The World Economic Forum has pointed out that failure to tackle climate change will be the biggest risk to the global economy in the next 10 years. It is clear that accelerating the low-carbon energy transition is a matter of destiny for all mankind, and action is urgent.

The biotechnology revolution has provided new ideas for solving problems. The replacement of traditional petrochemical materials by biological manufacturing materials can not only greatly reduce carbon emissions, but also effectively promote the transformation and upgrading of China's supply chain from resource-dependent to technology-based.

Thousands of sails race and the brave wins. Under the guidance of the policy, various localities are competing to introduce development plans to attract chain owners and seize this strategic emerging industry. In this context, Cathay Biotech (688065.SH) has become more and more prominent as a leading synthetic biology company, and has become the target of the government, central enterprises and industry leaders.

Trillions of central enterprises to deploy new quality productivity

At a time when the global energy structure is undergoing profound adjustment and the energy security pattern is facing reshaping, biomanufacturing adapts to the current green and low-carbon economic transformation needs and becomes the strategic commanding heights of a new round of scientific and technological revolution and industrial transformation.

The 2024 Government Work Report proposes to accelerate the development of new quality productivity and actively build new growth engines such as biomanufacturing. In the economic context of the transformation of old and new kinetic energy, the layout of strategic emerging industries has become the core goal of the development of central enterprises. In addition, the new round of state-owned enterprise reform has deepened, and the central state-owned enterprises have actively laid out new productivity industries by virtue of their scale advantages, resource integration capabilities and policy support.

In June 2023, Cathay Biotech announced that it plans to issue an additional amount of no more than 6.6 billion yuan, introduce China Merchants Group as an indirect shareholder, and sign a business cooperation agreement to jointly expand the application scenarios of bio-based polyamides and jointly promote the implementation and development of synthetic biology industrialization. In December 2024, the above-mentioned private placement was approved by the China Securities Regulatory Commission. Up to now, the preparation of relevant issuance and industrial and commercial change registration is still in progress.

It is worth noting that China Merchants plans to purchase "1-8-200,000 tons" of bio-based polyamide resin materials from Cathay Biotech in three years. With the implementation of the fixed increase items, the gradual advancement of the agreed procurement plan will also drive the continuous increase of downstream applications.

As an important state-owned backbone enterprise directly managed by the central government, China Merchants Group has been actively deploying green technology strategies. In 2024, the Group will take the lead in undertaking the special biomanufacturing project of the State-owned Assets Supervision and Administration Commission of the State Council, and the "Series of Bio-based Polyamide Development and Industrialization Project" will be selected as one of the "Top 100 Projects of the New Industry" by the State-owned Assets Supervision and Administration Commission of the State Council.

Subsequently, the two parties will carry out in-depth cooperation on bio-based polyamide materials, which will help the Group's industrial sectors to effectively deepen the application of new biomanufacturing materials, effectively reduce carbon emissions, and provide broader application scenarios and sufficient financial support for the R&D and promotion of Cathay's related products.

The city of production and investment chain synthetic biology

In May 2024, Cathay Biotech signed a strategic cooperation agreement with the Hefei Municipal Government and China Merchants Innovation and Technology Group to jointly build a synthetic biomaterials industrial cluster. Today, China Merchants Cathay Composites (Hefei) Co., Ltd., a joint venture established by the three parties, has been registered and established, which will be engaged in the research and development, production and sales of bio-based polyamide composite materials and build a complete bio-based material industry chain.

Judging from the industrial and commercial registration information, the shareholders of China Merchants Cathay Composite Materials (Hefei) Co., Ltd. include China Merchants Innovation and Technology, Cathay Biotech, Hefei Industrial Investment and Hefei High-tech Investment, which truly realizes the tripartite alliance of central enterprises, industrial parties and local governments. The synergy between the three parties in terms of capital, technology, market and talent will not only accelerate the commercialization process of Cathay, but also promote the development of Hefei's biomanufacturing industry, thereby helping China to enhance its global competitiveness in the field of synthetic biology and green manufacturing.

For Cathay, Luozi Hefei is obviously in love with Hefei's mature experience in cultivating emerging industries.

In the past 20 years, through the introduction of BOE, the establishment of Hefei Changxin, and the bailout of NIO, Hefei has successfully built a number of industrial clusters such as integrated circuits, emerging displays, and new energy vehicles, which have triggered industrial changes while realizing the "corner overtaking" of economic growth.

The core of the "Hefei model" lies in the efficient coordination of the government, the market and capital, and helps enterprises grow rapidly through the way of "capital investment + industrial chain integration + long-term accompaniment". This is particularly important for Cathay, which is also an emerging industry.

It usually takes 5-10 years for biomanufacturing to go from laboratory to commercialization, and the commercialization risks during this period are not small. The Hefei model can combine market-oriented capital to provide financial support for Cathay's key projects through "rolling investment", so as to avoid short-term profit-seeking by capital and interference with corporate strategy.

In addition, based on Hefei's accumulated resource endowment in the fields of new energy, new materials, and biomedicine, Cathay Biotech can form in-depth synergies with local enterprises after its implementation, reduce supply chain costs, and accelerate market verification and large-scale implementation.

At present, Hefei has regarded synthetic biology as one of the five leading industries at the municipal level, and its biomanufacturing industry construction leads the country. With the continuous tilt of policy guidance, Hefei continues to increase the synthetic biology track, which will help Cathay Biotech further expand its production capacity and enhance product competitiveness.

With the in-depth synergy and value linkage of government, industry and capital, the cooperation between the three parties driven by ecological strategy is expected to create multiple sparks of "industrial upgrading, technological innovation and green development", and become a model of government-enterprise cooperation and integration of industry and finance in the biomanufacturing industry.

Giant endorsement accelerates ecological landing

In addition to the China Merchants Cathay project, another blockbuster project of Cathay Biotech and industry giants has also recently landed in Hefei.

On February 12, Anhui Kai Acid Times Composite Materials Co., Ltd. (hereinafter referred to as "Kai Age") was established with a registered capital of 150 million yuan, and its business scope covers the sales of high-performance fibers and composite materials.

Tianyancha shows that Kaiyan Times is jointly held by Cathay Biotechnology (45%), Times Zeyuan Fund (34.9%), and Hangzhou Kalai (20%).

Source: Tianyancha

It is worth noting that the "Ning" content in the Kai era was quite high. From the perspective of equity structure, the GP of Times Zeyuan is Puquan Capital, which is the production and investment platform of Ningde. Hangzhou Kalai is mainly engaged in the design, R&D and mass production of high-performance fiber composite lightweight parts, and is currently the main supplier of composite structural parts for power batteries in CATL.

According to public information, in September 2024, Times Zeyuan Fund was jointly established by CATL, a leading new energy battery company, a number of local state-owned funds and investment companies under well-known securities firms, with a capital contribution of up to 5.086 billion yuan. Among them, CATL subscribed 700 million yuan, holding 13.76% of the fund's subscription ratio.

The Fund mainly invests in the field of new energy and high-end manufacturing. CATL has said that the company participates in the investment of Times Zeyuan Fund as a limited partner, hoping to expand the company's layout in the field of carbon neutrality ecology through equity investment.

In fact, the hand-holding between Cathay and Ningde has long been traced. As early as the beginning of this year, Cathay Biotech revealed that it has obtained the technical certification of the leading battery manufacturer and obtained commercial orders. Based on this, the outside world speculates that the head battery manufacturer may be CATL.

Now that the cooperation boots have landed, it marks that the two will work together to build an ecological chain of bio-based materials.

Cathay Biotech is the world's only manufacturer of a series of bio-based polyamides with bio-based pentanediamine as the core monomer, and the power battery upper cover products made of Cathay's bio-based polyamide materials have the advantages of cost reduction, weight reduction and thinning, and are highly flame retardant, low-carbon and recyclable, which meets the needs of power battery manufacturers for battery lightweight, high safety, environmental protection and carbon reduction. As the largest customer in the industry, CATL has a global power battery market share of nearly 40%, which can provide Cathay with rich feedback on application scenarios, promote the iteration of Cathay's material performance, and accelerate the commercial verification of bio-based materials.

From the perspective of equity structure, Kai Al Times directly binds the interests of core raw materials, customers and processors, and its positioning is to become a mainstream supplier of composite materials in the field of new energy and automobiles, and will greatly promote the application and promotion of bio-based composite materials in power batteries, automobiles and other fields in the future.

The gold content of the track faucet

To become the object of cooperation between trillions of central enterprises, venture capital cities, and industry leaders, what are the advantages of Cathay?

Cathay Biotech was listed on the Science and Technology Innovation Board on August 12, 2020. Since its establishment, the company has been engaged in the research and development and industrialization of new biomaterials based on synthetic biology and the use of biomanufacturing technology, and its main products include a series of bio-based long-chain diacids (DC10-DC18), bio-based pentanediamine, and a series of bio-based polyamides and their composite materials.

It is worth mentioning that Cathay Biotech is the first company in the world to realize the large-scale production of long-chain diacids by biological method. As early as 2010, Cathay's bio-based long-chain diacids have completely suppressed chemical methods, accounting for more than half of the global share, and have established stable supply relationships with many multinational chemical giants such as DuPont, Degussa, Swiss EMS and Arkema. In 2018, Cathay's long-chain diacids won the title of individual champion of manufacturing industry of the Ministry of Industry and Information Technology of the People's Republic of China.

Bio-based polyamide is an important product that Cathay is currently focusing on developing and incubating application scenarios. According to the forecast of Huaan Securities, the bio-based polyamide market space is expected to reach 21.591 billion yuan in 2025.

Source: Prospectus of Shanghai Cathay Biotechnology Co., Ltd. for the issuance of A shares to specific targets (registration draft).

Compared with the polyamide produced by the traditional petrochemical process, the bio-based polyamide developed by Cathay Biotech has the comprehensive advantages of high strength, light weight, wear resistance and corrosion resistance, breaking through the cost and performance limitations of traditional thermoplastic composites, and is an ideal material choice for scenarios such as "replacing steel with plastic, replacing aluminum with plastic, and replacing thermosetting with thermoplastic".

It is understood that the bio-based polyamide continuous fiber reinforced composite materials developed by Cathay can replace metal in terms of strength, with a density of only 1/4 of steel and 2/3 of aluminum, which not only effectively saves material costs, but also helps to reduce the weight of the overall structure, which is especially suitable for lightweight design needs. In addition, its bio-based polyamide can reduce carbon emissions per unit by 50% compared to traditional chemically based petroleum-based products.

With superior performance and cost-effective advantages, the above-mentioned high-performance composite materials have shown great application potential in many fields, including automotive lightweight (passenger cars & commercial vehicles), construction engineering, new energy and other fields.

It is not difficult to see that Cathay's accumulated potential energy in the R&D and innovation of bio-based polyamide composite materials is highly matched with the needs of Hefei and CATL in the transformation and upgrading of new energy and other application fields.

Cathay Biotech said in an interview with investors that China Merchants Cathay Composites (Hefei) Co., Ltd., which was established in Hefei, will develop and produce various composite intermediate products in the downstream of Cathay's bio-based polyamides, such as strips and plates, and sell the relevant composite intermediate products to project companies in various downstream terminal application products, and finally make various bio-based material products, such as battery shells, energy storage boxes, photovoltaic frames, building templates, etc., so as to build a complete bio-based material industry chain.

The implementation of the Hefei project means that the construction of the industrial chain ecology of Cathay's series of bio-based materials "monomer-resin-composite-application products" has been established. The cooperation between Cathay Biotech and CATL represents a cross-border innovation of "biomanufacturing + new energy", focusing on material substitution and technology verification in the short term, and reconstructing the sustainability of the battery material supply chain in the medium and long term.

It is foreseeable that Cathay will use the Hefei project as a template in the future to build an industrial chain and supply chain system of bio-based polyamide composites nationwide, and expand downstream products to more application fields.