Ten days after the announcement of the acquisition of Dingzhou Xuyang Hydrogen Energy Co., Ltd. (hereinafter referred to as Xuyang Hydrogen Energy), Yihuatong (SH688339, share price of 24.90 yuan, market value of 5.768 billion yuan) released a transaction plan on the evening of March 12. It is planned to purchase 100% of the equity of Xuyang Hydrogen Energy by issuing shares and raise matching funds.

On the same day, China Xuyang Group (HK01907, share price of HK$2.73, market value of HK$11.86 billion), the controlling shareholder of Xuyang Hydrogen Energy, also announced that after the completion of the transaction and capital increase, the company will become the controlling shareholder of Sinohytec, holding less than 30% of the shares but controlling its board of directors. This means that Sinohytec is "under the command" of China Xuyang Group.

At present, the final transaction consideration of Xuyang Hydrogen Energy has not yet been announced, and the price of the shares issued by Sinohytec for the transaction is 18.53 yuan per share, and the matching funds raised will not exceed 550 million yuan.

In addition to the integration of the industrial chain, the gray hydrogen produced by China Xuyang Group is also conducive to Sinohytec to significantly reduce the cost of hydrogen energy utilization. Some industry analysts told the "Daily Economic News" reporter that the production cost of gray hydrogen (that is, hydrogen produced from fossil fuels) in March was 10 yuan/kg; The price of green hydrogen (i.e., hydrogen production by water electrolysis) is mainly affected by the price of hydrogen production equipment and electricity, and the cost of hydrogen production from water electrolysis in China in 2024 will be between 21 yuan/kg and 46 yuan/kg. That is, the cost of grey hydrogen is less than half that of green hydrogen.

It is difficult for hydrogen fuel cells to make a profit

China Sunrise Group's main business involves coke, coking products and fine chemical products, and it is also the world's largest independent coke producer and supplier. Xuyang Hydrogen Energy focuses on the technology research and development of liquid hydrogen preparation, storage and transportation and green hydrogen preparation equipment, and its business is mainly to synthesize ammonia and hydrogen from industrial by-product gas.

Sinohytec is mainly engaged in hydrogen fuel cell systems (hydrogen engines) and technical services, and hydrogen fuel cell systems account for the vast majority of the company's revenue. For this transaction, Sinohytec said that the acquisition of hydrogen energy-related assets of Xuyang Group can further improve the upstream and downstream layout of the listed company in the hydrogen energy industry chain, further open up the terminal application scenarios, give full play to the business synergy between the two parties in the field of hydrogen energy, and help the listed company become a comprehensive clean energy supplier with fuel cells as the core and business covering the whole chain of hydrogen "production, storage, transportation, processing, research and use".

However, Sinohytec's hydrogen energy business performance has been "not ideal". According to data from the China Association of Automobile Manufacturers, the sales volume of hydrogen fuel vehicles in China will be 5,405 in 2024, a slight year-on-year decline. By the end of 2024, the cumulative sales of fuel cell vehicles in China will be about 24,000 units, which is a big gap compared with the 50,000 units required by the end of 2025 in the national "Medium and Long-term Plan for the Development of Hydrogen Energy Industry".

Li Long, director of CCID Consulting's dual-carbon economy research center, told the "Daily Economic News" reporter that at present, hydrogen energy technology innovation is highly active, and the obstacles to the development of the industry are mainly reflected in the weak coordination of the industrial chain, few application scenarios, high hydrogen production costs, lagging infrastructure construction, and imperfect standards.

Zheng Xianling, strategic adviser to the president of CIMC (SZ000039, share price 8.73 yuan, market value 47.131 billion yuan), said that from the perspective of the world, the development of hydrogen energy is cut from the field of transportation. From the perspective of the market, the current application is concentrated in commercial vehicles, and passenger cars are the largest market for hydrogen energy, and the development of commercial vehicles and passenger vehicles should be implemented simultaneously.

Affected by the development of the industry, Sinohytec has faced great operating pressure in recent years and has continued to fall into losses since 2020. According to the 2024 annual performance express report released on February 27 this year, Sinohytec's annual operating income was 367 million yuan, a decrease of 54.21% from the same period last year; The net profit loss attributable to the owners of the parent company was 453 million yuan. The company said that the main reason is that the macroeconomic environment is complex and severe and the fuel cell industry is in the early stage of industrialization, the sales volume of the company's fuel cell system has declined, and the market competition in the fuel cell industry is fierce, and the sales price of the product has decreased more than the cost has decreased.

From the perspective of the industry, the hydrogen energy industry has a large R&D investment and few revenue sources, and is generally facing the pressure of not making a profit. As a hydrogen energy concept stock, Xiongtao shares also suffered a loss for the first time in 2021 due to the huge R&D expenses invested in the hydrogen energy industry chain. By 2023, Xiongtao's fuel cell business will account for less than 1% of the company's revenue.

Will the cost of hydrogen energy utilization be greatly reduced?

It is difficult for hydrogen energy companies to make profits, and it is difficult to maintain development alone. For China Xuyang Group, the "bag" of Sinohytec is an opportunity to expand the industrial chain.

According to the transaction plan document released by Sinohytec, China Xuyang Group has taken hydrogen energy business as a key development strategy, and has become a large-scale supplier of high-purity hydrogen in the Beijing-Tianjin-Hebei region, and has also carried out extensive industrial layout and in-depth technology research and development in the fields of liquid hydrogen, green hydrogen, and green ammonia.

Zheng Xianling told reporters that with the current attitude of the government and vehicle manufacturers, the situation is not very optimistic about fuel cells in the short term, and the risk of Sinohytec simply doing downstream is relatively high. With the participation of the upstream industry, Sinohytec will evolve into a hydrogen energy company, or an energy equipment company, or an energy service company, "I think it will be much better."

Li Long believes that in terms of industrial chain coordination, the independent development of hydrogen production, hydrogen storage and transportation, hydrogen use and other fields is still relatively common, and the industrial cluster effect has not yet been formed. "China Xuyang Group holding SinoHytec this event, in essence, is resource integration, Sinohytec mainly focuses on the field of hydrogen, that is, fuel cell systems, stacks and other production and manufacturing, Xuyang hydrogen energy focuses on the field of hydrogen production, can produce high-purity hydrogen, green hydrogen. For the hydrogen energy industry, this transaction provides a test field for the coordinated development of the industrial chain, which can accelerate the integrated layout of hydrogen energy, create cost advantages, and promote the large-scale process by connecting the two links of hydrogen production and hydrogen use. ”

In addition to the integration of the industrial chain, the gray hydrogen produced by China Xuyang Group is also conducive to Sinohytec to significantly reduce the cost of hydrogen energy utilization. According to a research report by Debang Securities in July 2024, China Xuyang Group is located in North China, with abundant coke production and the conditions for hydrogen production from coke by-product gas. According to the research report, China Xuyang Group has a hydrogen production capacity of 36,000 tons/year, and has built 3 hydrogen refueling stations in Dingzhou, Xingtai and Baoding, and a total of 12 hydrogen refueling stations have been completed and put into operation in Hebei, with a total hydrogen refueling capacity of 3 tons/day.

Li Long told reporters that the cost of gray hydrogen is mainly affected by the price of coal, and the production cost of gray hydrogen in March was 10 yuan/kg; The price of green hydrogen is mainly affected by the price of hydrogen production equipment and electricity, and the cost of hydrogen production by water electrolysis in China in 2024 will be between 21 yuan/kg and 46 yuan/kg, and on the whole, the current domestic green hydrogen production cost is more than twice that of gray hydrogen.

Therefore, Li Long believes that low-cost gray hydrogen is conducive to the high-quality development of the hydrogen energy industry. In the long run, gray hydrogen provides a clear competitive goal for promoting the cost reduction of the green hydrogen industry, and under the influence of the "catfish effect", the green hydrogen industry continues to reduce production prices through technological innovation, industrial synergy, electricity price adjustment and other measures, which is conducive to accelerating the development of the industry.

The reporter noted that Sinohytec will also make efforts to develop green hydrogen equipment. The company said in the announcement that the current research and development of green hydrogen preparation equipment is one of the future directions of major manufacturers in the field of hydrogen energy, and the research and development of core equipment and technologies related to water electrolysis hydrogen production requires Xuyang Hydrogen Energy to continue to increase R&D investment.

Cover picture source: Photo by reporter Xu Shuai