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4 factors impeding growth of small-medium lithium ion equipment providers

Benefiting from the rapid development of the new energy automotive industry, both large-sized lithium-ion equipment providers and small and medium-sized equipment providers have enjoyed industrial expansion brought by the rise of demand of power battery production and the need for upgrading of manufacturing equipment.

Recently, a number of small and medium-sized lithium-ion equipment enterprises in South China reacted. Although there was a substantial increase in the business performance this year compared with last year, there are also potential risks of high receivables, lack of funds for capital expansion, Equipment companies are looking for Joint Venture opportunities with a view towards M/A.

4 factors impeding growth

Predominantly led by the spectacular growth in financial performance, it is reported that many small and medium-sized lithium-ion equipment enterprises have enjoyed good performances. General situation is good, equipment orders filled by overtime workers have become a norm in the industry. The performance of individual enterprises in the first three quarters of 2017 even increased four times from the previous year.

Accounts receivables are generally higher. Due clear subsidies led by the Government toward Electric Vehicles, the pressure on accounts receivable in the power battery industry is generally high. Such a chain reaction is also inevitably transmitted to the lithium-ion equipment industry. For small and medium lithium equipment companies, this is a double-edged sword.

Thirdly, lack of funds for industrial expansion. In fact, in order to snatch market share, credit sales have become the norm of the lithium battery equipment industry, and shortage of cash flow has become an important factor limiting the development of lithium battery equipment enterprises. Tied-in with the pace of power battery capacity expansion, some equipment companies are seeking alternative funding sources such as relying on deep pockets of their shareholders, joint-ventures vertically or an independent IPO.

Lastly, accepting that final payments are hard to come by. It is understood that the equipment industry are used to installment payments such as 30% deposit, 30% after product developed, 30% after products are delivered, final 10% after guaranteeing use for a year or more, or even a 60%, 20%, 20% payment schedule. This makes the latter part of the payment difficult to collect. Some lithium-ion equipment enterprises reported that the industry deliberately delayed the acceptance and delayed payments, resulting in the last 1-2% percent of the final payment very difficult to close, and eventually become bad debts.

At present, the one hand, small and medium-sized equipment companies are generally faced with the rapid development led by industry demand, the other is the attractiveness of listed companies in the industry to their thirst for mergers and acquisitions.

Small and medium-sized lithium equipment companies have different views on capital

Small and medium-sized equipment enterprises are in a dilemma, capital has become a "solution" fuel their expansion plans since 2016. Many equipment companies have chosen to access capital through listings, queuing for IPO and other similar exit options to find a breakthrough.

However, during the most recent research by gg-lb.com, different small and medium-sized equipment enterprises showed different opinions and practices on capital entry and mergers and acquisitions, mainly because of their background resources and their strategic positioning.

"Although CN-Orient is a new equipment company, but the team's deep technical qualifications and company's capital resources have propelled us to focus on continuous improvement in equipment technology and market share expansion" says CN-Orient GM Zhao Weidong

It is understood that CN-Orient belongs to the Hong Kong-listed company Tian An China (0028.HK), focusing on lithium battery front-end mixing equipment, slurry automation feeding system research and development design, production, sales and service. In the slurry transportation, weighing ingredients, dry high-nickel mixing, high-speed dispersion shearing and other aspects of the lead.

Hu Jieming, general manager of Gaoxin Testing Equipment Co., Ltd. believes that with the release of power battery capacity, the testing equipment market will usher in even bigger opportunities for development next year. However, the concentration of players in power battery systems is increasing and the industry access threshold is getting higher and higher, Lithium equipment revenue models will also change. Importantly lack of funds will mean that technology backward or smaller small and medium-sized lithium equipment companies will face difficulties expanding.

In 2017, company's performance increased by 4 times over last year, and is expected to be higher next year. Our existing corporate structure is expected to change, and our company is also expanding into the field of robotic testing equipment to find more profit growth ares." Hu Jieming, GuangCapital or change to some extent, the existing market structure, so the company is also extending to the field of robotic testing equipment to extend the area for the company to find more profit growth point." Hu Jieming, CEO Guangdong Lijia Co Ltd

Wang Jiagang, chief designer of Guangdong Lijia Industrial Co Ltd, said the company is making every effort to create safety tests that simulate real conditions. The company's goal is to become the No.1 brand in the powerhouse environment in 3-5 years. However, subject to its own development, the company is actively introducing new capital.

Overall the lithium-ion equipment companies seeking capital generally said that in addition to meeting market valuation, more attention is paid by the acquirer to provide the opportunities to improve its supply chain.

Capital coming into lithium equipment is still accelerating

In fact, in the background of the automation of lithium batteries and high-end smart manufacturing, the lithium battery equipment enterprises have become darlings in the eyes of capital markets. gg-lb.com reported that in 2017, there are no fewer than 8 transactions involving listed companies merging or acquiring lithium-ion equipment companies. Among them, China Xiandao's acquisition of Titans China, Yinghe technology's acquisition of Dongguan Science and Technology, Shenzhen's Taoxin Technology acquisition of Ali-Sys failed; other acquisitions are still ongoing.

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