Drinda New Energy Powers Up IPO For Overseas Expansion

Key Takeaways:

• Drinda fell into the red in the first half of the year, hit by excess capacity in the sector
• The company wants to spend its IPO funds on ramping up overseas production and sale

By Fai Pui

China has re-energized its stock markets with a series of stimulus measures, drawing a crowd of IPO candidates that are keen to plug into the action.

One of the latest applicants for a Hong Kong listing is a leading Chinese maker of photovoltaic cells for solar power systems, which is looking to raise funds to expand its business in overseas markets.

Already traded in Shenzhen as Hainan Drinda Automotive Trim Co. Ltd, the company has filed to list in Hong Kong under the name Hainan Drinda New Energy Technology Co. Ltd., reflecting the revised focus of its business.

Drinda first applied to the Hong Kong Stock Exchange in February this year, but the bid lapsed six months later. With mainland and Hong Kong stock markets in a slump at the time, the company was in no immediate hurry to pursue its listing ambitions. After all, its A-share has lost more than half of its value over the past year.

But rallies unleashed by supportive government policies tempted Drinda to make another push for the Hong Kong market, with hopes of a better IPO valuation.

Founded in 2003, the company initially made plastic automotive trims such as dashboards and bumpers. It went public on the Shenzhen Stock Exchange in 2017, but business declined the following year as China’s auto market slowed down.

The company’s strategy shifted towards the photovoltaic (PV) sector from 2019. To acquire expertise in the then-dominant form of solar cells, Drinda bought a 51% stake in Jietai Technology, which specialized in P-type PERC cells, for 1.43 billion yuan ($200 million). The company then pulled out of the auto components business to devote all its resources to PV cells.

Drinda thrived as a leading maker of PV products, moving to develop the more efficient N-type TOPCon cells as the new energy sector gained momentum. According to the listing prospectus, revenue was just 1.64 billion yuan in 2021, but turnover jumped the following year as Drinda became one of the early mass manufacturers of the new type of cells. Its revenue rocketed to 11.09 billion yuan in 2022 and rose nearly 68% to 18.61 billion yuan last year.

Net profit also climbed in the past three years, multiplying from 53.73 million yuan in 2021 to 617 million yuan the following year and jumping another 32% to 816 million yuan in 2023. The earnings performance pushed the company’s Shenzhen share price to a peak of 173.26 yuan in 2022, before a decline set in.

By mid-October this year, Drinda’s A-share had fallen to 43.7 yuan, around 53% lower than a year ago and nearly 75% under the 2022 peak, as the company was unable to sustain its rapid growth. Revenue fell 32% in the first half of 2024 to 6.36 billion yuan from the year-earlier period. More importantly, the company logged a net loss of 166 million yuan, a far cry from the soaring profit of 956 million yuan in the equivalent half of last year.

The company was already losing money in the second half of last year, given that its annual profit for 2023 was 816 million yuan. The reversal was largely due to excess capacity that started to build up in the PV sector last year, pushing down prices across the supply chain. Prices for polysilicon and silicon wafer fell more than 40% in the first six months of the year and cell prices sagged by more than 15%.

Prices Power Down

Income from the older technology, P-type PERC cells, has fallen particularly steeply. Drinda’s revenue from this cell type fell nearly 88% in the first half, while income from N-type TOPCon cells slipped 4.5%. But prices for both types of PV cells are falling, which is a major concern for investors. The average sales price for P-type PERC cells tumbled from 1.06 yuan/W in 2022 to 0.75 yuan/W last year and by around a further 63% year on year to 0.32 yuan/W in the first half of 2024. The average sales price for N-type TOPCon cells was only 0.36 yuan/W in the first half of the year, down 61%.

China’s PV market is still trying to digest the capacity glut. According to a report by Sinolink Securities, second- and third-tier companies started to exit the sector or restructure in the fourth quarter of last year, with many already winnowed out by competition in an intensifying market shakeout.

With a tough domestic market, many suppliers have been looking for growth opportunities outside China. The global output of PV cells was estimated at 544.9 GW last year and is expected to reach 1,526.6 GW by 2030, marking a compound annual growth rate of 14.2%, according to data in the prospectus. The growth rate for output outside China is projected to reach an even higher 25.6%.

The push for business outside China is showing up in Drinda data. The proportion of total sales derived from overseas rose from 0.3% in 2021 to 13.8% in the first half of this year. The company is planning to expand annual production capacity outside China to around 10 GW, using some of the IPO money to build an overseas PV production plant with an annual capacity of 5 GW. The rest of the proceeds would be spent on building overseas sales and distribution channels, developing advanced technologies, or general operations.

Of course, venturing abroad is not without its risks, such as the potential for trade tariffs, export controls and anti-dumping duties that could affect Drinda’s business plans.

To succeed in its attempt at a dual listing, Drinda will have to pitch the pricing carefully. As of last Friday, Hong Kong-listed shares were trading at a discount of between 5.3% and 77.1% to mainland shares. For energy-related shares the discount was around 50%. If it passes the listing hearing this time, the company will have to settle on an attractive price if it wants to generate the desired expansion funds.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.