Interpreting New Stocks | Reshaping Energy: Losses of nearly 2.2 billion in 3 and a half years, in urgent need of listing for "blood infusion"

Hydrogen can be seen as one of the cleanest and most efficient renewable energy sources. As an energy medium, hydrogen has advantages such as zero emissions, high efficiency, high energy density, and large-scale storage in the energy conversion process, thus attracting more and more attention and application in the energy field. However, hydrogen also has several disadvantages, such as the high cost and energy consumption of producing hydrogen by electrolyzing water using renewable energy electricity, and the difficulty in transporting hydrogen due to its strong reaction and low density. The existing hydrogen storage and transportation infrastructure is limited and requires significant investment in infrastructure construction. Most energy systems are designed for fossil fuels, although renewable energy sources such as CECEP Solar Energy and wind energy can be integrated into existing infrastructure, hydrogen requires special fuel cells for storage, which may pose challenges. These challenges need to be overcome through efforts in technological innovation, cost reduction, infrastructure construction, and policy support to promote the popularization and application of hydrogen energy. In the current market environment where opportunities and challenges coexist in the hydrogen energy market, many companies choose to seek to create new opportunities with the help of capital. One of them is Shanghai Re-Fire Energy Group Co., Ltd. (hereinafter referred to as "Re-Fire Energy"), which has taken the lead in China's hydrogen fuel cell system market. According to news from the Hong Kong Stock Exchange on November 14, Re-Fire Energy conducted a hearing for listing on the main board of the Hong Kong Stock Exchange, with CICC as the exclusive sponsor. Leading Chinese hydrogen fuel cell system According to the prospectus, Re-Fire Energy is a leading Chinese hydrogen energy technology company that focuses on the design, development, manufacturing, and sales of hydrogen fuel cell systems, hydrogen equipment, and related components, and provides hydrogen fuel cell engineering development services to meet customer needs, enabling the company to provide one-stop solutions for hydrogen production and end-use applications. Regarding hydrogen fuel cell systems, Re-Fire Energy mainly focused on hydrogen fuel cell systems installed on heavy trucks during the reporting period. The company's revenue mainly comes from: (i) sales of hydrogen fuel cell systems and components; (ii) providing hydrogen fuel cell engineering development services; (iii) sales of hydrogen energy equipment and related components; and (iv) others, mainly including aftersales services. In 2023, sales of hydrogen fuel cell systems and components accounted for 95.8% of total revenue. Re-Fire Energy sells various hydrogen fuel cell systems with different rated powers (mainly between 32kW and 220kW) to hydrogen fuel cell commercial vehicle manufacturers and some fuel cell stack manufacturers. As of May 31, 2024, the company's hydrogen fuel cell systems have provided power for over 5,900 fuel cell vehicles in China. In addition to hydrogen fuel cell systems, the company also provides hydrogen fuel cell vehicle components when providing customized fuel cell product solutions. Since August 2023, the company has introduced a series of proton exchange membrane (PEM) pure water electrolysis hydrogen production systems, PEM pure water electrolysis cells, hydrogen production membranes, hydrogen power sources, and alkaline (ALK) electrolysis cell electrodes, mainly sold to hydrogen production facilities and hydrogen energy equipment manufacturers for the preparation of high-purity hydrogen. According to Frost Sullivan data, Re-Fire Energy ranked first in China's hydrogen fuel cell system market with a market share of 23.8% based on the sales output power of hydrogen fuel cell systems in 2023, and ranked first with a market share of 42.4% based on the total sales output power of hydrogen fuel cell systems mounted on heavy trucks. According to the total sales revenue of hydrogen fuel cell systems, the company's market share is 16.2%, ranking third. According to the total sales revenue of hydrogen fuel cell systems mounted on heavy trucks, the company's market share is 29.4%, ranking first. Consistent annual losses and high accounts receivable It is worth noting that although Re-Fire Energy has taken a leading advantage in the field of hydrogen energy in hydrogen fuel cell systems, the company's profitability is still worrying. From 2021 to 2023, the company's revenue was 524 million yuan, 605 million yuan, and 885 million yuan, showing an overall upward trend. However, during the same period, the company was deeply mired in losses, with losses of 654 million yuan, 546 million yuan, and 578 million yuan respectively. In the first five months of 2024, Re-Fire Energy achieved revenues of 12.521 million yuan, a sharp drop of 85.8% year-on-year, with losses reaching 409 million yuan, an increase of 53.5% compared to the same period. This means that the company has accumulated losses of nearly 2.2 billion yuan from 2021 to the first five months of 2024. In the prospectus, Re-Fire Energy pointed out that in the first five months of 2024, the company's sales revenue from hydrogen fuel cell systems and components was 9 million yuan, which was slightly lower than the 85.7 million yuan in the same period of 2023, mainly due to fluctuations in delivery times that led to a decrease in sales of fuel cell systems and components. In the first five months of 2024, the company delivered only 11 fuel cell systems, compared to 85 in the same period of the previous year. Re-Fire Energy stated that its main customers (fuel cell vehicle manufacturers) generally place orders with the company after evaluating their production and sales plans, which are influenced by various factors including the timing of government-related incentive projects. As a result, large orders and deliveries of fuel cell systems and components usually concentrate in the second half of the year. In June 2024, the company delivered over 70 million yuan worth of components to customers; in the same month, the company received orders for over 80 fuel cell systems from customers, with a total contract value exceeding 29 million yuan. It can be observed that the significant fluctuations in Re-Fire Energy's revenue may be related to the company's reliance on a few customers. In 2021, 2022, 2023, and the first five months of 2024 (during the reporting period), revenues from the top five customers were 393 million yuan, 434 million yuan, 621 million yuan, and 730 million yuan, accounting for 75.0%, 71.7%, 69.3%, and 58.2% of total revenue for the respective year/period. During the same period, revenues from the largest customer were 117 million yuan, 134 million yuan, 262 million yuan, and 49 million yuan, accounting for 22.4%, 22.2%, 29.2%, and 38.9% of total revenue for the respective year/period."Puedo ayudarte con eso" "I can help you with that"It is worth noting that during the reporting period, the trade receivables, accounts receivable and contract assets (net of impairment) of Reshape Energy amounted to 1.2 billion, 1.5 billion, 2.0 billion, and 1.9 billion, accounting for 47.8%, 36.7%, 50.0%, and 51.4% of the total assets of the company as of that date. The company stated that due to the policy orientation of China's hydrogen fuel cell industry, the turnover days of the company's trade receivables were relatively high during the reporting period. In particular, in 2021, 2022, and 2023, the turnover days of the company's trade receivables were 909 days, 1029 days, and 866 days, respectively. During the reporting period, the impairment losses provision for trade receivables, accounts receivable, and contract assets of Reshape Energy were 373 million, 400 million, 461 million, and 503 million, mainly due to: (i) the company made provisions for delayed settlements by several customers and increased related expected loss rates accordingly, (ii) the total value of trade receivables increased as revenue grew, and (iii) impairment provisions were made for trade receivables of several customers facing financial difficulties, including a full provision of 118 million for trade receivables from a Shanghai customer who purchased the company's products before the reporting period. In contrast, in 2021, 2022, and 2023, the turnover days of trade payables and bills payable of Reshape Energy were 501 days, 435 days, and 325 days, respectively. The company pointed out that mismatched turnover days of trade receivables and trade payables would increase the company's liquidity risk as the business grows. As of May 31, 2024, Reshape Energy's asset-liability ratio has reached as high as 90%. Hydrogen fuel cell system market is expected to accelerate growth. Therefore, it is reasonable for Reshape Energy to further develop its business through equity financing. The prospectus shows that the company plans to use 72.3% of the funds raised through the IPO for expanding production of hydrogen fuel cell systems; 15.9% for expanding production of hydrogen equipment; and 7.9% for expanding overseas market business. Further increasing production capacity and seeking globalization will help Reshape Energy to further enhance its market influence. According to a report by Frost & Sullivan, the global sales output power of hydrogen fuel cells has increased from 784.8MW in 2018 to 2978.7MW in 2023 with a compound annual growth rate of 30.6%. Currently, transportation and stationary power generation are the top two downstream application scenarios of hydrogen fuel cell systems, accounting for 56.7% and 30.3% in 2023, respectively. Fuel cell vehicles are the main driving factor, but as the hydrogen fuel cell market continues to develop, stationary power generation and other transportation sectors will gradually commercialize. According to forecasts, the global hydrogen fuel cell market is expected to reach 81,956.1MW by 2028, with a compound annual growth rate of 94.0% from 2023 to 2028. Driven by factors such as support from the national dual-carbon policy and technological innovation, Reshape Energy, as a leading player in the hydrogen fuel cell system market, has shown good growth potential and market competitiveness. If the company successfully goes public on the Hong Kong Stock Exchange, it is expected to expand its market share further, strengthen technology research and development, and enhance brand influence. However, while Reshape Energy has a long-term vision, there are also short-term concerns such as weak bargaining power and high debt levels, investors need to closely monitor how the company improves its bargaining power, optimizes financial indicators, and guards against operational risks to enhance its investment value.