cell stack: on behalf of company Toyota Motor Corp, this kind of company focuses on fuel cell core component-stack, which has strong upstream and downstream integration ability, but is affected by the slow ecological construction of the whole industry.

(3) focus on vehicle products: on behalf of the company Hyundai, such companies layout engines and vehicles, can take advantage of the automobile industry to quickly launch end products to the market, but subject to the lack of hydrogen infrastructure.

(4) closed park / fixed route + full ecological solution: on behalf of the company Prager Energy, Nikolai Automotive, this kind of company layout downstream applications and hydrogen supporting facilities, can deeply understand and meet the needs of end customers, improve the hydrogen energy application ecological construction of the application market, however, the loss of hydrogen energy business in the whole ecological solution will drive down the gross profit margin.

Prager energy products can seamlessly replace lead-acid batteries with strong compatibility and high economy. The company's fuel cell system GenDrive is equipped with industry standard Anderson car connectors, and its power output parameters are the same as those of power lead-acid batteries. It can be adapted to the mainstream forklift battery compartment, while the output power is more stable than that of lead-acid battery forklifts, and the working temperature range is as low as-30 ℃. Customers do not need to replace the forklift truck body on a large scale to complete the hydrogen upgrade.

According to the company's calculation, GenDrive can improve the efficiency of the material handling system by 15% and reduce the cost by 30%. Strong compatibility and high economy have become the core competitiveness of GenDrive.

Walmart Inc and Amazon.Com Inc, the core customers of Prager Energy, contributed a total of 71.8% of revenue in 2018 and 66.7% in 2019, and both signed 3-5-year cooperation agreements with the company.

Thanks to a large number of orders from important customers, the company currently has a solid leading position with a market share of 95% in the global fuel cell forklift field.

Market expansion is imminent, "all-ecological solution" is expected to replicate in the road scene

The three major business areas are expanding together, with total planned revenue of US $1 billion in 2024. In 2019, the company launched a five-year plan to plan the joint expansion of road vehicles, fixed power supply and material handling, among which road vehicles are aimed at the fleet of medium-sized commercial vehicles recently.

By 2024, the company still dominates with planned material handling revenue of US $750 million, with road vehicle / fixed power business reaching US $2.0 million respectively.

The company expects the operating expense rate to fall to 12% in 2024 and the gross profit margin to rise to more than 30%. The gross profit margin of the current loss-making fuel sales and service-energy procurement contracts will reach 30%, 20% respectively, adjusted EBITDA will reach US $200 million, and operating profit will reach US $170 million.

Revenue growth is in the forefront of peers, and it is expected to be the first to turn losses into profits in the same industry.

From 2014 to 2019, the revenue scale is in the upper reaches of the industry, and continues to grow.

At present, the business in the three major areas is in the stage of expansion, with high certainty in the growth of material handling and large growth space in the field of road vehicles. It is expected that 1) revenue will continue to grow in the future, and 2) with the gradual increase in the proportion of core components and hydrogen production, after the end of the epidemic, gross profit margin will continue to improve.

The company is the absolute leader of forklift fuel cell in the world, and plans to expand the forklift business in the next five years, while cutting into road vehicles and hydrogen energy business, it is expected to fully enjoy the dividends brought by track conversion and the layout of the whole industry chain. The company's revenue from 2020 to 2022 is expected to be 330 Universe 470,687 million respectively.

Risk factors: the epidemic led to delayed delivery, lower-than-expected landing of orders, lower-than-expected customer development, and high financing costs.