Recently, the Chinese company Funeng Technology (688567.SH), specializing in soft-pack power batteries, announced a significant equity transfer plan that is poised to alter its ownership structure and corporate governance dramatically.
As per the new plan, Funeng's controlling shareholder Hong Kong Funeng and its acting-in-concert party, Ganzhou Fuchuang, intend to transfer a combined 5% of their shares to Guangzhou Gongkong Group and its acting-in-concert party, Hengjian Gongkong New EnergyUpon completion of this share transfer, Guangzhou Gongkong Group may emerge as the new controlling shareholder.
Funeng Technology's soft-pack batteries cater to a global clientele, including renowned companies such as Mercedes-Benz and GAC Group
However, in recent years, the company has been under pressure due to intense market rivalry, overcapacity, and declining prices, leading to a shrinking gross profit marginSince its listing in 2020, Funeng has yet to achieve profitability, with losses only intensifying over the yearsAs of now, the company's market valuation exceeds 10 billion Yuan.
The potential for a change in control is on the horizon.
Funeng Technology is primarily engaged in the research and production of power batteries and battery systems, with its flagship products encompassing advanced soft-pack laminated batteries, modules, and battery packsThe company offers a variety of battery types, including ternary, lithium iron phosphate, and sodium-ion batteries.
In 2023, Funeng ranked eighth globally in power battery installations and ninth in the domestic market, while also securing the third position for domestic power battery exports
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The company has consistently maintained a top-three position worldwide in terms of soft-pack battery installations and has held the number one position in China's soft-pack battery installations for seven consecutive years.
On January 4, Funeng announced that Hong Kong Funeng would transfer 56.8225 million shares, accounting for 4.65% of the company's total equity, to Hengjian Gongkong New EnergyMeanwhile, Ganzhou Fuchuang would also transfer 4.2827 million shares, making up 0.35% of the company's total equityThe total share transfer amounts to 61.1052 million shares, representing 5% of total capitalThe transfer price is set at 15.9 Yuan per share, aggregating to a total transaction value of 972 million Yuan, all to be paid in cash.
Additionally, to facilitate Guangzhou Gongkong Group's transition to being the controlling shareholder of Funeng and allow the Guangzhou municipal government to become the company's actual controller, Hong Kong Funeng has agreed to relinquish the voting rights associated with its corresponding 5.34% shareholding from the date of share transfer until the time stipulated in the Share Transfer Agreement.
According to a statement from Funeng on the evening of January 7, 2025, Guangzhou Chuangxing and Gongkong Capital acquired a total of 24.4421 million shares, which accounted for 2% of the total equity, from Anyan Investment through block transactions at a price of 11.65 Yuan per share
Following this equity change, Guangzhou Gongkong Group and its cooperating parties collectively hold 197 million shares, representing approximately 16.16% of the total equity, thus becoming the largest shareholder in terms of voting rights.
Data shows that Guangzhou Gongkong Group has a robust industrial foundation and technological accumulation in various sectors, including intelligent building equipment, engineering equipment, marine equipment, industrial gases, new materials, refrigeration appliances, and rubber chemicalsNotably, the group possesses several well-known local brands in Guangzhou, such as Wanbao and Wuyang, along with listed companies including Guangri, Shanhe Intelligent, Runbang, Jinming Precision Machine, Dinghan Technology, and Guanggang GasBy the end of 2023, the total assets of Guangzhou Gongkong Group reached 166.173 billion Yuan, with revenues of 121.747 billion Yuan for the year.
In recent years, Guangzhou Gongkong Group has focused on enhancing the automotive parts supply chain
The equity changes are rooted in the group's optimistic outlook on the future market prospects of the power battery industry and its recognition of Funeng Technology's investment valueThis investment is also expected to deepen the cooperative relationship between the two parties in the future.
The path to profitability is fraught with challenges.
The share transaction not only alters the shareholder structure and governance system but also incorporates performance commitments, compensation arrangements, corporate governance, and transitional management among several other details.
According to the agreement, Funeng Technology and its subsidiaries must realize self-manufactured and sold soft-pack power battery solutions, ensuring the sales revenue from self-produced SPS battery products does not fall below 11.6 billion Yuan between September 1, 2024, and August 31, 2025. Failure to achieve this sales goal will require the company to provide cash compensation.
Given Funeng's current operational situation, achieving this performance target is crucial
Since its listing in 2020, the company has been grappling with persistent lossesAlthough its operating revenue surged from 1.12 billion Yuan to 16.44 billion Yuan from 2020 to 2023, net profits have remained negative, with successive losses of 331 million Yuan, 953 million Yuan, 927 million Yuan, and 1.868 billion Yuan reported for the respective years.
As 2024 commenced, the company has yet to show any notable improvement, experiencing a nearly 18% year-on-year decrease in revenue to 9.212 billion Yuan during the first three quarters, along with a net loss of 304 million YuanCumulatively, the company's losses have exceeded 4.3 billion Yuan over the past four years.
In its financial reports, the company attributed its ongoing losses to the transitional phase from a technology R&D entity to a manufacturing-driven one
However, during this transition, management capabilities have not kept pace with the speed of business growth, resulting in internal synergies being insufficient, leading to disjointed supply chain coordination, market misjudgment, and ineffective collaboration between production and research, alongside lack of bargaining power in the supply chain—all pivotal factors contributing to the ongoing losses.
Under the enduring pressure of mounting losses, Funeng's cash flow situation is becoming increasingly direAs of September 30, 2024, the company possessed 7.305 billion Yuan in cash, down 3.4 billion Yuan from the previous yearAlthough current liabilities show some improvement, they remain high at 11.34 billion Yuan.
Thus, completing the sales of SPS battery products is not only a commitment to the trading partner but also pertains to the very survival and development of the company itself
However, securing a share of the market amidst fierce competition is no small feat.
As per the data, the domestic power battery market is highly concentrated, with companies like CATL and BYD holding the majority of market shareOther major players such as Zhongchuang Xinsong, Guoxuan High-Tech, and Yiwei Lithium Energy claim substantial shares as well, making it difficult to disrupt the existing market structure.
Moreover, incidents of electric vehicle fires add another layer of challenges for the companyIn August 2024, a fire broke out in the underground parking facility of an apartment building in Incheon, South Korea, damaging over 70 vehicles, including a Mercedes-BenzAlthough Mercedes did not disclose the battery supplier involved, media reports indicated that Funeng Technology was the supplier