New Stock Outlook | Reshaping Energy: Accumulated Loss of 2.2 Billion RMB in the Past Three and a Half Years, Hydrogen Fuel Cell Market Urgently Needs to Accelerate Commercialization

With the maturity of green hydrogen production technology and the increase in the proportion of installed capacity of renewable energy sources such as wind and solar, the cost of electricity is decreasing. In the future, hydrogen energy and hydrogen-based fuels are expected to play a crucial role in the energy system, with global hydrogen demand expected to reach 150 million tons by 2030. Despite the broad prospects of the industry, the performance of companies in the hydrogen energy sector, especially in the hydrogen fuel cell sector, is not optimistic. Two hydrogen fuel cell concept stocks listed last year, SINOHYTEC (02402) and SINOSYNERGY (09663), were both in a loss-making state in the first half of the year, with losses of 141 million yuan and 200 million yuan respectively. At a time when the two hydrogen fuel cell targets are facing profitability challenges, another player in this sector is attempting to make a comeback on the Hong Kong Stock Exchange. According to the Hong Kong Stock Exchange on September 2, Shanghai Reshuffle Energy Group Co., Ltd. (referred to as Reshuffle Energy) once again submitted an application to the Hong Kong Stock Exchange Main Board, with CICC as its sole sponsor. The company had previously submitted an application to the Hong Kong Stock Exchange on February 29 of this year. It is worth noting that the Hong Kong Stock Exchange is not the first choice for Reshuffle Energy's listing. As early as March 2021, Reshuffle Energy had submitted a prospectus to the Sci-Tech Innovation Board for an IPO. Accumulated losses of 2.2 billion yuan in the past three and a half years According to the prospectus, Reshuffle Energy is a leading hydrogen energy technology company in China. During the reporting period, Reshuffle Energy focused on the design, development, manufacturing, and sales of hydrogen fuel cell systems, hydrogen equipment, and related components, and provided hydrogen fuel cell engineering development services to meet customer needs, enabling it to provide one-stop solutions for hydrogen production and terminal applications. From 2021 to May 31, 2024 (hereinafter referred to as the "reporting period"), the company's revenues were 524 million yuan, 605 million yuan, 885 million yuan, and 12.521 million yuan, showing an overall upward trend. However, the company has been mired in losses during the same period, with losses of 654 million yuan, 546 million yuan, 578 million yuan, and 409 million yuan, accumulating to a total of 2.2 billion yuan in losses over the past three and a half years. In terms of business segments, the sale of hydrogen fuel cell systems and components is the company's core business, with revenues of 514 million yuan, 574 million yuan, 857 million yuan, and 8.987 million yuan during the reporting period, accounting for 98%, 94.9%, 95.8%, and 71.8% of total revenue respectively; revenue from providing hydrogen fuel cell engineering development services was 7.251 million yuan, 26.473 million yuan, 23.444 million yuan, and 966,000 yuan, accounting for 1.4%, 4.4%, 2.6%, and 7.7% of total revenue respectively. Sales from the hydrogen equipment and related components business only contributed revenue of 7.681 million yuan in 2023, accounting for approximately 0.9% of total revenue. Overall, the sale of hydrogen fuel cell systems and components is the revenue growth engine for the company, with this segment's revenue seeing a significant increase in 2023, driving a 49.5% year-on-year increase in the company's total revenue. While revenue continues to grow, the company is deeply rooted in losses due to high costs, low gross margins, and high expenses. For one, the company's sales costs have been expanding in line with revenue growth, with sales costs of 462 million yuan, 555 million yuan, and 716 million yuan in 2021, 2022, and 2023 respectively, representing year-on-year growth of 20.1% and 29%, and accounting for 88.2%, 91.8%, and 79.9% of revenue, respectively. During the same period, the ratio of raw material costs to sales costs was 87.0%, 83.2%, and 88.5%. It is not common to see such high raw material costs in manufacturing enterprises. Generally, the ratio of raw materials to revenue in manufacturing companies does not exceed 50%. The high raw material costs have led to significant inventory impairment losses. For example, in 2021 and 2022, the company recorded inventory impairment amounts of 47.671 million yuan and 82.113 million yuan, respectively. For a company with an annual income of only 600 million yuan, an inventory impairment of over 80 million yuan is considered high. Secondly, looking at the gross margin, the company's gross margin was 61.78 million yuan, 49.823 million yuan, 180 million yuan, and -24.202 million yuan during the reporting period, with gross margins of 11.8%, 8.2%, 20.1%, and -193.3% respectively. Overall, the company's gross margin performance has been volatile, with the gross margin reaching a new high in 2023 but recording losses in the first five months of 2024. In comparison, the company's profit level is significantly lower than that of its counterpart SINOHYTEC, with gross profit margins in the past three years of 37.9%, 38.4%, and 32.5%. On the expense side, high administrative expenses and sales expenses have led to high expenses. The company's administrative expenses were approximately 218 million yuan, 243 million yuan, and 340 million yuan from 2021 to 2023, showing a significant continuous growth trend and accounting for about 41.6%, 40.1%, and 37.9% of revenue in each period, respectively. Research and development expenses, on the other hand, showed a fluctuating decrease, amounting to 231 million yuan, 199 million yuan, and 221 million yuan, accounting for about 44.1%, 32.9%, and 24.7% of revenue, respectively; sales and marketing expenses were approximately 90.475 million yuan, 103 million yuan, and 135 million yuan, accounting for 17.3%, 17.0%, and 15.1% of revenue in each period. According to sources, the continuous increase in administrative expenses at Reshuffle Energy is due to increased employee compensation resulting from stock incentive plans. In conclusion, poor performance in terms of costs, gross profit, and expenses has led the company to incur continuous losses. What's even worse is that Reshuffle Energy has relatively weak industry influence, with trade receivables, bills receivable, and contract assets (net of impairment) amounting to 1.2 billion yuan, 1.5 billion yuan, 2 billion yuan, and 1.9 billion yuan during the reporting period, accounting for 47.8%, 36.7%, 50.0%, and 51.4% of total assets in the same period. This indicates that the expansion of its business has not been translated into tangible assets, highlighting its liquidity crisis. During the reporting period, Reshuffle Energy's operating cash flow remained negative, with approximately -768 million yuan, -728 million yuan, -718 million yuan, and -144 million yuan. To address this situation, the company...To make ends meet, the company can only survive by taking out loans. From 2021 to 2023, the company raised a total of 2.637 billion yuan through financing activities. During the same period, interest-bearing bank loans and other borrowings ranged from 654 million yuan to 934 million yuan.As of May 31, 2023, the company's cash and cash equivalents were only 4.36 billion yuan. Judging by the company's cash usage during the reporting period, the 4.36 billion yuan can only sustain the operation of restructuring energy for about six months. The company's desire to go public can be described as urgent. The "1+N" policy system for hydrogen energy is gradually improving, and the promotion process of fuel cells is expected to accelerate significantly. In recent years, China has attached great importance to the development of the hydrogen energy industry and has introduced a series of supportive policies to provide strong guarantees for the rapid rise of the hydrogen energy industry. In March 2022, the "Mid- and Long-Term Development Plan for the Hydrogen Energy Industry (2021-2035)" was introduced, providing strategic guidance and action plans for the development of the hydrogen energy industry; proposing to accelerate the construction of the "1+N" policy system. By examining the domestic hydrogen energy policies in 2024, two major highlights can be seen: first, the level of attention at the top has increased, and the national policy system continues to improve; second, top-level designs at the local level have been successively introduced, and supporting policies are advancing rapidly. For example, at the national level, in March, the National Energy Administration issued the "Guiding Opinions on Energy Work in 2024," proposing the formulation of relevant policies to accelerate the high-quality development of the hydrogen energy industry and focusing on the implementation of follow-up policies. Top-level designs at the local level have been successively introduced, and supporting policies are advancing rapidly. More importantly, the plan sets a target of 50,000 fuel cell vehicles by 2025. Public data shows that from 2015 to 2023, the cumulative production and sales of fuel cell vehicles in China reached 18,494 and 18,096 respectively. To achieve the target, the sales in 2024 and 2025 need to reach 15,952 vehicles per year, indicating a clear trend of high growth. From the perspective of enterprises, the reduction in the cost of hydrogen fuel cell systems and fuel cell stacks will drive a significant reduction in the cost of hydrogen fuel cell vehicles, thereby accelerating the commercialization of downstream applications of hydrogen energy. In recent years, fuel cell companies have achieved rapid cost reduction, such as SINOHYTEC, whose fuel cell system cost has decreased from 10,300 yuan/kW in 2019 to 2,500 yuan/kW in 2023, with a compound annual reduction rate of 30.1%; SINOSYNERGY's cost reduction from 2019 to 2023 was 25.0%, and although the unit power cost of the system in 2022 rose mainly due to the product structure, the unit power cost of the stack still maintained a downward trend, with a reduction of 26.2% in 2022, and a compound annual reduction rate of 18.4% from 2020 to 2023. It is expected that with the gradual increase in the deployment of fuel cell vehicles in the future, economies of scale will further drive cost reduction for enterprises. Changjiang pointed out that 2025 marks the first milestone in the plan, and the promotion process of fuel cell vehicles is expected to accelerate significantly. Specifically for Reshaping Energy, the company is the first in China's hydrogen fuel cell industry to simultaneously achieve independent research and development and mass production of fuel cell stacks, membrane electrodes, and bipolar plates. Reshaping Energy has PEM and ALK electrolysis products. As of May 31, 2024, Reshaping Energy's hydrogen fuel cell system has powered over 5,900 fuel cell vehicles in China. As of the same date, the cumulative mileage of these vehicles is approximately 210 million kilometers, reducing carbon emissions by around 116,851 tons. Reshaping Energy has also established business relationships with several well-known international companies in the hydrogen fuel cell industry, such as Germany's Schaeffler Group and Japan's Toyota. In addition, Reshaping Energy, along with Great Wall Motor, Weichai Power, State Power Group, and China Petroleum & Chemical Corporation, have become the first batch of Chinese companies to join the International Hydrogen Council. According to Frost & Sullivan data, based on the sales output power of hydrogen fuel cell systems in 2023, Reshaping Energy ranks first in the Chinese hydrogen fuel cell system market, with a market share of 23.8%. Based on the total sales output power of hydrogen fuel cell systems installed in heavy trucks in 2023, Reshaping Energy ranks first in the Chinese hydrogen fuel cell system market, with a market share of 42.4%. Based on the total sales revenue of hydrogen fuel cell systems installed in heavy trucks in 2023, Reshaping Energy ranks first in the Chinese hydrogen fuel cell system market, with a market share of 29.4%. Based on the total sales revenue of hydrogen fuel cell systems in 2023, Reshaping Energy ranks third in the Chinese hydrogen fuel cell system market. It is worth noting that SINOHYTEC and SINOSYNERGY are currently in a state of decline. Especially SINOHYTEC, whose stock price is currently only 23.7 Hong Kong dollars, a decrease of 61% from the issue price. In terms of performance, Reshaping Energy currently does not have an advantage. If the company successfully goes public, it will be a major challenge to receive funding favourably.