(Yicai) May 14 -- Shares in Yunnan Energy New Material tumbled today after the Chinese lithium battery separator manufacturer, also known as Semcorp, abandoned its plan to acquire equipment supplier Zhongkehualian New Material, citing disagreements over key terms. The company said it will instead invest CNY4 billion (USD589.4 million) to increase production capacity.

Semcorp’s share price [SHE: 002812] closed down 6.9 percent at CNY75.78 (USD11), although the stock has gained 34 percent in value so far this year. The benchmark Shenzhen Component Index ended the day down 2.1 percent.

After careful consideration and friendly discussions with all parties involved, Semcorp has decided to terminate the deal to acquire 100 percent equity of Qingdao-based Zhongkehualian as the two parties were unable to reach an agreement on certain key terms of the deal, the Yuxi-headquartered company said yesterday.

Semcorp first announced the acquisition plan on Nov. 30 last year, saying that it would buy Zhongkehualian, which specializes in the development and manufacturing of complete production equipment for wet-process lithium battery separators, through a share issuance while also raising additional funds.

If the acquisition had gone ahead, Semcorp would have been able to use Zhongkehualian's equipment to produce high-performance separator products, thereby enhancing supply chain stability and production flexibility, it said. This would address issues linked to overseas equipment suppliers such as slow response times, long upgrade cycles and high replacement costs.

In a clear strategic pivot, Semcorp on the same day unveiled a CNY4 billion investment to construct a separator factory in Zigong, southwestern Sichuan province, with an annual capacity of five billion square meters.

The project will be set up as a joint venture, with Semcorp holding a 67 percent stake and an industry partner recommended by the Zigong municipal government holding the remaining 33 percent, it said.

Upbeat Outlook

The lithium battery separator industry has gone through some major adjustments and the competitive landscape is now improving, with resources becoming increasingly concentrated among leading players, Semcorp said. Meanwhile, demand for power and energy storage batteries continues to grow steadily with applications expanding into more areas.

Against this backdrop, the company hopes the new investment will strengthen its production network, increase market share and improve profitability, it said.

Founded in 1996, Semcorp started out making cigarette packaging before branching into new energy materials. It is now the world’s largest supplier of lithium battery separators, whose clients include major battery manufacturers such as Contemporary Amperex Technology, BYD and Eve Energy.

Thanks to the recovery of the lithium battery sector, Semcorp returned to profitability last year, posting net profit of CNY143 million (USD21.1 million) compared with a net loss of CNY556 million the previous year. Revenue soared 34 percent to CNY13.6 billion (USD2 billion), according to its annual report.

This strong momentum continued into this year. In the first quarter, the firm’s net profit surged 10 times from the same period last year to CNY260 million (USD38.3 million), while revenue jumped 43 percent to CNY3.9 billion (USD574.7 million), according to its latest financial report.

Editor: Kim Taylor