The Rise of “Alternative” Power Sources

Half a year ago, the lithium battery circuit rebounded strongly, with the market spanning the second and third quarters and the index rising by over 50%. However, recently, the lithium battery suddenly turned off and fell back to its position six months ago in less than a month. Other power devices under the same category of power supply quietly brewed a wave of market trends during the same period. At the end of the third quarter, when the lithium battery market differentiated downwards, they followed the opposite path and have risen by 10% since the differentiation.

What is the logic behind going out of different markets with the same power supply?
01
Reconsidering ‘Power’
When it comes to power supply, different people have different understandings. Some people believe it is a lithium battery on new energy vehicles, while others believe it is a square shaped switch power supply in a computer chassis, and so on. From a broad perspective, both of these answers are correct, and neither is completely correct.
Broadly speaking, power sources can be divided into two categories: generation and transformation. Power generation sources are commonly used batteries, physical power generation devices, etc., which have the function of energy “conversion”, that is, converting chemical energy, mechanical energy, light energy, wind energy, and other forms of energy into electrical energy.
The electrical energy obtained through other energy conversions often cannot be directly used, and it is necessary to use a substation power supply to achieve the conversion of different standards of electrical energy, that is, the conversion between electrical energy. This is called a substation power supply, such as the power supply in a computer host, which is a typical substation power supply.
With the implementation of the “dual carbon” policy in recent years, new energy sources such as lithium batteries, photovoltaics, and wind energy have become a major trend in the future. As an indispensable supporting component of new energy, power equipment has also entered a period of rapid development. At the same time, power equipment has been widely used in mature traditional fields such as 5G and aerospace, accumulating a large market scale. Statistical data shows that the domestic power supply market has developed significantly in recent years. Except for the impact of the trade war in 2018 and the pandemic in 2021, it has maintained an annual growth rate of about 10%, and reached 21.91% in 2020.
The Rise of “Alternative” Power Sources
Data source: Yidu Finance compiled based on publicly available online data
According to different functions, power supplies can be divided into switching power supplies, UPS (uninterruptible) power supplies, inverters, frequency converters, linear power supplies, etc. Among them, switching power supply is the most mainstream product in the market, whose function is to convert between DC and AC voltage, with a market share of over 50%. There are as many as 50 A-share listed companies with related sub concepts.
The Rise of “Alternative” Power Sources
Data source: Yidu Finance compiled based on publicly available online data
Among many enterprises, the “little giant” Xinleineng, as the representative of this kind of power supply, is rising rapidly. In the third quarter, the ROE (net return on assets) and ROA (return on assets) reached 22.47% and 11.88% respectively, ranking first in the same category. In less than six years since its listing, it has achieved a counter attack from top ten to top.
How did Xinleineng achieve this leap?
02
Success is not by chance
The performance of Xinleineng in the past five years since its listing has been very impressive – revenue has more than quadrupled, and net profit attributable to the parent company has increased to nearly 8 times. In 2021, the revenue exceeded 1 billion yuan for the first time, reaching 1.478 billion yuan, and the net profit attributable to the parent company also reached 274 million yuan.
In the past three years, although the operating revenue in 2020 has not increased significantly due to the impact of the epidemic, the net profit attributable to the parent company has maintained a growth rate of nearly 100%. It should be noted that in the current economic environment, most companies inevitably experience a recession, while Xinleineng continues to grow against the trend.
The Rise of “Alternative” Power Sources
Data source: Yidu Finance compiled based on publicly available online data
The power supply of Xinleineng is mainly used in fields such as aerospace, military industry, communication, and railway power. The vast majority of customers are state-owned enterprises, research institutes, etc. The most obvious characteristic of these customers is stability.
The Rise of “Alternative” Power Sources
Image source: New Lei Neng prospectus
In recent years, Xinleineng’s main business has almost entirely focused on the two core business sectors of aerospace, aviation, military industry, and communication, accounting for 85.40% in 2017 and 96.30% in 2021. And as the situation changes, Xinleineng continuously adjusts the ratio of its two major businesses to achieve a balanced business configuration of “advancing can attack, retreating can defend”.
The Rise of “Alternative” Power Sources
Data source: Yidu Finance compiled based on publicly available online data
Due to the unique nature of the customer’s industry, Xinleineng has achieved a high gross profit margin. Since its listing, the gross profit margin has remained stable at around 45%, while the industry average is only around 30%. Although the gross profit margin of Xinleineng’s largest aerospace and military business decreased continuously from 2017 to 2019, its business is still in a state of continuous expansion, establishing good customer resource advantages and long-term accumulated technological research and development advantages.
The highly focused strategy adhered to by New Lei Neng has also brought high returns to the enterprise. With the popularization of 5G, the increase in defense and military industry expenditures, and the emerging strategy of aerospace and aviation, a series of advantages accumulated in the early stage of New Lei Neng have been successfully realized in the past three years.
The Rise of “Alternative” Power Sources
Data source: Yidu Finance compiled based on publicly available online data
In addition to high-quality tracks and a focus on strategy, the internal management of Xinleineng is also relatively excellent.
According to the 2021 annual report of Xinleineng, the sales revenue of the top five customers accounted for 13.08%, 12.51%, 11.83%, 10.36%, and 8.18% respectively, accounting for a total of 55.96%, reaching 827 million yuan, which is highly concentrated.
The Rise of “Alternative” Power Sources
Data source: Yidu Finance compiled based on publicly available online data
Highly concentrated customer groups generally have strong bargaining power, and often salespeople offer preferential measures such as discounts and extended delivery periods to retain large customers. The accounts receivable turnover rate of Xinleineng is 4.34, ranking second in the same category. The average accounts receivable turnover rate of the military manufacturing industry is 3.18, and Xinleineng is 1.65 times the industry average. The speed of fund return is very strong. You should know that when it first went public, the accounts receivable turnover rate of Xinleineng was also around 3. It is obvious that the current high accounts receivable turnover rate of Xinleineng is closely related to its good operational turnover ability, corporate reputation, and reputation accumulation.
In terms of cost management, Xinleineng explains what it means to “spend money on the cutting edge”. In 2021, Xinleineng incurred a total of 360 million yuan in expenses, with a operating period expense rate of 24.33%, ranking only tenth in the industry. Among them, sales expenses, management expenses, financial expenses, and other expenses add up to 159 million yuan, accounting for only 80% of research and development expenses.
The Rise of “Alternative” Power Sources
Data source: Yidu Finance compiled based on publicly available online data
From a fundamental perspective, can the excellent New Thunder Energy meet expectations?
03
Opportunities and risks coexist, can expectations be fulfilled?
Despite its excellent development speed and quality in recent years, compared to the power equipment giants with a market value of hundreds of billions, there are also risks that cannot be ignored behind the current opportunities of New Lei Neng.
In September of this year, Xinleineng successfully completed a fixed increase, raising 1.58 billion yuan for the expansion of special power supply, industrialization of high reliability SiP power microsystem products, expansion of 5G communication and server power supply, construction of research and development centers, and replenishment of working capital, among which more than two-thirds of the industrialization related investment.
The production and procurement model of Xinleineng is precisely based on sales and production, supplemented by reserves. Currently, Xinleineng is likely to have sufficient orders, even in short supply. Therefore, we can boldly guess that this year Xinleineng is likely to be another “Dafengshou (Salad of assorted fresh vegetables)” year.
However, the business model of Xinleineng is also a double-edged sword. Seizing it is a sharp weapon, but not grasping it can harm oneself.
Firstly, although increasingly single businesses can bring excess returns, there are certain risks in the power supply business of the communication industry, which is one of the core businesses of the company, in the unstable global external situation. ZTE was sanctioned in 2018, and the impact on the upstream and downstream industries related to communication is a typical example. In addition, due to the relative lack of flexibility in centralized strategies, the emergence of alternative products and changes in investment track styles will have a certain impact on investors’ investment preferences and the difficulty of corporate financing. Currently, the most popular business is related to new energy power equipment, which has also created power equipment giants like Sunshine Power.
Secondly, the cash ratio of Xinleineng has rapidly decreased in recent years, with only about 20% in the past two years, while the industry average has reached 73.42%. The lower cash ratio indicates that Xinlei is able to invest as much capital as possible into research and development production. However, as the cash stock decreases, the risk of companies experiencing problems due to capital chain disruptions will also increase. Of course, Xinleineng has added nearly 500 million yuan of monetary funds in this fixed increase, which has to some extent alleviated this potential risk.

Conclusion

Perhaps some people think that Xinleineng’s fame is not big enough and the story is not sexy enough, but how many companies can adhere to their business philosophy in today’s market that is passionate about speculation? Gold always shines, but it takes time. Only when the hype subsides will we know who is truly valuable.