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For a long time, the more well-known members of the Cao family in Fuqing City, Fujian Province are the brothers Cao Degan and Cao Dewang. The eldest brother, Cao Degan, entered politics and became a vice governor, while the second brother, Cao Dewang, went into business and founded the world-famous Fuyao Glass.

Today, Cao Fang, the younger sister of Cao Degan and Cao Dewang, has also come to the fore as Zhengli New Energy Battery Technology Co., Ltd. (hereinafter referred to as "Zhengli New Energy") applies for an IPO on the Hong Kong stock market. How did the third son of the Cao family, who started a business ten years after retirement, enter the new energy industry? What role did the "Glass King" Cao Dewang play in his sister's entrepreneurial process? How is Zhengli New Energy doing?

Source: Company website

Valuation reached 18.2 billion yuan

When talking about the "Glass King" Cao Dewang, people always mention his legendary struggle to build China's largest automotive glass supplier, Fuyao Glass, from scratch. It is also inevitable to mention his wealthy ancestors and his brother's political background, but Cao Dewang's other four brothers and sisters are relatively low-key.

Among them, the third sister Cao Fang joined Fuyao Glass, which had been established for ten years, as a director in 1997 when she was 39 years old. At that time, Fuyao Glass had been listed for four years.

In February 2011, 53-year-old Cao Fang was entrusted by Cao Dewang with the important task of deputy general manager, in charge of business affairs, until he retired in April 2014 due to "personal age reasons". Cao Fang worked at Fuyao Glass for a total of 17 years.

In March 2013, while still in office, Cao Fang and Chen Jicheng, also a veteran of Fuyao Glass, jointly founded New Zhongyuan Venture Capital. In November of the same year, they jointly established New Zhongyuan Toyota with Toyota to provide battery systems for Toyota's hybrid and plug-in hybrid models. Cao Fang is the chairman of New Zhongyuan Toyota.

It is also because of the above experience that although Cao Fang did not participate in the difficult early stage of Fuyao Glass, he still accumulated rich experience in corporate management. After retirement, Cao Fang did not stay at home idle, but co-founded Zhengli Investment with Chen Jichen in August 2016.

According to information, Chen Jicheng joined Fuyao Glass in October 2003 and has held several positions in Fuyao Glass Group, including executive director of Fuyao Glass from October 2015 to April 2016 and deputy general manager of Fuyao Glass from February 2011 to April 2016.

In fact, Fuyao Glass, the company of Cao Wangde, Cao Wangde's elder brother, mainly provides glass for automobiles. Cao Hui, Cao Wangde's eldest son, also chose to start a business in the automotive aftermarket, providing parts for brand manufacturers, all of which are centered around the automotive industry. The same is true for Cao Fang, who founded Zhengli Investment, which invests in the field of core components for electric vehicles.

In December 2016, Zhengli Investment and Weiran Nanjing, a subsidiary of NIO, jointly established Suzhou Zhengli New Energy, with each party holding 65% and 35% of the shares respectively.

On February 11, 2019, Zhengli Investment subscribed for 6.78% of the registered capital of power battery manufacturer Jiangsu Tafel at a cost of RMB 160 million, making a minority equity investment in Jiangsu Tafel. In May 2020, it further acquired a controlling stake in Jiangsu Tafel. By subscribing to Jiangsu Tafel's additional registered capital at a total cost of RMB 1.08 billion and transferring the registered capital held by Jiangsu Tafel's current shareholders, it increased its equity to approximately 43.47% and became the controlling shareholder.

After that, after a series of reorganizations, Cao Fang used Zhengli New Energy as the listing entity and incorporated some businesses of Suzhou Zhengli New Energy and Jiangsu Tafel, becoming the current proposed listed company.

During this period, in 2019, Zhengli New Energy completed a round A financing of 2.4 billion yuan, with participation from institutions such as Haisong Capital, Nanjing Jiangning, CICC SAIC, Emerging Industries Fund, and Southeast New Energy, with a post-investment valuation of 14.4 billion yuan.

The above-mentioned Weiran Nanjing "exited" from Zhengli New Energy because it sold its shares in Suzhou Zhengli New Energy to Zhengli Investment.

By July 2024, Zhengli New Energy completed a 1 billion yuan B round of financing from Xinzhongyuan Venture Capital, Southeast Investment Holdings and Suchuang Energy Investment.The post-investment valuation reached 18.2 billion yuan.

The prospectus shows that currently, because of the signing of a concerted action agreement and a voting proxy agreement, the company's chairman Cao Fang and general manager Chen Jicheng together control 64.6% of Zhengli New Energy's shares and jointly control Zhengli New Energy, including 48.56% of the shares held by the two management shareholders Cao Fang and Chen Jicheng, and approximately 16.04% of the shares held by financial investors.

Among them, financial investors include Wuxi Zhenghai, Fujian Yaohua, Wugang Yuanding, Beijing Jiade, Juxin Xihai, Hengqin New Energy, Lianhe Jiaying, Xingzheng Investment Management, Anhui Haichuang, Shengtun Mining, Ma Shaodong and Zhongtai Ronghao.

According to a rough calculation by IPO Daily, Cao Fang indirectly holds approximately 23.77% of the shares of Zhengli New Energy through Zhengli Investment, Xinzhongyuan Venture Capital, Nanjing Miaode, and Nanjing Xuande.Based on the most recent post-investment valuation of 18.2 billion yuan, the valuation is approximately 4.326 billion yuan.

In addition, as a financial investor, Fujian Yaohua (full name "Fujian Yaohua Industrial Village Development Co., Ltd.") holds 2.67% of the shares of Zhengli New Energy. Fujian Yaohua was established in May 1992 and is mainly engaged in real estate development and operation, construction project construction, property management, housing leasing and non-residential real estate leasing. Sanyi Development Co., Ltd., which is wholly owned by Cao Dewang, holds 73.56% of the equity.In other words, Cao Dewang indirectly participated in the investment in Zhengli New Energy, which was founded by his sister Cao Fang. Based on the latest post-investment valuation of 18.2 billion yuan, the valuation may reach 357 million yuan.

Net loss of 2.7 billion yuan

So, what kind of company is Zhengli New Energy, whose latest post-investment valuation has reached 18.2 billion yuan?

The prospectus shows that Zhengli New Energy is a power and energy storage battery manufacturer that uses technology to develop a multi-technology battery product portfolio. The company provides integrated solutions for battery cells, modules, battery packs, battery clusters, and battery management systems, and is committed to expanding the large-scale application of electrochemical products in the land, sea, and air interconnection full scene (LISA).

Thanks to the increasing market demand for power batteries, Zhengli New Energy's sales have increased rapidly. From 2021 to 2023, the company's power battery sales were 2106.7MWh, 3634.4MWh and 5906.7MWh, respectively, more than doubling.

However, Zhengli New Energy's overall market share is not high, ranking tenth in the market.

According to statistics from the China Power Battery Industry Innovation Alliance, as of January 6, 2024, Zhengli New Energy's overall market share is 1.61%, which is a big gap compared with market leaders such as CATL, BYD, Sinotruk, and EVE Energy. According to a report by Frost & Sullivan, in 2023, Zhengli New Energy will rank 10th in the power battery market in terms of installed capacity of power batteries.Based on the year-on-year growth rate of installed capacity in 2023, Zhengli New Energy ranks second among the top ten companies in the power battery market in terms of installed capacity.

From 2021 to 2023, Zhengli New Energy will achieve operating income of 1.499 billion yuan, 3.29 billion yuan, and 4.162 billion yuan, respectively, with a compound annual growth rate of 66.6%;The net losses were 402 million yuan, 1.72 billion yuan, and 590 million yuan respectively, with a cumulative loss of 2.712 billion yuan in three years.

In the first quarter of 2024, Zhengli New Energy achieved revenue of 737 million yuan, a year-on-year growth rate of 224.3%, and a net loss of 70 million yuan.

Overall, Zhengli New Energy has not yet made a profit and is still in a loss-making state.Zhengli New Energy stated that the reasons for the net loss were mainly due to the one-time impact of customer X's cancellation of the purchase order, large expenditures in technology and product development, and fluctuations in raw material prices.

Zhengli New Energy's current customers include large central state-owned enterprises, new car manufacturers and multinational vehicle companies, including FAW Hongqi, GAC Trumpchi, Leapmotor, SAIC-GM-Wuling, SAIC-GM, etc. At the same time, the company also cooperates with large energy storage companies such as China Three Gorges, China Power Construction, and Dongfang Electric, and is currently carrying out R&D and aviation certification work with leading eVTOL companies at home and abroad.

Among them, from 2021 to 2023 and the first quarter of 2024,The sales revenue of Zhengli New Energy's top five customers accounted for 89.1%, 90.4%, 77.8% and 86.6% of the total revenue respectively, showing obvious dependence on large customers. Among them, the sales revenue of the largest customer accounted for 55.2%, 29.3%, 28.3% and 47% of the total revenue respectively.

For example, in 2021, the company's largest customer X contributed 828 million yuan in revenue, accounting for 55.2% of revenue. However, in 2022, customer X experienced major adverse changes in its business operations, which led to changes in its battery procurement plan and cancellation of the purchase order for ternary battery products for BEV.This resulted in a reduction in the sales volume and sales revenue of Zhengli New Energy's ternary batteries, which had a significant adverse impact on the sales costs, gross profit margin and overall operating performance of that year, and exacerbated losses.