Why is the money-rich Contemporary Amperex Technology (300750.SZ) planning a secondary listing in Hong Kong?

Official announcement of the second listing in Hong Kong lasted less than two months, Contemporary Amperex Technology (300750.SZ) formally submitted its prospectus to the Hong Kong Stock Exchange on February 11. In the prospectus, Contemporary Amperex Technology disclosed that the funds raised from this Hong Kong listing will be used to advance the construction of phases one and two of the battery factory project in Hungary, as well as for purposes such as supplementing operating funds. Contemporary Amperex Technology announced its factory construction plans in Hungary in 2022, the company's second overseas battery factory, with a total estimated investment not exceeding 7.34 billion euros (approximately 55.5 billion yuan), and construction has officially begun. The Hungarian factory is located near several European customers' vehicle manufacturing plants, with Mercedes-Benz set to be the factory's first customer. The prospectus revealed that the total investment for phases one and two of the Hungary project is approximately 4.9 billion euros (approximately 37.1 billion yuan). By the end of 2024, Contemporary Amperex Technology has invested around 700 million euros (approximately 5.3 billion yuan), with the remaining funds to be gradually invested in the future. Contemporary Amperex Technology is a global leader in power and energy storage batteries, topping the global power battery installation rankings for eight consecutive years. On December 26 last year, Contemporary Amperex Technology officially disclosed its plan to list on the main board of the Hong Kong Stock Exchange. Reports suggest that the Hong Kong listing could raise at least $5 billion USD (approximately 36.5 billion yuan), but the company has not commented on this. Contemporary Amperex Technology listed on the Shenzhen Stock Exchange's ChiNext in 2018. Its most recent financing took place in June 2022, when Contemporary Amperex Technology raised 44.9 billion yuan through the issuance of shares to specific parties in the A-share market. Combined with its rapid growth in recent years, with net profits exceeding one hundred billion for seven consecutive quarters, Contemporary Amperex Technology has ample financial reserves. As of September 30 last year, Contemporary Amperex Technology's cash and cash equivalents reached 264.6 billion yuan. Why did the financially stable Contemporary Amperex Technology choose to list in Hong Kong for a second time? Contemporary Amperex Technology stated that overseas factory construction and operations require large reserves of euros, dollars, and other foreign currencies. The company's current reserves are insufficient to cover investments in Europe and other regions of several billion euros, as well as the ongoing need for overseas strategic expansion. As of June 2024, Contemporary Amperex Technology's foreign currency balances in USD and EUR were 6.735 billion USD (approximately 49.2 billion yuan) and 3.858 billion EUR (approximately 29.2 billion yuan) respectively. The prospectus for Contemporary Amperex Technology disclosed that in addition to its operational German battery factory and under-construction Hungary factory, it is also moving forward with the construction of a joint venture factory in Spain and a battery industry chain project in Indonesia. The total investment for the Spain project is 4.038 billion euros (approximately 30.5 billion yuan). Contemporary Amperex Technology is also preparing for more production capacity projects in Europe. In January of this year, the Co-Chairman of Contemporary Amperex Technology, Pan Jian, revealed that the company is expected to announce a new joint venture factory project with other main manufacturers in Europe later this year. This will become Contemporary Amperex Technology's fourth battery production base in Europe. At the same time, Contemporary Amperex Technology has not given up on its plans to build a factory in the United States. In November last year, Chairman of Contemporary Amperex Technology, Zhang Yuqun, stated in an interview that if the then-incoming US President Trump allowed Chinese companies to invest in the local electric vehicle industry chain, Contemporary Amperex Technology would also consider building a factory in the United States. Overseas factory construction helps mitigate trade risks, expand markets in Europe and America, among others, but the cost of overseas factory construction will be significantly higher than in China. Taking the Hungary project as an example, the total investment is 55.5 billion yuan, with a planned battery capacity of 100 GWh. Contemporary Amperex Technology's planned total investment in its Yibin base in Sichuan is 56 billion yuan, but its annual capacity can reach 270 GWh. After years of explosive growth, Contemporary Amperex Technology is facing a bottleneck in performance growth. In the first three quarters of last year, despite a net profit of 36 billion yuan for Contemporary Amperex Technology, a year-on-year increase of 15.6%, its revenue decreased by 12% to 259 billion yuan. The revenue decline is mainly due to the drag of the power battery sector, which contributes two-thirds of Contemporary Amperex Technology's revenue. The prospectus for Contemporary Amperex Technology disclosed that sales revenue from the power battery business in the first three quarters was 1755 billion yuan, a decrease of 17.4%. Its sales volume has increased, but due to the decrease in prices of raw materials such as lithium carbonate, the average selling price of products has also been adjusted accordingly.Compared to the domestic market, the overseas market has greater growth potential, and is expected to become a new engine for Contemporary Amperex Technology to expand battery sales. Taking Europe as an example, last year its penetration rate of new energy vehicles was only 17.7%, while China's was 43% during the same period. In the overseas market, Contemporary Amperex Technology faces competition from LG and other Japanese and Korean companies, with less dominance than in the domestic market. In the first 11 months of last year, Contemporary Amperex Technology's market share in the overseas power battery market was 26.8%, while its global market share was 36.8% during the same period. According to the prospectus, in the first three quarters of last year, Contemporary Amperex Technology's revenue from overseas was 80.1 billion yuan, accounting for 30.9%. It showed a slight decline compared to the same period in 2023. Contemporary Amperex Technology stated that the demand for power batteries and energy storage batteries in overseas markets such as the European Union continues to grow. In order to better respond to customer needs, strengthen cooperation with customers, and establish local production capacity in the EU, it is of great significance for the company's international business layout and development. By using the funds raised from the Hong Kong listing to establish overseas production capacity, it will help Contemporary Amperex Technology expand more overseas businesses. Last year, Contemporary Amperex Technology's annualized battery production capacity reached 646 GWh, but the majority of it came from eleven production bases in China. Fu Duo, Vice President of Resources at GMTEight, analyzed to Jiemian News that the Hong Kong listing reflects Contemporary Amperex Technology's ambition to maintain its leading position in the global lithium battery industry. The success of this move will depend on various factors, including regulatory approval, market sentiment, and the global economic situation. This article is reposted from the WeChat official account of "Jiemian News"; GMTEight editor: Liu Xuan.