Breton Eyes Big Haul From Investors With Hong Kong IPO Plan

Key Takeaways:

• Breton Technology has filed for a Hong Kong IPO, reporting strong growth for its business making and selling electric-powered loaders and dump trucks
• The company looks well positioned to benefit from China’s strong support for green technology makers

By Doug Young

Much has been written about the huge potential of electric cars from China, including recent controversy over whether they receive unfair state support. But far less ink has gone to the smaller market for electric industrial vehicles like loaders and dump trucks, which also has big potential on growing demand from property, infrastructure and resource developers.

Breton Technology Co. Ltd. is stepping on the accelerator with its drive into that niche, aiming to boost its capacity using funds from a planned Hong Kong IPO, according to its listing application filed with the Hong Kong Stock Exchange last Friday.

The company has hired the relatively big CICC and CMB International as its underwriters, which suggests the deal will be relatively large and mostly target Chinese investors. That meshes with a report from Smartkarma that Breton is aiming to raise about $200 million from the listing, which we estimate could value the company at $1 billion or more.

Breton looks far less sexy than peers like BYD (1211.HK; 002594.SZ) and Tesla TSLA, which have wowed investors with their potential to sell millions of electrical vehicles (EVs) to consumers around the globe. But the company has quite a few potential advantages as well, including less competition and the kind of strong state support in its home market that has drawn so much criticism from foreign governments lately.

The company’s two main products are electric-powered loaders and wide-body dump trucks, and it ranked as China’s third- and fourth-largest seller for each type, respectively, last year in terms of units sold, according to third-party research in the listing document. In real terms, that translated to 484 loaders and 88 wide-body dump trucks sold last year, which shows just how limited this market is. But its growth rates are relatively impressive, and Breton notes the market for this kind of electric industrial vehicle is growing much faster than the one for electric cars.

“While new energy passenger vehicles took eight years to reach a 5.5% market penetration rate from a negligible base, new energy loaders and wide-body dump trucks achieved the same in less than six years,” it pointed out, citing third-party market data.

One of the company’s biggest advantages is the big support it is getting from China, which has previously stated goals of reaching peak carbon emissions by 2030 and going carbon neutral by 2060. Some point to recent data suggesting China may have already reached the peak emissions target due to its rapid adoption of clean technologies combined with the country’s economic slowdown after years of breakneck growth.

Breton pointed to the adoption of favorable policies such one on building “greener mines” issued by the Ministry of Natural Resources in April this year as reflecting the kind of state support that could boost its sales. What’s more, many of the customers the company sells to are big state-owned enterprises, which are more likely to buy this type of electric-powered vehicle to support Beijing’s clean energy goals compared with ordinary consumers.

Lithium hiccup

Breton also notes that buying electric dump trucks and loaders makes sense for owners economically by helping them save money on operating costs. It said that over a five-year lifetime for one of its typical electric loaders, an owner can save around 1.2 million yuan ($167,000). The savings can be even bigger for dump truck owners, up to 2.2 million yuan per unit over a vehicle’s five-year lifespan.

Such savings are quite significant when you consider that Breton’s average loader cost about 622,000 yuan in the first half of this year, while its average dump truck cost 1.39 million yuan.

Breton was founded in 2016 and launched its first products in 2019. It has raised around 1.4 billion yuan over its lifetime in four funding rounds, the most recent raising nearly 1 billion yuan last year. It originally planned to list on Shanghai’s Nasdaq-style STAR Market and filed documents for that in early 2023. But it later shifted gears and withdrew that application in April this year, eyeing the more international-focused Hong Kong market.

The company’s revenue history has been relatively straightforward on a steady road higher, though its profitability hit a bit of a speedbump last year when the price of lithium – a main component in EV batteries – spiked to record highs before dropping sharply this year.

Revenue more than doubled from 201 million yuan in 2021 to 464 million yuan last year. The strong growth continued this year, with the figure rising to 267 million yuan in the first half of 2024 from 161 million yuan a year earlier. The company’s gross margins are quite low and fell from 3.7% in 2021 to just 2.0% last year due to the lithium price spike. But the figure rebounded to 3.1.% in the first half of this year as lithium prices fell.

The company’s revenue mix has shifted somewhat over the last three years, with dump trucks taking up a larger portion of overall sales following its introduction of a model in August 2022 capable of heavy-load uphill operations. Following that development, the company’s average selling price for dump trucks rose sharply to 1.39 million yuan in the first half of this year from just 914,000 in 2021. That lifted dump truck sales to 54% of the company’s revenue in the first half of this year from just 27.3% in 2023.

Breton is still squarely in the red as it remains in growth mode, with its net loss growing from 97.5 million yuan in 2021 to 154.3 million yuan in the first half of this year.

We’ll end with a quick look at the company’s likely valuation, with former U.S. highflyer Nikola Corp. NKLA as a good comparison. Here we should note that Nikola’s shares have tanked lately, losing 90% of their value over the last year, spotlighting the greater difficulty EVs have faced in the West compared with China. But before Nikola’s big decline, the company’s stock was trading at a relatively lofty price-to-sales (P/S) ratio of about 20. A similar ratio for Breton would value the company at about $1.4 billion, assuming it will earn about 500 million yuan in revenue this year.

Of course, there’s always the chance investors may show tepid interest in Breton’s stock, the same way they’ve recently fled from Nikola. But given the much higher degree of state support for EV makers in China, we would expect this listing will probably get a relatively strong reception in Hong Kong, especially from the state-owned investors that are likely to be the biggest buyers of its IPO shares.

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