Brief description of innovative shares of lithium battery diaphragm dream

From planning the acquisition to suspending the acquisition until the revised plan restarts the acquisition, the innovative stake(002812. SZ) took more than a year to acquire Shanghai Enjie New Materials Technology Co., Ltd.(hereinafter referred to as "Shanghai Enjie") finally got regulatory clearance.

The acquisition of more than $5 billion is significant for innovative shares. From the listing of less than half a year to plan the acquisition, and now use more than a year to complete the acquisition, the company to lithium-ion battery diaphragm of the leading enterprises successfully set sail.

The main product of Shanghai Enjie is lithium battery diaphragm. After the construction of the company's Zhuhai base is completed, it is expected to become the world's first supplier of lithium ion battery isolation film. But will Shanghai Enjie achieve the desired profit in the Red Sea, where the lithium-ion battery diaphragm market is locked in a price war, compared with when the acquisition was launched a year ago?

Gross interest rate negative trend

According to the initial acquisition plan, the innovative SHARES plan to issue 108 million shares at a price of 51.56 yuan/share price of 5.55 billion yuan to acquire 100 % of the shares held by the Li Xiaoming family and others, and at the same time to raise 800 million yuan for Zhuhai Base project construction and intermediary costs. Since both the innovative shares and Shanghai Enjie are controlled by the Li Xiaoming family, the acquisition will not lead to a backdoor listing.

Due to the involvement of foreign natural persons among shareholders, innovation SHARES announced in mid-February that they would not temporarily acquire the shares of foreign natural persons other than the actual owners, that is, the company would not acquire the 6.67 % stake in Shanghai Enjie jointly held by Tan Kim Chwee and Alex Cheng.

The acquisition plan was revised to an innovative share with 50.83 yuan/share issue of 102 million shares to acquire 93.33 % of Shanghai Enjie's shares. The transaction price was 5.18 billion yuan, and the supporting funds did not exceed 800 million yuan. Two months later, innovation shares were successfully approved for reorganization. However, due to the implementation of the transfer plan, the company's issuance plan was revised to acquire 24.87 yuan/share and 208 million shares.

According to the introduction, the first-line battery manufacturers such as Ningde Times, Guoxuan Hi-Tech (002074.SZ) and BYD (002594.SZ) are the main customers of Shanghai Enjie. Shanghai Enjie, which was established in 2010, ushered in an outbreak in 2016.

From 2015 to 2017, Shanghai Enjie's revenue was 157 million yuan, 499 million yuan, and 894 million yuan. The net profits attributed to the parent company's shareholders were 29.72 million yuan, 200 million yuan, and 393 million yuan, respectively.

In the past two years, Shanghai Enjie has maintained a net profit margin of more than 40 %, thanks to the company's ultra-high gross profit margin.

From 2015 to 2017, Shanghai Enjie's comprehensive gross profit margin was 43.33 %, 61.39 % and 65.05 %, respectively. Whether it is lithium battery substrate or lithium battery coated barrier film, the company's two major products in a steady increase in gross margins.

In addition, Shanghai Enjie's high rate of good quality also reduces unnecessary product waste. From 2015 to 2017, the company's comprehensive quality rate was 53 %, 73 % and 78 %, respectively. The Xingyuan material(300568. SZ) prospectus disclosed that the company's good quality rate in the first half of 2015 and 2016 was 59.29 % and 64.47 %.

According to the level of industry, the rate of good dry diaphragm is generally higher than that of wet diaphragm, and the star source material is the main dry diaphragm. It can be seen that Shanghai Enjie's good quality rate is indeed ahead of the general peers.

However, not all of them, Jinguan Electric (300510.SZ) acquisition of Hongtu diaphragm yield rate is also very expensive. In 2015-2016 and January-August 2017, the comprehensive yields of Hongtu diaphragm were 76.83%, 77.03% and 69.07% respectively. Compared with Shanghai Enjie, the company's product yield in 2015 and 2016 is not inferior or even better.

But none of its peers has had such a good day compared with Shanghai Enjie's 2017 rise in gross margins. Xingyuan Material is Shanghai Enjie's main competitor in China. In 2016, the company's gross profit margin was 61.7 %, and in 2017 it dropped 9.85 percentage points to 51.85 %.

Cangzhou Mingzhu (002108.SZ) is another listed company that entered the lithium battery separator market earlier. In 2016, the company's gross profit margin was 63.61%, which was stable and moderately stable. In 2017, the gross profit margin of 47.75% fell sharply by 15.86 percentage points.

In September 2015, Victory Precision(002426. SZ) acquired 51 % of Suzhou Jieli New Energy Materials Co., Ltd.(hereinafter referred to as "Suzhou Jieli") for 612 million yuan, thus entering the area of lithium battery diaphragm. The company then continued to invest 486 million yuan to acquire Suzhou Jieli 33.77 % of the shares in October 2016, thus holding 84.77 %.

Suzhou Jieli's lithium battery diaphragm is similar to Shanghai Enjie's main wet diaphragm. Customers also include well-known lithium battery manufacturers such as Ningde Times and BYD. According to the Victory Precision Annual Report, in 2017, the production capacity of Suzhou Jieli film design was nearly 400 million square meters per year, and the coating film design production capacity reached 120 million square meters per year.

Compared with Shanghai Enjie's 285 million square meters of basic film production capacity and 238 million square meters of coating film production capacity, Suzhou Jieli's scale is not inferior, but the gross profit margin is far away. Its 2016 gross profit margin is 49.02 %, which is stable. In 2017, the gross profit margin fell 19.4 percentage points, leaving only 29.62 %.

Jinguan Electric's acquisition of Hongtu diaphragm and Changyuan Group (600525.SH) acquired the new lithium metal is also the two major manufacturers in the wet diaphragm field, but because the two companies do not have full financial results in 2017, their gross profit margin Change is not known.

At the same time as the peer gross margin fell, the rising Shanghai Enjie gross margin did not decline but slightly improved. Even if the company calls the wet method diaphragm better than the dry method diaphragm, the wet method diaphragm's gross margin is also falling. How does Shanghai Enjie do against the trend?

Diving diaphragm unit price

Huatai Securities quoted the Hongtu diaphragm as listing the new three-board announcement that the largest part of the production cost of the lithium battery diaphragm is the depreciation and labor costs of the equipment, accounting for nearly half of the ratio. The main raw materials such as polyethylene, dichloromethane and white oil account for about 30 %, and electricity and gas account for about 20 %.

In the above cost structure, labor costs and hydropower gas are relatively fixed and predictable, while raw materials such as polyethylene are mainly affected by oil prices, and enterprises can not control them. Due to the low oil price, the purchase price of Shanghai Enjie polyethylene was 30602.29 yuan/ton, 23825.4 yuan/ton and 21646.97 yuan/ton respectively from 2015 to 2017, which decreased by 29.26 % during the period.

However, as oil prices continued to rise in the second half of 2017, polyethylene prices began to warm. According to Wind data, as of February 2018, the average unit price of imports of high-density polyethylene has risen to around $1300 per ton, nearly the highest point in the third quarter of 2015. In the third quarter of 2017, the average unit price for imports was still around $1,100 per ton.

However, among the many factors that affect the lithium battery diaphragm margin, product prices are more obvious than operating costs, and the large decline in the margins of multiple diaphragm peers is obviously related to the decline in diaphragm prices. Star source material explained the company's performance when it said that the decline in product prices is one of the main reasons.

This downward trend did not stop in 2018. Huaxin's weekly report disclosed that at the beginning of January 2018, the mainstream quotation for the wet diaphragm of 16 μm was 3.3-4 .4 yuan/m2, and it was further reduced to 3-3 .6 yuan/m2 in mid-to-late April. The lower limit was further lowered to 3.5 yuan/m2 at the beginning of May. This trend is even more pronounced when measured in years.

How fast the diaphragm price falls, innovative share purchase book is also described. From 2015 to 2017, the unit price of Shanghai Enjie coating film was 6.69 yuan per square meter, 5.75 yuan per square meter and 5.56 yuan per square meter, respectively, which decreased by 16.89 % in three years.

During the same period, the unit price of the base film semi-finished product was 3.76 yuan/m2, 3.85 yuan/m2 and 3.04 yuan/m2, a decrease of 19.15 %; The unit price of the finished product is 4.13 yuan/m2, 4.3 yuan/m2 and 4.12 yuan/m2. And in Shanghai Enjie film sales, the company's main sales are exactly semi-finished products with a significant reduction in prices, and sales of finished products are getting less and less, accounting for less than 10 % in 2016.

It can be seen that in addition to the small reduction in the finished products of the basement film, the unit price of the other two products are nearly 20 %. The same is true of the Hongtu diaphragm acquired by Golden Crown Electric. Its base film unit price is 4.29 yuan per square meter, 4.02 yuan per square meter and 3.82 yuan per square meter from 2015 to 2016 and from January to August 2017; In 2016 and July-August 2017, the unit price of coated film was 6.82 yuan per square meter and 6.08 yuan per square meter, a decrease of more than 10 %.

In the composition of Shanghai Enjie's income, except for 2016, the ratio of base film to coated film income is basically equal. From 2015 to 2017, the company's base film revenue was 84.56 million yuan, 179 million yuan and 457 million yuan, and the coating film revenue was 72.13 million yuan, 320 million yuan, and 437 million yuan. Even if the price of the base film decreased slightly, the proportion of coating film to the company's revenue was about 50 %, then, as the coating film price continued to fall, How does Shanghai Enjie maintain high gross profit?

In the acquisition of innovative shares, Shanghai Enjie gave a generous performance promise that the net profits after deducting from 2017-2019 will not be less than 378 million yuan, 555 million yuan and 763 million yuan, respectively. If the acquisition is completed in 2018, it will promise a net profit of no less than 852 million yuan in 2020.

According to the audit report, in 2017, Shanghai Enjie's non-net profit was 387 million yuan, which just fulfilled the performance promise.

It is worth mentioning that compared with competitors, Shanghai Enjie's accounts receivable are significantly loose. For accounts receivable within one year, Xingyuan Material and Cangzhou Pearl are all accrued according to the 5% standard, while Shanghai Enjie is accrued within 6 months and 6 months to 1 year. Accounts are accrued 5%.

According to the audit report of Shanghai Enjie, in 2017, the company's accounts receivable was 294 million yuan, of which 278 million yuan was within 6 months. If the accounts receivable were uniformly charged according to the 5 % standard of the peers, the above accounts receivable should be accounted for by 13.91 million yuan. The provision for bad debts, Shanghai Enjie's net profit after deducting was reduced to 373 million yuan. This means that the company will not be able to meet its 2017 performance commitments.

For future performance commitments, Shanghai Enjie also predicts that the price of the diaphragm will decline, but the increase in production capacity brought about by the construction of the Zhuhai base can make up for the decline in prices, so that the performance commitment can be completed in quantity.

According to the purchase book, Shanghai Enjie's eight diaphragm production lines currently under construction are all included in the profit expectations. In addition to the Shanghai production line, 800 million yuan of innovative SHARES supporting capital is mainly used for the construction of 5 wet production lines in the first phase of Zhuhai. The output will reach 417 million square meters. Shanghai Enjie will build 12 production lines in Zhuhai, and 3 production lines have been put into production by the end of December 2017.

New capacity has been incorporated into performance commitments, and price compliance is critical. According to the purchase plan, the sales unit price of coated film is 5.63 yuan per square meter, 5.35 yuan per square meter, 5.24 yuan per square meter and 5.14 yuan per square meter from 2017 to 2020. The projected unit price of the base film semi-finished product is 3.66 yuan/m2, 3.29 yuan/m2, 3.13 yuan/m2 and 2.97 yuan/m2, and the unit price of the base film semi-finished product is 4.08 yuan/m2, 3.67 yuan/m2, 3.49 yuan/m2 and 3.32 yuan/m2.

However, according to the actual situation that Shanghai Enjie has already disclosed, the unit price of the company's base film semi-finished products, finished products and coated films in 2017 was 3.04 yuan per square meter, 4.12 yuan per square meter, and 5.56 yuan per square meter, respectively. In addition to the slightly higher base film products with the lowest income, the unit price of the base film semi-finished products and coated films is lower than expected. Among them, the base film semi-finished products have dropped by 16.94 % from expectations, and the coated film is also less than expected.

According to the introduction of innovative shares, from 2015 to 2017, the capacity utilization rate of Shanghai Enjie Film was 87.27 %, 101.59 % and 102.59 %, respectively. It is not difficult to find that the company's production capacity has been fully utilized, construction and production has also been included, and the price of one of the flagship products has dropped by nearly 20 %. So how did Shanghai Enjie achieve a better net profit than expected?

In 2018, Shanghai Enjie estimated that the company's unit price for semi-finished film, finished product and coated film was 3.29 yuan per square meter, 3.67 yuan per square meter and 5.35 yuan per square meter, respectively. In fact, the company's 2017 base film semi-finished product unit price of 3.04 yuan per square meter has been lower than the 3.13 yuan per square meter estimated in 2019.

In 2017, the base film and coating film are still higher than the predicted price in 2018. Then, can the price in 2018 reach the expected price? Innovative shares in the recent investor activity record table, Shanghai Enjie has taken the initiative to reduce the average product price by about 20% to gain a larger market share.

This means that in 2017, when the unit price of the sub-membrane semi-finished product and coating film was lower than expected, Shanghai Enjie again reduced its price by about 20 %, and the company originally predicted that the price of the sub-membrane semi-finished product and finished product would be reduced by about 10 % in 2018. About 5 % of the film price, the actual situation is a decrease of about 20 %.

How can Shanghai's Enjie achieve the expected profit when the new year's price forecast has not been realized and the new year's price cut is much higher than expected? The price is less than expected, the company can maintain the current 60 % gross profit margin?

Although the price war in the Red Sea has been opened, but the lithium battery diaphragm enterprise's determination to expand production has not stopped. As a latecomer, Shanghai Enjie with the advantage of the industry has long been the first covet, to do a large-scale heart has been revealed. Overcapacity is looming amid the industry's expansion.

Capacity Leap Forward

In 2017, Shanghai Enjie's basic membrane production capacity was 285 million square meters, the actual output reached 292 million square meters, and the output utilization rate was as high as 102.59 %; The coating film production capacity is 238 million square meters, the actual output is only 80.46 million square meters, and the output utilization rate is 33.74 %, which is the lowest in the company's three years.

According to the report of Xingye Securities quoted by Innovation Shares, the domestic demand for wet lithium battery diaphragm is 107 million square meters and 173 million square meters in 2015-2016, and the estimated demand for 2017-2020 is 381 million square meters, 675 million square meters, 1.074 billion square meters and 1.56 billion square meters. The demand for overseas markets is 514 million square meters, 1,091 million square meters, 1,588 million square meters and 2,241 million square meters.

In the investor survey, Innovation Shares stated that in 2018, Shanghai Enjie's market share will reach more than 50 %, and the company's product sales have locked in 60 % -70 % of production capacity. It is expected that Zhuhai Enjieda will not be able to meet market demand after the birth. The company will formulate further production plans.

Shanghai Enjie currently builds 12 lithium battery isolation film production lines with an annual output of 1 billion square meters, including 5 launch production lines in Zhuhai. After the construction is completed, Shanghai Enjie's annual production capacity will reach 1.32 billion square meters. Become the world's largest lithium ion battery isolation film supplier.

According to public reports, Shanghai Enjie has invested 5 billion yuan in Wuxi and plans to build 16 fully automatic import film production lines, 40 coating production lines and 5 aluminum plastic film import production lines, adding 1.5 billion square meters of wet diaphragm production capacity., aluminum plastic film production capacity 150 million square meters.

After the completion of the Zhuhai base, Shanghai Enjie's production capacity will reach 1.32 billion square meters. After the completion of the Wuxi base, the company's production capacity will more than double to 3.82 billion square meters, even if the internal coating film of the company consumes part of the basement production capacity. Even if internal losses and good yield problems exist, The production capacity of the Shanghai Enjie family can also meet domestic needs.

Rivals are also busy expanding production. Victory Precision's Suzhou Jieli currently has a base film design capacity of nearly 400 million square meters per year, and the coating film production line has a design capacity of 120 million square meters per year. Although there is currently only one line 1 with a production capacity of 20 million square meters per year, the production capacity of Lines 2-5 and each 45 million square meters per year have been partially consolidated, and the production capacity will also reach 200 million square meters.

The Hunan Lithium official website of the Changyuan Group said that the company's comprehensive annual production capacity is 400 million square meters, and Tianjin Dongsheng Membrane Technology Co., Ltd., which is controlled by Shuangjie Electric (300444.SZ), produces 200 million square meters of battery wet diaphragm 4 per year. The main production equipment of the production line has also been completed by the end of 2017, and the production line has been put into production.

Since then, the advantage has maintained a high rate of good quality. With the change of technology and the large-scale production of opponents, how long can Shanghai Enjie's advantage be maintained?

The page contains the contents of the machine translation.