Jin Jing Xinneng (01783.HK), a leading company in the field of battery recycling in Hong Kong stocks, is undoubtedly a bright star in the Hong Kong stock market this year. Since this year, the company's increase has reached 146.34%, outperforming the market by a large margin and attracting the attention of countless investors.

What is behind the investors' competition is the market's gradual perception and affirmation of Jinjing Xinneng's overall business layout.

Recently, Jinjing Xinneng issued an announcement announcing that it has successfully won the bid for the T2 and T3 sites of the Hong Kong Environmental Protection Park (EcoPark), with an area of about 9,420 square meters, mainly for decommissioned power battery disposal business.

Earlier, Jin Jing Xinneng announced cooperation with Guoxuan Hi-Tech (Hong Kong), one of the leading domestic lithium battery companies, to seek the development of the overseas battery recycling industry. Also, think that the global lithium battery giant Ningde Era spent more than HK$1.2 billion to set up an international R&D center at the Hong Kong Science Park, which undoubtedly further opened up Hong Kong's development space in this industry.

After Europe's “New Battery Law” came into effect in August last year, Chinese battery companies exporting to Europe must meet the EU's requirements for recycling, disposal and recycling of battery materials. The law also requires a certain percentage of recycled materials for power batteries. It can be predicted that Europe's “New Battery Law” may force more Chinese battery companies to invest in overseas markets nearby. Due to related mandatory support requirements, the decommissioned power battery disposal industry is expected to accelerate into a period of growth.

As the world pays increasing attention to electric vehicles and battery disposal, Jinjing Xinneng is becoming the focus of investors' attention with its unique business model and forward-looking strategic layout.

1. Cell cycle, a key link in NEV competition

The share of electric private cars registered for the first time in Hong Kong quickly surpassed 60% in 2023, and this figure was well below 1% in 2017. Hong Kong only took 6 years to complete the process from 10% to over 60%.

The reason behind the crazy acceleration in data is due to the Hong Kong government's official announcement of a “fire ban” policy in 2021, which bans newly registered fuel passenger cars by 2035 at the latest. The sales ban also covers hybrid vehicles.

Furthermore, the Hong Kong Government has formulated long-term goals and measures to further improve air quality in the “Hong Kong Clean Air Blueprint”, including phasing out EU Phase IV diesel commercial vehicles by the end of 2027.

Hong Kong will comprehensively promote the supporting development of pure electric vehicles in the future. I believe this is an irreversible major trend.

According to public information, the number of cars owned in Hong Kong is around 740,000 to 750,000.

According to data from the Hong Kong Electric Vehicle Database, the number of electric private vehicles registered for the first time in Hong Kong in 2017-2023 (cumulative number) was 62,458. According to the official website of the Environmental Protection Department of the Hong Kong Government, as of the end of October 2023, the total number of pure electric vehicles (EVs) in Hong Kong was 70,701.

Based on the total number of pure electric vehicles sold, the current share of pure electric vehicles still accounts for less than 10%, and there are broad prospects for future development.

At the same time, according to the rules of the automobile industry, when the share of a certain type of inventory quickly crosses the iconic range of 10%-15%, the corresponding segments of after-sales and supporting services will also be booming, such as battery cell recycling and third-party battery testing.

Generally speaking, for traditional pure electric vehicles, the power system accounts for about 50% of the total cost of the electric vehicle, and the power battery also accounts for about 60 to 70% of the total cost of the power system, that is, the power battery accounts for about one-third of the total cost of electric vehicles.

Therefore, from the consumer's point of view, one of the aspects they are most concerned about when buying a pure electric vehicle is definitely the battery warranty policy of various manufacturers.

For electric vehicle manufacturers, their battery warranty promises to consumers are actually a huge hidden burden relating to future spending.

Meanwhile, in the highly competitive field of new energy vehicles, “new forces” have given high-standard warranty conditions for automotive three-electric systems: Tesla's single-motor rear-wheel drive version is 8 years or 160,000 kilometers, and the dual-motor four-wheel drive version is 8 years or 1920,000 kilometers; the BYD three-electric system has even promised a lifetime warranty.

Considering the arrival of the centralized decommissioning period in 2026, there may be a situation where a large number of electric vehicles will be replaced and decommissioned batteries will be disposed of.

Therefore, whether it is leading battery manufacturers or upstream material vendors, or leading new energy vehicle manufacturers, they have prepared a relatively low-cost viable solution many years in advance, and the role of a third party specializing in battery disposal has come out of nowhere.

Looking further, there are also significant differences between the models in China and overseas markets.

Domestic midstream battery manufacturers, as well as upstream material companies and metallurgical companies, will basically set up their own battery disposal business as part of the closed-loop development of their business, such as Ningde Bangpu, Grimmie, Ganfeng Lithium, and Huayou Cobalt.

In order to quickly reach a certain scale, domestic companies usually obtain decommissioned batteries at market prices. These companies use professional separation technology to crush lithium batteries, and can screen out different high-value disposal materials, crush 1 ton ternary lithium batteries, and obtain about 580-600 kg of ternary black powder after selection. The market price of this black powder is around 60,000 yuan. The market price of black powder disposed of by crushing 1 ton of lithium iron carbonate batteries is about 40,000 yuan.

In addition, most battery metal materials can be disposed of. For example, copper and aluminum are priced at 60,000 and 15,000 or more per ton. Currently, the disposal rate of nickel, cobalt, and manganese has reached 99.3%, and the lithium disposal rate has reached more than 90%. After these disposals, they all chose to sell them or reuse them as raw materials.

Therefore, when related metal prices are popular, domestic battery disposal factories will “grab the goods” and give a higher purchase price. After considering the cost addition, they will eventually restore a disposal factory price. Using the gap obtained by comparing this price with Changxie's price, it is probably a meager room for arbitrage. Therefore, doing a domestic battery disposal business is more like a simple processing and manufacturing industry, which is not very appealing.

To dispose of batteries in overseas markets, not only do automakers pay processing service fees for each battery disposal company to a third party disposal company, the decommissioned batteries that third party disposal companies obtain from the former are first free of charge, and finally they can also obtain disposal value from valuable materials (including black powder, various battery metal materials, etc.), which is a cash flow generating business brought about by high-premium services.

Compared to the domestic battery disposal model, the overseas battery recycling business uses a paid processing model. There is a big difference between the two.

Therefore, for the two completely different business models and enterprises, different valuation methods and valuation multiples should be used. According to common sense, the valuation multiples obtained by the overseas battery recycling industry may be far higher than the former.

It can be said that overseas markets are relatively sound and mature regardless of regulations and environmental protection requirements, and the requirements for environmental protection have a high threshold. This is reflected in the fact that the approval requirements for qualifications or licenses are very strict, leading to the “scarcity” of the latter.

Of course, high gross margins and sufficient cash flow incentives directly spawn “black soil” suitable for the development of the battery disposal industry. Only battery disposal businesses that meet the high threshold requirements can be classified as a “good business”.

For example, in the Hong Kong market mentioned at the beginning, it will be relatively easy to create a professional third-party battery recycling service giant that is “based in Hong Kong and radiates the world” and is deeply involved in the entire industry chain and life cycle.

So, who will be one of the first leading crab-eating companies?

2. How does Jinjing Xinneng, the first stock in the Hong Kong stock battery cycle, interpret “winner-take-all”

As emphasized in the above analysis, the starting point for overseas battery disposal is in the hands of automakers, and matters relating to survival and development determine that they must find qualified and powerful third-party battery disposal companies to carry out long-term cooperation and deep bundling.

On the one hand, due to the need for a high entry threshold, on the other hand, the industry is still 2-3 years away from the explosion period, which also determines that there are not many third-party battery disposal companies that can rapidly rise overseas today.

One of the representative companies in the Hong Kong stock market is Jin Jing Xinneng. Since '22, the company has rapidly entered the field of electric vehicle battery disposal through a series of acquisitions, name changes, transformation and upgrading, forming a series of core competitive advantages such as being able to provide one-stop services for electric vehicle customers and industry chain participants.

According to public information, the actual controller and management team of Jin Jing Xinneng have many years of experience in the environmental disposal industry and an advanced industry vision. The listed platform has become the first company in Hong Kong to receive an electric vehicle battery disposal license from the Environmental Protection Department. It is also the company with the most complete license in the field of electric vehicle battery disposal. It holds a qualified license to provide collection, transportation, disposal, disassembly and export services for decommissioned electric vehicle batteries (chemical waste).

Based on this, Jinjing Xinneng was gradually recognized by the market as the first stock in the Hong Kong battery cell cycle with high scarcity and growth potential.

Currently, only part of Hong Kong's waste will be treated locally and recycled into useful products. As environmental pressure continues to increase, recyclable materials continue to accumulate. The Hong Kong Government has long since realized the need to develop and strengthen the local recycling industry, and the development of an EcoPark (EcoPark) is one of the government's measures to promote the local environmental protection industry. According to reports, EcoPark has been in operation since 2007 to provide low-cost long-term land and complete facilities for the recycling industry. The 14-hectare land has been leased out through public tenders. It is the only green industrial park in Hong Kong focusing on the development of circular industries. Land is scarce, and only enterprises that meet the future development needs of the Hong Kong industry are eligible to settle in.

In this dimension, Jin Jing Xinneng “took the lead” in the cell recycling industry in Hong Kong.

According to an announcement recently issued by Jinjing Xinneng, its wholly-owned subsidiary was granted by the Hong Kong Environmental Protection Department on May 13, 2024, the 20-year lease rights for EcoPark's T2 and T3 plots, covering an area of about 9,420 square meters, to franchise the decommissioned electric vehicle battery disposal business.

In Hong Kong, where every inch of land is precious, the scarcity of land resources is self-evident. In particular, in EcoPark, the only green industrial park in Hong Kong focusing on circular economy development, the land is carefully divided into areas of different sizes. Every inch of land bears the heavy responsibility of promoting innovation and development in the circular industry, and it is extremely rare to win a bid for a large area of nearby and connected land. However, the two plots of land, T2 and T3, are not only large in area, but also have excellent location, and have immeasurably exclusive value for the development of the recycling industry.

Therefore, the screening criteria for entrants are extremely strict. Only companies that have sufficient representation in the industry and are highly compatible with Hong Kong's future circular industry development strategy in terms of technology research and development and business models will have the opportunity to enter EcoPark. These companies not only need to enjoy a high reputation and position in the industry, but also need to show a deep commitment to environmental protection and a forward-looking development vision.

Jinjing Xinneng's successful bid for Ecopark's T2 and T3 plots is undoubtedly a full recognition of the outstanding strength and forward-looking vision of the Hong Kong government and relevant departments in the field of environmental disposal. It is reported that this land lease will be used to build power battery treatment facilities to promote the development of reverse supply chain management and environment-related services.

It is easy to imagine that this 20-year land lease agreement is far more than just a paper lease. The background may be similar to a 20-year franchise license, which will greatly stabilize Jin Jing Xinneng's leading position in the green industry and the battery cycle circuit in Hong Kong.

One point worth emphasizing is that the super-long period of 20 years is enough to cover the Hong Kong market's industrial explosion period. Just as Hong Kong will concentrate on decommissioning power batteries in 2026, a situation where a large number of electric vehicles will be replaced and decommissioned batteries may occur, which means that a blowout period for the industry is about to arrive.

Looking further, in the future, Jinjing Xinneng will officially begin construction of the first cell recycling production line in Hong Kong at the approved site. By building its own production line, the company has the key winning capabilities of technological innovation and iterative upgrading.

In the current power battery disposal market, the key to a successful business model is the construction of a disposal channel network and the construction of an ecological closed loop for recycling materials.

Cell manufacturers and automakers have channel advantages, and independent third parties such as Jinjing Xinneng will have absolute disposal and disposal technology advantages.

Through a “trinity” platform jointly built by license qualifications, its own production line and technical advantages, and diverse channel partners, Jin Jing Xinneng has completely built a complete closed loop ecosystem, further strengthening the “monopoly” trend formed by the company in Hong Kong.

Also, to quote an industry veteran, Jin Jing Xinneng is the biggest partner for a world-renowned pure electric vehicle brand to launch the battery cell cycle in Hong Kong.

First, regardless of whether the company will greatly benefit from the fact that a world-renowned pure electric vehicle brand accounts for about 52.2% of the registered stock in Hong Kong (note: statistics from August 2017 to January 2024).

Looking at the Hong Kong market as a whole, it is estimated that within the next 10-15 years, the cumulative number of pure electric vehicles sold in Hong Kong may be over 1 million units. The average annual value will drop to 7-100,000 units during this period. Based on the 0.5 tons of decommissioned batteries produced by an EV, the price of 60,000 yuan black powder per ton, and an 8-year replacement cycle, the market space for EV battery recycling alone in Hong Kong may have exceeded 20 billion yuan.

Furthermore, according to statistics from the Hong Kong General Transport Department's official website, as of the end of December 23, in addition to the number of registered private vehicles, there were also nearly 280,000 registered vehicles of other types of transportation, such as taxis, public/private buses, public/private minibuses, trucks, government vehicles, etc.

If all of these traditional fuel vehicles are replaced and converted to pure electric new energy vehicles, then Hong Kong's battery recycling market space will expand by 30% or more in the future, or at least 26 billion yuan (or more). This does not include a large number of energy storage products currently on the market and the number of lithium batteries that will be decommissioned in data centers in the future.

Hong Kong alone can provide more than a quarter of the 100 billion market. For the overseas battery recycling industry, it can be described as bringing a “strong agent” to expand the broad overseas market space, and the future potential is limitless.

As a result, Jin Jing Xinneng, who is currently “the only family” and “winner-take-all” in Hong Kong, became one of the biggest beneficiaries of this round of gold development cycle and gradually surfaced, becoming a core target favored by industrial investors.If we understand Jin Jing's new energy from these perspectives, we may be able to have a deeper understanding of the high multiples of the super bull market that it is interpreting.

Jin Jing Xinneng, which has the first aura of overseas battery circulation, once it appears as a leader and monopolist at a time when the industry is about to explode and take off, then as the trend consolidates, it is likely that it will continue to be able to use its high competitive barriers and entry barriers in the future to continue to expand this advantage and win.

At the same time, if these conditions are continuously “strengthened”, the positive cycle effect the company is exerting will be greater and greater, the “flywheel” that Jin Jing Xinneng steps on will be faster and faster, and its growth potential will be released at a corresponding speed.

Jinjing Xinneng announced that the incident of joining hands with the world's leading power battery manufacturer Guoxuan Hi-Tech can be described as just the right time. According to an announcement issued by Jinjing Xinneng on February 19, the company recently reached a cooperation with Guoxuan (Hong Kong), an overseas subsidiary of Guoxuan Hi-Tech. The two sides have already jointly established Guoxuan Jinjing Low Carbon Research Institute in Hong Kong.

This cooperation is an important step in the global strategic layout of Jinjing Xinneng. It also opens up a good start for the two sides to jointly lay out the overseas battery recycling industry and develop together.

Jinjing Xinneng has always focused on battery disposal and battery energy storage system business, and has disposal licenses, channels, and professional ability to localize business overseas in many countries or regions around the world. This is also a point that battery manufacturers in leading positions in the industry, such as Guo Xuan, place particular importance in the global strategic layout.

Chinese battery companies have accelerated the globalization process in recent years. For example, Guoxuan Hi-Tech has completed the strategic layout of the three major overseas bases in Germany, India, and Vietnam, and is promoting the construction of a factory in the US, with an investment of 2 billion US dollars. The construction of other overseas bases is progressing steadily. Furthermore, the Ningde era established the second battery factory in Europe in Debrecen, Hungary, as early as '22, with a planned production capacity of 100 GWh. In addition to the Ningde era, Everweft Lithium Energy and Sunwoda also set up battery production bases in Hungary — Everweft Lithium Energy's plant will produce cylindrical batteries, which are expected to be supplied to BMW in 2026; Sunwoda plans to invest about 1.9 billion yuan to build the first phase of its NEV power battery plant in Hungary. The Minister of Economic Development of Hungary predicts that Hungary is expected to become the fourth largest battery manufacturer in the world in the future.

If you analyze the overseas strategic layout of these Chinese battery companies, after they go overseas, they will inevitably form a huge battery recycling and decommissioned battery recycling business volume, keeping up with the pace of Chinese battery companies and Chinese automakers going overseas. Jin Jing Xinneng will be able to continuously find more strategic partners in the cell recycling and decommissioned power battery disposal business, and build its global platform or industrial ecosystem for battery recycling and decommissioned power battery disposal. It's filled with limitless room for imagination.

Just the day before, Jin Jing Xinneng revealed a new memorandum of cooperation involving its location in the European market (including Germany, Slovakia, Lithuania, Poland, Turkey, etc.), which indicates that the company's efforts to promote cell recycling and disposal of decommissioned power batteries are a foregone conclusion, and it is time to set sail.