Scage's Long-delayed Nasdaq SPAC Listing Moves Forward

A backdoor Nasdaq listing by the maker of green energy trucks took a key step forward last week with its approval by the Chinese securities regulator

Key Takeaways:

• Scage could complete its long-delayed SPAC listing on the Nasdaq within the next month, following a shareholder vote set for the end of March
• The hydrogen-powered truck maker looks well positioned to thrive due to its asset-light business model, strong state ties and China's broader support for green energy

Despite its youth, Scage International Ltd. has created quite the compelling growth story for investors as it aims to tap into China's strong promotion of hydrogen energy vehicles. Now, its plan for a Nasdaq listing using a special purpose acquisition company (SPAC) just needs to make it to the finish line.

The company's listing plan took a major step forward last week when it was officially registered by the China Securities Regulatory Commission (CSRC), equivalent to providing a regulatory green light. Before that, Finnovate Acquisition Corp. (FNVT.US), the SPAC that plans to merge with Scage, had delayed a vote on the plan several times pending CSRC approval. The two companies first announced their intent to merge back in August 2023.

According to Finnovate’s latest announcement published last week, the latest meeting for shareholders to vote on the plan is now scheduled for March 27, following the postponement of previously scheduled votes on Jan. 30 and March 17. There's a May 8 deadline for the deal to be completed, but that has already been extended once before and most likely could be extended again if necessary.

If and when the deal is finally completed, Scage would inherit a company with about $175 million in its trust account, and could potentially bring in new investors who would provide up to another $15 million, according to a Finnovate document filed with the U.S. securities regulator in December.

That would be quite a lot of money for Scage, equaling many times its sales for its most recent fiscal year. The company is also seeking quite a rich valuation, making it seem almost inevitable that the shares will probably immediately come under pressure if and when the listing is finally completed.

All that said, we'll take a closer look at Scage, whose name would change to Scage Future on the listing's completion, and why the company looks particularly well positioned to tap into China's growing love affair with hydrogen-powered vehicles. A successful listing would make Scage the third from this group to go public over the last year, and the first to list in the U.S.

The other two to list, Shanghai Refire (2570.HK), a maker of hydrogen cell systems for heavy-duty trucks, and Guofu Hydrogen (2582.HK), a maker of hydrogen transport and storage equipment, both went public in Hong Kong late last year. Refire's shares are up about 80% from their IPO price, while Guofu's have more than doubled, showing just how excited investors are about these companies.

That excitement probably owes partly to the huge uptake of electric vehicles (EVs) in China over the last two years, which shows that new green technologies can really thrive in the market with Beijing's support. China has launched multiple programs to develop the hydrogen vehicle market at both the national and local levels, including a pilot program launched in 2020 to develop five city clusters to promote the technology.

Revenue-poor but well-connected

With that bigger background in mine, we'll spend the second half of this review taking a closer look at Scage, which is quite young and revenue-poor, but also seems to have laid the foundation for a business that could grow very quickly. The company was only set up a few years ago and designs and sells trucks powered by hydrogen fuel cells.

One of its biggest assets is its partnership with C&C Trucks, which appears to be the actual producer of its hydrogen-powered trucks. Here, we should point out we say "appears to be" since the company has yet to file any formal prospectus and has only given limited information in documents filed by Finnovate. C&C is quite the powerhouse on China's trucking scene, set up as a joint venture between CIMC, a major state-owned logistics company whose products include trucks, and Chery, one of China's major homegrown car makers.

Having such a powerful state-owned partner means Scage will have access to huge resources from the central and local governments to produce and sell its products, and can operate as an asset-light company focused mostly on product development.

The company's website features a number of models, but one of the earliest is the Galaxy II truck, which was launched in 2022 and is "one of the earliest new energy hybrid heavy-duty trucks in China to operate with a driving range of 2,000 kilometers," according to the company. As of September last year, the company had orders for 105 of its new energy vehicle (NEV) trucks, according to the December document.

Despite that big order book, the company's actual revenue is still quite small. It logged $6.1 million in revenue for the 12 months through June last year, which is its most recent figure. That was roughly triple the $2.1 million it generated in its fiscal year 2023. The company recorded net losses of about $6 million for its fiscal years ended June 2023 and June 2024.

Such revenue looks relatively low for the high valuation the company is reportedly seeking. According to the December listing document, founder Gao Chao wants to seek a $1 billion valuation, though Finnovate suggested a lower figure of around $800 million. Both would give Scage a price-to-sales (P/S) ratio of more than 130, which is quite a bit higher than the 25 for both Refire and Guofu Hydrogen.

While we can probably expect some rapid revenue acceleration for Scage, even a tripling of revenue in its current fiscal year and a valuation of $800 million would still give it a P/S ratio of about 45, or nearly twice that of Refire and Guofu. At the end of the day, the company does look quite well positioned for strong growth due to China's promotion of hydrogen energy and the company's strong state connections and asset-light business model. But anyone looking to invest might want to wait for a few months to see where the stock settles if and when Scage finally completes its SPAC listing.