Offering Details
CNE intends to offer a total of 62,500,000 shares (subject to over-allotment option), of which 56,250,000 shares are for international placing (subject to reallocation and over-allotment option) and 6,250,000 shares are for Hong Kong public offer (subject to reallocation). Indicative Offer Price range is between HK$2.0 and HK$2.6. Excluding the underwriting fee and estimated expenses of share offer, and assuming the over-allotment option is not exercised and the offer price is HK$2.3 per share (being the mid-point of the indicative offer price range), net proceeds from the listing are estimated at approximately HK$111.5 million.
The Hong Kong public offer will commence on 29 September 2020 (Tuesday) at 9:00 a.m. and will end at noon on 8 October 2020 (Thursday). The final offer price and allotment results are expected to be announced on 19 October 2020 (Monday) and dealing of its shares is expected to commence on the Main Board of SEHK on 20 October 2020 (Tuesday). Shares will be traded in board lots of 1,000 shares each under the stock code 1597.
Fortune Financial Capital Limited is the sole sponsor. Essence International Securities (Hong Kong) Limited, Fortune (HK) Securities Limited and Guosen Securities (HK) Capital Company Limited are the joint global coordinators, joint bookrunners and joint lead managers of the listing.
Investment Highlights
One of five largest pitch control system providers in the PRC
As one of the pioneers who has realised the integration of hardware and software to offer high-voltage pitch control systems in the PRC market, CNE has been focusing on R&D on software and integration techniques for pitch control systems since 2016. As a result of its strategic focus on the development of pitch control systems, it was its primary business segment during the track record period, attributing to the majority of its revenue. According to the F&S Report, the total market size of pitch control system in the PRC was about RMB1,834.2 million in terms of sales value in 2018, among which, sales value for high-voltage pitch control systems was around RMB1,104.4 million, representing about 60.2% of the market. CNE ranked third in the pitch control system market in the PRC in terms of sales volume in 2018 with a market share of 10.5%.
Established long-term stable relationship with upstream and downstream of the value chain
The Group collaborate with KEB Group to work on the design and integration of the software and KEB Group's hardware to produce high-voltage pitch control systems that can appeal to the needs of customers. The Group has brought KEB Group to the domestic pitch control system market and established a stable and entrusted relationship with them for product offering since 2017. The Group further entered a binding ten-year framework agreement with KEB Shanghai in December 2019.
Since 2016, CNE has started manufacturing pitch control systems for Envision Group , a famous wind turbine manufacturer and wind farm operator in the world. The Group assisted Envision Group to realise its production of wind turbines in the PRC equipped with intelligent control, advanced measurement method, expert data analysis system, active performance control and reliability-based deterministic turbines, enabling its wind turbines to function at its optimal working condition for maximum power generation and long service life in an efficient manner. The Group entered a binding ten-year framework agreement with Jiangyin Envision in December 2019.
R&D and design capabilities
The Group's R&D efforts focus on integration techniques, and it has strived to R&D on different aspects of pitch control systems, in order to produce quality and reliable pitch control systems. It is also devoted to developing and updating software programmes to collect and diagnose data in order to control the blade angle for regulating the wind turbine generator's rotational speed when wind velocity changes, for optimal energy capture and minimisation of potential damages against exceedingly high speed winds. In addition, it develops simulation master control system software for function testing for its pitch control systems.
In July 2017, its R&D centre in Jiangyin City, Jiangsu Province was recognised as one of the Jiangyin Engineering and Technology R&D Centre Projects approved by Jiangyin Science and Technology Bureau. In November 2018, the Group was recognised as a National New High-tech Enterprise for continuous R&D and transformative technology developments, leading to the formation of independent core intellectual property rights in one of the supported high-tech fields (such as renewable energy and energy conservation technologies) by the relevant authorities in the PRC.
As of 20 September 2020, the Group owned more than 25 patents and had 15 patents under application, as well as 10 software copyrights, relating to pitch control systems and wind energy related inventions and designs.
Strong production capabilities with comprehensive quality assurance
To ensure high quality control and improve its competitiveness, it set up its own production plant with approximately 900 square meters in Jiangyin City, Jiangsu Province in 2016, and then relocated its production plant with total gross area of 3,530 square meters for expansion of its production capacity in 2018. As of 20 September 2020, it was equipped with four quality testing machines in its streamlined production line with annual capacity of 2,408 sets of pitch control systems, enabling it to implement stringent quality control measures from material inspection to examination of finished products, and comply with required standards, and then all products can proceed to the next stage of the assembling process or be packaged for delivery. Its quality control system has complied with the standard of GB/T 19001-2016/ISO9001: 2015 Quality Management Systems Requirements, and has been awarded a certificate for the design and manufacture of pitch control systems.
Experienced, stable and dedicated management team
The Group is managed by an experienced core management team, and has established a good business network with both upstream and downstream industry players along the wind power industry value chain. Under the leadership of an experienced leader, its R&D team has produced various customised high-voltage pitch control systems for customers, registered various pitch control related patents and software copyrights, and the Group was recognised as a National New High-tech Enterprise in 2018.
Future Growth Strategies
According to F&S Report, there is sufficient long-term and sustainable market demand in the wind power industry in the PRC. The Group has strived to achieve sustainable growth and further strengthen its market position in the pitch control system related manufacturing and sales business, expand its wind power generation business and continue to diversify and expand its wind power related services offerings, in order to maintain and increase long-term shareholder value and create maximum customer value. To achieve this, it will continue to actively seek for business opportunities in the wind power industry by implementing the following business strategies.
Maintains and strengthens position in pitch control system market to grow market share in the PRC
As a pitch control system supplier, demand for the Group's business is mainly driven by the sustainable demand from the wind turbine industry. The Chinese Government has recently initiated the promotion of healthy and sustainable development of wind power industry and such initiative is expected to stimulate a large number of enterprises to complete the construction of wind power projects in advance before the end of 2021 to enjoy the preferential policy, hence drive the demand for wind turbines and pitch control systems. The higher energy production efficiency and lower rate of malfunctions of high-voltage pitch control systems will help wind farms save operating costs in the long run, hence Frost & Sullivan also expects stronger demand for high-voltage pitch control systems in the long term. The share percentage of the PRC's pitch control system market is expected to increase from 63.0% in 2018 to 96.0% in 2023.
Drawing on its capability to offer high-voltage pitch control for offshore wind power projects, the Group plans to increase its market share in the expanding offshore wind power market. In addition, the Group seeks to maintain stable relations with its existing key client Envision Group and has entered a binding ten-year framework agreement with Jiangyin Envision. Given its extensive industry experience and a management team with strong servicing capabilities, the Group will continue to provide after-sales and value-added services which are tailored to customers' specific needs so as to maintain existing customer base, drive sales amount and enlarge its market share in the PRC.
Expands customer base
Regarding the pitch control system related manufacturing and sales business, other than Envision Group which is the Group's largest customer, the Group has also built business relations and entered a strategic cooperative agreement with Shanghai Electric as well as signed a sales agreement with Zhejiang Windey . Furthermore, the Group was awarded a tender for the supply of 120 sets of pitch control systems with a total contract sum of approximately RMB23.8 million. The Group will (i) develop and manufacture pitch control system prototypes for potential clients to demonstrate the quality and functionalities of its products and introduce new models or designs to potential customers and collect feedbacks; (ii) participate in various exhibitions in the wind power industry to promote the R&D involved in its products and services; and (iii) recruit additional sales personnel to establish and strengthen business relations with potential customers.
In view of the bright prospect of distributed wind farm business, the Group made strategic investments involving the interest in Datong Fengyuan and Datong Fengze in 2019. The Directors believe (i) the wind farm operation business will become a stable income source for the Group; (ii) the participation in the PRC's distributed wind farm operation business will enable the Group to diversify its customer base; and (iii) the operation of the Group's own distributed wind farms would enable it to draw on its experience in pitch control systems and operation and maintenance services to provide better services to customers and enhance its reputation in the PRC's wind power industry.
As for the wind farm operation and maintenance services business, the Group entered an agreement with Shandong Runhai Wind Power Development Co., Ltd. in March 2020 relating to the upgrade and modification of pitch control systems with a total contract sum of approximately RMB3.5 million. Looking ahead, the Group will continue to strive for the expansion of each of the add-on offerings, in particular the maintenance service and upgrade and modification works. By utilising its R&D function and with the support of experienced staff who have diverse skillsets within the wind power industry, the Group will explore the possibility of expanding its maintenance services and upgrade and also modification works to other components of wind turbines. In addition, the Group intends to recruit additional service personnel aiming to expand the scale of its wind farm operation and maintenance services.
Further strengthens R&D capability to enrich solution offering
The Group strives to provide products featuring comprehensive functions and advanced technologies at competitive prices. Apart from developing and updating software programmes to collect and diagnose data for optimal energy capture and minimisation of potential damages against exceedingly high speed winds, it has also developed simulation master control system software used for function tests of pitch control systems. The Group plans to (i) acquire additional software and testing machines for testing used in the R&D process to facilitate efficient and cost effective quality testing process while reducing the need and cost of using external testing labs; (ii) expand technical and R&D team by recruiting 13 additional personnel to serve the needs of customers in onshore and offshore wind power projects; and (iii) develop the integration technique and software for pitch drive controllers supplied by a supplier, which is specialised in the R&D and production of pitch drive controllers, frequency conversion control products, energy storage products and visual inspection system, and commercially viable pitch control systems to enhance its R&D capability and enrich its solution portfolio.
Use of net proceeds
Assuming the over-allotment option is not exercised and the offer price is fixed at HK$2.30 per share, being the mid-point of the indicative offer price range between HK$2.00 and HK$2.60 per share, net proceeds from the global offering (after deducting underwriting fees and estimated expenses in connection with the global offering) will be HK$111.5 million. The Group intends to use the net proceeds as follows:
Usage / Percentage
Purchase of core components and raw materials necessary for the production of customised high-voltage pitch control systems to fulfil the expected purchase quantities of Jiangyin Envision under the binding ten-year framework agreement: 18.7%
Diversify customer base in the pitch control system market by increasing marketing efforts: 3.6%
Invest in the development of a new distributed wind farm by Lingqiu Fengyuan in Lingqiu County in Datong of Shanxi Province: 31.2%
Recruit 70 additional service personnel to expand wind farm operation and maintenance services: 3.8%
Further strengthen R&D capability to enrich pitch control system and solution offerings: 11.4%
Repay in full a loan due to a third party by Duolun Wind Farm: 21.3%
General working capital: 10.0%
Financial Performance
RMB'000 For the year ended 31 December For the four months ended 30 April
2017 2018 2019 2019(unaudited) 2020
Turnover 57,314 144,424 222,835 36,936 51,482
Gross profit 18,871 44,503 66,397 12,125 13,395
Gross profit margin 32.9% 30.8% 29.8% 32.8% 26.0%
Profit for the year/period 7,699 27,875 42,689 7,067 4,236
China Nature Energy Technology Holdings Limited
China Nature Energy Technology Holdings Limited is a wind power and pitch control system solution provider in the PRC. The Group primarily engages in R&D, integration, manufacture and sale of high-voltage pitch control systems for wind turbines and also offers customised integration services of major components of pitch control systems. In 2018, it ranked third in the pitch control system market in the PRC in terms of sales volume.
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