HK IPO: Longpan Technology IPO analysis and subscription plan

Jiangsu Lopal Tech Co., Ltd. (hereinafter referred to as "Lopal Tech") is a company limited by shares incorporated in China, mainly engaged in the production and sales of lithium iron phosphate (LFP) cathode materials, and is also a well-known manufacturer of automotive fine chemicals in China. The company's products are widely used in the new energy vehicle (NEV) industry, energy storage sector, automotive manufacturing market, aftermarket, and engineering equipment market.

Lopal Tech's business is primarily divided into two segments:

1. Lithium Iron Phosphate (LFP) Cathode Materials: The company is one of the world's leading manufacturers of LFP cathode materials, with products used in lithium battery production for the new energy and energy storage markets.

2. Automotive Fine Chemicals: The company produces and sells a diversified portfolio of automotive fine chemicals, including diesel engine exhaust fluid, automotive and industrial lubricants, coolants, and vehicle care products.

The company holds a significant position in the global LFP cathode materials market. According to Frost & Sullivan, based on 2023 sales volume, Lopal Tech is the fourth-largest LFP cathode materials manufacturer in China and globally, with a global market share of 6.5%. Additionally, the company ranks third in the Chinese mainland market for diesel engine exhaust fluid and coolants.

Lopal Tech was listed on the Shanghai Stock Exchange in 2017 under the stock code 603906. Leveraging its expertise and market position in LFP cathode materials and its diversified product portfolio in automotive fine chemicals, the company has achieved strong growth. However, it also faces challenges such as raw material price volatility, intensifying market competition, and rapid technological changes.

The company plans to consolidate and expand its market position in the LFP cathode materials and automotive fine chemicals industries by increasing production capacity, strengthening R&D capabilities, expanding domestic and international markets, and enhancing brand and channel strategies. Furthermore, the company intends to leverage its expertise in LFP cathode materials to expand further into upstream raw material sectors to improve self-sufficiency and reduce costs.

Financially, the company achieved significant revenue growth in 2021 and 2022 but recorded a net loss in 2023 due to sharp fluctuations in lithium carbonate market prices. Despite these challenges, Lopal Tech's LFP cathode material sales continued to grow in the first half of 2024, reflecting sustained market demand.

Use of Proceeds

1. Partial funding for Phase II of the Indonesia plant:

   - Approximately 40.0%, or HKD 208.0 million.

2. Partial funding for the new lithium manganese iron phosphate (LMFP) production line at the Xiangyang plant in Hubei Province:

   - Approximately 40.0%, or HKD 208.0 million.

3. Repayment of certain interest-bearing bank loans:

   - Approximately 10.0%, or HKD 52.0 million.

4. Working capital and other general corporate purposes:

   - Approximately 10.0%, or HKD 52.0 million.

IPO Details:

Pre-IPO and Cornerstone Investors:

The company has been listed on the Shanghai Stock Exchange since April 10, 2017, under the stock code 603906. The A-share market capitalization of Lopal Tech is RMB 6.075 billion, while the proposed H-share IPO valuation ranges from HKD 2.993 billion to HKD 4.656 billion, with an H/A premium of -54.79% to -29.67%.

The company has introduced one cornerstone investor for this offering, accounting for 20% of the total shares, with a six-month lock-up period.
 

Sponsors:

The IPO is jointly sponsored by Guotai Junan Securities and Kaisheng Capital, with Guotai Junan acting as the stabilizing agent. Guotai Junan's historical performance is mediocre, neither outstanding nor problematic—just a typical task-oriented sponsor ^^. Its track record as a stabilizing agent is similarly unremarkable.

Financial Highlights:

Revenue:RMB 4.053 billion in 2021, RMB 14.071 billion in 2022,and RMB 8.729 billion in 2023.

Gross Profit:RMB 1.079 billion in 2021, RMB 2.433 billion in 2022, and a loss of RMB 57 million in 2023;

Net Profit/Loss:RMB 433 million in 2021, RMB 1.029 billion in 2022, and a loss of RMB 1.514 billion in 2023;

Lottery Winning Rate:

The company is offering 100 million shares globally, with 500 shares per lot. As of now, the oversubscription rate is 1.01x. Based on current margin financing, there will be no clawback. There are 10,000 lots each for Group A and Group B, with an estimated 5,000–9,000 participants. The lottery winning rate is expected to be 100%.

Comprehensive Review:

Lopal Tech's main revenue comes from LFP cathode materials and automotive fine chemicals. In 2023, LFP cathode materials contributed RMB 6.753 billion (77.4% of revenue), while automotive fine chemicals contributed RMB 1.903 billion (21.8%). The company's sales channels are primarily distributors (9.6%), corporate clients (87.8%), OEM clients (2.2%), and online channels (0.4%).

Lopal Tech is an upstream lithium battery materials company already listed on the Shanghai Stock Exchange. Due to the sharp fluctuations in lithium carbonate prices over the past two years, many companies in this sector are currently operating at a loss. There isn't much to say about its fundamentals. For A/H dual-listed IPOs, the returns are typically among the lowest. Although the premium rate appears high, many existing A/H dual-listed stocks have even higher premiums.
 

The company's IPO price range has a wide spread of 55.56%. Even at the lower end of the range, the A/H premium is unremarkable, let alone at the upper end. Don't expect to profit from this—you might end up losing money. A/H dual-listed stocks have always left a poor impression. Some might cite Midea Group as an exception, but Midea's listing coincided with a market bottom. Even if you had invested in Midea's A-shares, the returns would have been substantial. Some might ask if there's regret—remember, you're an IPO investor, not a stock trader. Theoretically, any subsequent gains are irrelevant. IPO investors profit from the first-day pop and the premium over the issue price—nothing more.

If you're eyeing potential multi-bagger returns, there are plenty of A-share stocks that have doubled or even ten-bagged in less than a month. Why not invest in those instead? Lastly, if you're confident Lopal Tech won't correct, just buy its A-shares. If it does correct, do you think the H-shares will be spared?

Bull Rating: Bronze Bull

Rating Scale: True Bull > Gold Bull > Silver Bull > Bronze Bull > Pot Bull (True Bull: All-in with margin; Gold Bull: High certainty, also use margin; Silver Bull: Moderate certainty, multi-account diversification; Bronze Bull: Volatile, prone to wild swings; Pot Bull: Not worth participating)

Subscription Plan:

Pass

$LOPAL TECH(02465.HK) 

Disclaimer:Investing involves risks. Participate with caution. The mentioned securities are for personal record-keeping only and do not constitute investment advice. Any losses incurred are your responsibility. If this article helps you, please like, share, and recommend it to friends in need. Thank you!