(Yicai) Sept. 7 -- Despite Yuneng New Energy Battery Material reporting strong first-half earnings, the Chinese supplier of lithium iron phosphate battery cathode materials will likely offer a discount on its Hong Kong shares because of a concentrated sell-off by early investors, according to an insider.

Yuneng is a leading player in its niche industry segment, but its performance is greatly affected by fluctuations in the industry cycle, a representative from a Hong Kong investment bank told Yicai. Moreover, the company has seen a few early investors offloading shares. For these reasons, overseas investors will likely have some concerns about investing in Yuneng's Hong Kong shares.

Given the price disparity between the Hong Kong and Chinese mainland shares of companies with strong cyclical elements, as well as the recent trend of many Hong Kong listings trading below their initial public offering price, Yuneng may have to discount its Hong Kong shares compared with its Shenzhen shares, the representative noted.

Yuneng filed for a Hong Kong listing last month, planning to issue shares accounting for no more than 15 percent of its total share capital. The proceeds were earmarked for an integrated battery materials project in Weng'an, Guizhou province, covering the entire supply chain from phosphate mining to lithium material processing and recycling.

Yuneng’s shares [SHE: 301358] closed 0.9 percent down at CNY55.30 (USD8.24) apiece today. They have nearly halved since hitting a historical record of CNY109.64 (USD16.33) on May 8.

Contemporary Amperex Technology, Yuneng’s third-largest shareholder and biggest customer, announced in early June that it plans to cut its stake in the firm by up to 25.3 million shares, or 3 percent of the total share capital, between June 26 and Sept. 25. CATL has already cut its stake by 10 million shares, indicating that a massive holdings reduction may happen in the next three weeks.

CATL participated in Yuneng's pre-IPO capital increase in December 2020, acquiring about 59.85 million shares for about CNY3.34 (49 US cents) apiece for a total of around CNY200 million (USD29.8 million). The restriction on selling these shares expired in early February this year, exactly three years after the listing.

Yuneng’s sales to CATL and its subsidiaries exceeded CNY10.4 billion (USD1.5 billion) in the first half of the year, while its lithium carbonate procurement from CATL neared CNY2.3 billion (USD338.3 million), according to Yuneng’s semiannual financial statement.

Shanghai Jinsheng New Materials, another institutional investor and shareholder of Yuneng, also unveiled plans to lower its stake in the company in early June, intending to sell up to 21.08 million shares, or 2.5 percent of the total share capital, between June 26 and Sept. 25. Jinsheng has already sold 10.43 million shares, with as many expected to be offloaded in the coming three weeks.

Xiangtan Zhenxiang State-Owned Assets Management Investment, the party acting in concert with Yuneng's largest shareholder, Xiangtan Electrochemical Scientific, has also joined the share-reduction trend. Yuneng announced on Aug. 26 that Xiangtan Zhenxiang State-Owned Assets Management Investment plans to sell all of its 5.98 million shares between Sept. 17 and Dec. 16.

In addition to the three institutional investors above, Yuneng's employee stock ownership platform also disclosed a reduction plan in April. However, after completing part of the reduction, the platform terminated the plan in July.

Yuneng’s earnings report showed that its revenue surged 143 percent to CNY34.9 billion in the first half from a year earlier, driven by rapid growth in demand for LFP battery cathode materials. Net profit skyrocketed 854 percent to CNY2.9 billion.

In the six months ended June 30, Yuneng sold about 667,200 tons of cathode materials, with high-end products accounting for over 62 percent of the total. The proportion of products used in energy storage batteries increased to about 53 percent of the company’s total sales.

Yuneng was the world’s largest supplier of LFP cathode materials by volume for six consecutive years from 2020 to 2025, according to data from Frost & Sullivan. Last year, the company held a 28 percent share of the LFP cathode materials market and a 55 percent share of the high-end LFP cathode materials segment.

Due to strong product demand, Yuneng is operating at full capacity, an executive said during the earnings conference call last month. Market demand growth next year is expected to remain above 30 percent, with particularly strong growth anticipated for high-end LFP products.

Editors: Tang Shihua, Futura Costaglione