How to deal with the exit dilemma?
Capital is new, industry is quality. In the new cycle transformation, we need to abandon the previous path dependence, actively embrace changes, and find new breakthroughs.
For the investment industry, in the past year, the cyclical characteristics have become more and more obvious, and in the context of technological innovation and industrial transformation, it is particularly important to firmly believe in value investment. This is profoundly reflected in the fact that China's innovation system is gradually taking shape, with new quality productivity and new tracks represented by AI large models, computing power chips, robots, biosynthesis, low-altitude economy, aerospace, etc., constantly emerging, domestic substitution is still hot, and enterprises are in full swing to go overseas. How to develop from "localization" to "globalization" into a new outlet are new opportunities for entrepreneurs and innovators, and also a new driving force for industrial investors.
On July 10, the 2024 Rongzhong Summer Summit was grandly held at the Seasons Hotel Beijing. The summit was hosted by Rongzhong Media and Rongzhong FOF Research Institute, co-organized by Rongzhong Finance and Rongzhong Consulting, with the theme of "Crossing the Narrow Door", with the heavyweight rookies from the investment circle and industry, focusing on industrial investment, CVC, medical and health, high-end manufacturing, new energy and other fields, and deeply analyzed the trends and opportunities of the new qualitative development of China's industrial investment.
At the conference, Ma Weiguo, founding partner and chairman of Yichen Capital, served as the moderator, Hua Jing, managing partner of Zhenghai Capital, Li Yongxing, senior partner of Yida Capital, Tian Huafeng, president and founding partner of Gimpo Intelligence, Xu Hui, partner of Dachen Caizhi, Zhao Huayan, deputy general manager of CRRC Transformation and Upgrading Fund, and Zhu Zhi, general manager of CNOOC Fund, had a heated discussion on the theme of "New Energy, ESG, Focus on Energy and New Quality Productivity Forum" as guests.
The following is the content of this forum, recorded by Rongzhong Finance.
Institution Introduction
Ma Weiguo: Today's theme is about the theme of new energy, new energy is very familiar to everyone, "new three" lithium battery, photovoltaic, energy storage, the industry has been very hot and volatile in the past two years, especially in this year, the industry has also seen a sharp decline in prices, including revenue and profits have also appeared in the industry as a whole, and the industry is at a low ebb.
Today, we will discuss what investment opportunities are in the industry process, what are the investment opportunities at this stage, including the outlook for the future, today go straight to the topic, we will introduce ourselves and our institutions when we speak.
Hua Hua: Thank you, I am from Zhenghai Capital, a private equity venture capital institution located in Shanghai, and its main investment areas are: advanced manufacturing, green industry, and new generation information technology. We were established in 2008, so far there are 14 IPOs, and 6 are in the meeting, in the new energy track, Zhenghai has also had a layout in each subdivision of the industry in the past, such as the photovoltaic industry has invested in cell projects, the lithium battery industry has invested in lithium-ion battery projects, and there are more projects in the new energy vehicle track, including wire-controlled chassis, ADAS, car seats, etc.
Li Yongxing: Hello everyone, I am Li Yongxing from Yida Capital. Yida Capital is a market-oriented institution established in 2014 by the mixed reform of Jiangsu High-tech Investment Group, with a cumulative capital under management of more than 120 billion yuan, and I am mainly responsible for investment in the field of smart transportation and clean technology, including new energy vehicles, smart cars, new energy, etc. Yida Capital has a lot of new energy layout, and the earliest photovoltaic and wind power companies that the team invested in such as Almaden and China Transmission have achieved excess returns in history. In recent years, Yida Capital has also made more layouts in the new energy and new energy vehicle sectors, and the overall layout idea is still around scientific and technological innovation, such as advanced productivity equipment. In the field of photovoltaics, the companies we have invested in have been successfully listed. There may be less layout in the main link, and more investment in the field of scientific and technological equipment, which is probably the case with our new energy-related investment.
Tian Huafeng: Hello everyone, I am Tian Huafeng from Gimpo Intelligence, a team of Gimpo Investment focusing on hard technology investment, which officially operated independently in 2017, and the parent company Gimpo Investment was established in 2009, and has a history of 15 years now, with a cumulative management scale of more than 60 billion. Gimpo Intelligent mainly invests in semiconductors, new energy and new materials in the Yangtze River Delta region. Our layout in the field of new energy, almost all fields related to new energy will be concerned, such as wind, solar, lithium, hydrogen, sodium, storage, etc., including various materials related to new energy, we prefer equipment, materials, parts, etc. in the upstream of the industrial chain, from 2017 to the present, has invested in more than 30 projects in the field of new energy.
Xu Hui: Hello everyone, thank you for the invitation, I am Xu Hui, a partner of Dachen Caizhi, Dachen Caizhi is an equity private equity fund established in 2000, and it has been 24 years now, and it is also a veteran fund in China, we have invested in more than 700 companies, more than 140 IPOs, in the field of investment, with the continuous change of the national industrial structure, our investment structure is also changing, new energy, intelligent manufacturing has always been our unchanged investment track.
Zhao Huayan: Hello everyone, I am Zhao Huayan from CRRC Capital, and I am honored to meet you at the Industrial Investment Summit. But in fact, the new pattern of our industrial development has formed a dual-track and new cluster pattern. The first is undoubtedly rail transit equipment; The second clean energy equipment, that is, the new energy equipment we are discussing today, why do we want to develop new energy equipment, which is inseparable from the process of high-speed rail autonomy of CRRC. The nine core systems and key technologies of high-speed rail can be reused into clean energy equipment, especially in wind power equipment, which is compared to "standing up high-speed rail" internally, and we have formed two major industrial chain systems in the field of new energy equipment, the first is the new energy power generation equipment industry chain system represented by wind power, photovoltaic, energy storage and hydrogen production.
The second is the transportation equipment industry chain system represented by low-carbon and zero-carbon, collectively known as the new energy industry chain system, specific to CRRC Capital and CRRC Manufacturing Transformation and Upgrading Fund, which is jointly initiated by CRRC and the National Manufacturing Transformation and Upgrading Fund, and focuses on the investment layout of CRRC's new energy and new material industry.
Up to now, the scale of CRRC capital management is more than 30 billion, and the investment in new energy-related projects is more than 180, a total of 180, and new energy accounts for more than 20%, CRRC Transformation Fund has carried out a number of project layouts in these two areas, specific to investment opportunities in the field of new energy, my personal sharing views are based on CRRC's own new energy industry development needs and our other major LP, the Ministry of Industry and Information Technology's National Manufacturing Transformation and Upgrading Fund, he gave us some guidance from the policy guidance.
Taken together, there are three main investment opportunities:
First, the opportunity of new technology substitution, in the field of new energy, the core is to achieve cost reduction and efficiency increase, through new technology to achieve replacement on the basis of the original technology, to achieve lower cost or higher efficiency, at the same time, the core technology helps us to solve the pain points of the industry, such as homogenization, low quality, false integration and other related problems;
Second, the opportunity of the incremental market, through technological innovation and forward-looking prediction and judgment, enterprises can create high-performance forward-looking products, forming the second growth curve of the enterprise, this growth curve may lie in the overseas market, or it may lie in another new semiconductor and other related applications;
3. We work together to find common processing and manufacturing or common basic components, basic materials and other opportunities upstream, such as common processing and manufacturing, laser welding, cutting, 3D printing, common basic components and basic materials, including silicon carbide process devices, sensing IoT devices, superconducting materials, lightweight materials and high-temperature alloy materials, etc.
Zhu Zhi: Hello everyone, I am Zhu Zhi from CNOOC Fund Management Company, I am very happy to invite Rongzhong today, I have gained a lot from listening to it in the afternoon, and I have been very inspired, CNOOC Fund Management Company is the only industrial fund management platform under CNOOC. The main focus is around the main business, new energy, new materials, green petrochemical and other new industries and future industries, looking forward to more exchanges with you.
Investment opportunities in a downturn
Ma Weiguo: I am Ma Weiguo of Yichen Capital, this company was founded by me personally, I have been an investment bank for 20 years, and I have made investments for more than 10 years. Just now, Mr. Zhao has talked about the investment opportunities, and then I invite a few others, two small questions, one is what else we can do in the case of full competition in the new energy market; Another simple judgment and sharing on the trend of the industry.
Hua Hua: Regarding new energy investment opportunities, every investment institution will pay more attention, we believe that although this industry is currently facing excessive competition and overcapacity, but in general, there are still many investment opportunities in this industry. Because
First, the market size of this industry is particularly large, and from the perspective of electricity, source, grid, load and storage, each point is a very large track. Whether it is photovoltaic, lithium battery, hydrogen energy, combined with upstream and downstream, the volume is very large;
Second, the iteration speed of technology is very fast, and there is an industry scale here to encourage entrepreneurs to innovate, and it can be seen that the technology path of the photovoltaic industry is iterating very fast. From the perspective of investment institutions, we like this kind of industry. If the competitive landscape of this industry is very solid, the incumbent has a strong advantage, and there is no opportunity for start-ups;
Third, this industry has a relatively high degree of marketization, and even has a tendency to re-globalize. We have seen that many companies, including the lithium battery industry, have also begun to invest in foreign countries to avoid geopolitical frictions, and the leaders of enterprises also have a global perspective and pattern.
Li Yongxing: Everyone thinks that the new energy industry is particularly volatile now, and I have always had a point of view that today's new energy industry volume is valuable, and I am most afraid that the industry will only roll the price. China's three representative areas in the new energy industry, new energy vehicles, photovoltaics, and lithium batteries, in addition to the price is constantly falling, the cost is also falling, and the performance is also constantly improving, and the product performance has a strong competitive advantage in the world. The mainstream conversion rate of photovoltaic cells in China is 25%, and the conversion rate of the best photovoltaic cells in United States is 19%, for various industries, the most feared is insufficient demand, rather than simple oversupply.
What to do in the future? There are several aspects, in the main link, whether it is a new energy vehicle or a photovoltaic field or a lithium battery field, the opportunity for innovation or entrepreneurship in the main link is relatively small, these industries are not simply technology-based entrepreneurship, a large part of them require a strong capital threshold, such as the photovoltaic field, the main link entrepreneurship threshold barriers may be billions, in fact, it is not particularly suitable for general entrepreneurs, there are many good listed companies on the main link, and we will also carry out the layout in the future. At the same time, in the primary market, there are great opportunities for the main link of the main engine factory, photovoltaic cell, lithium battery company, and the giant to provide scientific and technological services, which is suitable for the vast majority of entrepreneurial enterprises.
There is no ultimate technology for photovoltaics, only phased leading technology. In the process of technology iteration, small and medium-sized innovative enterprises still have more opportunities, and the market space for the progress of Chinese auto companies will be relatively large, according to the 80% share of Chinese brands, at least 20% of the space, and there is also a broad global market. The photovoltaic field also has a large market in terms of energy demand, and there are still many opportunities here.
Tian Huafeng: The previous guests are full of confidence in the new energy industry, and we are also full of confidence, from a macro point of view, only the new energy industry can replace real estate to drive China's economy, because the volume is large enough, the industrial chain is long enough, and the future growth space is also large enough. As we all know, because of the involution, the price has fallen, lithium carbonate has fallen from a maximum of 600,000 tons in previous years to 100,000 now, photovoltaic silicon materials have also fallen from 300,000 tons to 4-50,000 tons, and the price of terminal products has also fallen significantly. However, looking at the entire dual carbon strategy, if we want to achieve the goal of "carbon neutrality" by 2060, the new energy industry still has a lot of room for growth. Of course, for institutions like us that still insist on investing in the market, we need to figure out how to lay them out. We believe that the two major trends of industrial development are intelligence and greening, and the corresponding industries are semiconductors, new energy, new materials, etc.
The investment in the field of new energy is a little more complicated, and the overall investment logic of semiconductors is relatively clear, mainly domestic substitution. We believe that the new energy field is the coexistence of two investment logics, that is, "innovation-led, domestic substitution". The investment logic of the main products and main tracks of new energy is innovation-led, and the technology iteration in this field is particularly fast, and the R&D investment of all new energy giants in China is also very large, and there are layouts in all directions of new energy, and the technical capabilities of Chinese enterprises in some new technology fields are also first-class in the world. Therefore, for the main track of new energy, we can only invest in some new technologies, and we must not invest in mature technologies, which means overcapacity, which means that prices continue to fall.
There is a point in time for new technologies, and there are many new technologies related to new energy in recent years, perovskite, silicon carbon anode, sodium-ion batteries are very hot, and solid-state batteries that are particularly hot this year.
For our RMB fund with a relatively short duration, we believe that we should make a layout three or five years before the outbreak of downstream market demand, but the judgment at this point in time is also a qualitative analysis, and there is no ready-made formula that can tell you which new technologies will explode in three years. For example, the silicon carbon anode in the lithium battery field will be almost two years old, and the perovskite will be about the same for another two years.
In addition, in many fields of materials related to new energy, in fact, domestic substitution of imports, such as special carbon materials or carbon-based composite materials, advanced ceramic materials, polymers and other fields have such opportunities. In these fields, at present, domestic enterprises are mainly doing low-end, high-end products are basically monopolized by foreign giants, and Japan companies are relatively strong in this regard. For example, advanced ceramic materials, not only high-end products, we are not good enough, related powder materials and equipment also need breakthroughs.
Xu Hui: Everyone also knows that the downward subdivision of new energy tracks, photovoltaics, wind power, batteries, new energy vehicles, hydrogen energy, energy storage, etc., are all mainly what investors are looking at. In different subdivisions, its development logic is different, and our investment strategy is also different, but we should pay attention to one point, whether it is photovoltaic or our batteries, new energy vehicles, we are the most leading in the world in these fields, whether it is in terms of cost, technology, industrial supply chain, product quality and the proportion of our entire product quantity, we are leading in the world. This is because of the policy guidance of our country for so many years, and the other is that it is inseparable from the financial support of our investment institutions, which has developed very well today. However, from last year to this year, there has been overcapacity, due to the increase in investment by local governments, capital chasing and market demand, enterprises are big and fast, as well as the stimulation of foreign demand, the demand for going to sea is getting bigger and bigger, and there is a blind situation of big and fast, when foreign demand slows down, such as increasing tariffs, canceling subsidies, anti-dumping, etc., resulting in a slowdown in demand, the market has a stage of surplus.
For investors, it was a very good investment outlet in the past few years, and now we must be cautious and wait-and-see. But for example, in the photovoltaic track, we believe that there will still be opportunities for new cell technologies, new materials, and photovoltaic equipment in the future, photovoltaic cell equipment has been updated and iterative, and equipment iteration has improved the conversion rate and reduced the cost.
New energy vehicles, the industrial chain in China is very complete, but there are many core components or foreign manufacturers in the dominance, now we gradually have domestic product production, but has not yet dominated the market, this is the opportunity for domestic substitution.
Energy storage, new energy storage solutions are changing or iterating, and we have opportunities to find the optimal solution. But which is the best plan, it has not yet been determined, there are opportunities in the process of change, and the biggest opportunity for investment is in the process of change.
Back to photovoltaics, the structure of the photovoltaic industry chain is already very clear. In an industry, if the industrial pattern is relatively clear, it is difficult to make money, and it is difficult for investors to invest and make money.
Zhu Zhi: When everyone invests in the new energy industry, there are two aspects, the first is indeed a big track, and it is a deterministic track that is very consistent with national policies, which is beyond doubt. Another aspect in the actual operation of the project process, is not able to step over the high-tech threshold, once to the industrialization process there will be overcapacity, there will be confusion, the new energy track is still this year, next year, the next few years of very large investment opportunities, including technology iteration, including new models, passed to materials, upstream and downstream new investment opportunities, this must still be very large, in addition to the guests mentioned different directions, tracks, more subdivided, from the investment stage, but also from the original maturity, If you go a little further in such a stage of growth, it may also be a choice for the investment layout in the new energy field in the next stage.
Ma Weiguo: My personal opinion on this issue, the opportunity lies in the first is the domestic substitution of high-end products, such as high-end diaphragms; There is also an opportunity for industrial upgrading of technology iteration, and we have invested in aramid coating, which can make the puncture resistance of the separator better and safer. There are also some emerging application market opportunities, such as automotive brake-by-wire and steering, membrane electrodes for photovoltaic hydrogen production, etc. In short, there are many opportunities in the upstream of the new energy industry chain and in the field of parts.
How to deal with the difficulty of exiting
Ma Weiguo: The second question, the exit of our investment projects in the new energy industry, you know that in the past two years, from August last year to now, the entire IPO is basically suspended, and there are more than 30 new energy companies listed from last year to now, including Hong Kong stocks and the Beijing Stock Exchange, and there are 14 companies that have passed the meeting, and more than 200 will be registered, and we have counted nearly 20 of the materials, all of which are in the field of new energy, which is under great pressure on us to withdraw. I would like to share with you what your strategy is for exiting.
Li Yongxing: Exit is indeed a problem faced by all institutions at present, there are several strategies, as far as possible to invest in some companies with solid technical skills, technology-driven is not simply capacity-driven enterprises. We will start as soon as possible for early-stage technology-driven projects, and after investment, we will gradually transfer and exit them in the follow-up process based on the duration of the fund and the development of the industry.
The second strategy, given the difficulty of investing in the primary market, will also consider investing in the primary and semi-market in some newly established funds. For example, the 2.5 billion green transformation fund newly established by Yida Capital last year can be used for private placement and agreement transfer of listed companies.
Another from the historical experience shows that the IPO is an obvious cycle, such as the new energy photovoltaic industry cyclical is also obvious, I entered the industry in 2011, the research found that the more pessimistic everyone is, the layout can pass through the trough of the project can finally get a better return, these projects are still worth the courage to start, and finally will achieve an effective exit.
Hua Jing: The phased tightening of IPOs has happened many times in history, and it is not a new problem, and later it has also experienced the process of returning to normalization to explore diversified exit paths, which is now a topic faced by every institution, and it is also worth exploring. Of course, IPO is still a more mainstream exit path or what we call a more systematic exit method, whether it is acquired or repurchased, or S fund, etc., the heterogeneity is still quite large, to see on a case-by-case basis, it is difficult to say which way is better than which, and it will be related to the project, the founding team, etc. In short, exploring diversified exit paths is a topic that everyone is facing, and which way is better depends on the specific situation of the project itself.
Tian Huafeng: It is difficult to raise funds, it is difficult to invest, and now it is difficult to exit, and it is difficult to exit is the most difficult part of GP, it is difficult to raise funds and invest, we can still work hard, and to be honest, it depends largely on the policy, and I personally think that we first call for a normalized IPO policy.
Secondly, when it comes to the specific investment strategy, we still need to make some adjustments to adapt to the current IPO environment, after all, our fund cycle is limited, and if my investment period is more than ten years, I don't care how the current IPO policy is adjusted. Our specific approach is to invest at both ends, either invest in the early valuation is very cheap, about 100 million, the technical barriers are high enough, the team is good enough, the future market space is large enough, and the valuation is cheap enough; Or invest 50 million net profits, according to the current IPO standards, if the scientific and technological innovation attributes are strong, you can apply for the science and technology innovation board, and the science and technology innovation attributes generally wait for two years to report to the gem or the main board. In addition, we also attach great importance to cooperation with industry leaders to seek the exit of invested projects through mergers and acquisitions.
Xu Hui: As a financial investor, when investing, it is necessary to consider retreating, that is, to "retreat" as "advance", which is not contradictory to patient capital and value investment. In China, there are indeed very few exit channels, and for equity and private equity funds, the exit channels are mainly IPOs, and mergers and acquisitions are one of the exit channels, but there are still very few. The suspension or slowdown of the IPO road will definitely have an impact on the fund industry. Ask us what to do in this situation, be patient, and empower the business more so that the business can get through this cycle. There is also the merger and acquisition that everyone says, selling to listed companies or non-listed companies. We have also set up an ecological office, with a special team to empower the hundreds of companies we have invested in and help hundreds of companies link their value with each other; Help hundreds of enterprises and local governments link value.
Zhao Huayan: In terms of exit, I will make a personal analysis from the current mainstream paths: mergers and acquisitions, S funds and IPOs.
Mergers and acquisitions, although mergers and acquisitions may decline in 2023, are not active, from subdivisions such as infrastructure, lithium battery, energy storage, these fields are relatively active, and the transaction volume is a large increase, statistics, such as the energy storage industry, the transaction volume of mergers and acquisitions has increased from 1 billion yuan in 2000 to 28 billion yuan in 2023, and the transaction ratio has also increased from 18 in 2000 to 130 in 2023, which is a relatively large increase. It still depends on the current stage of industrial development and specific subdivisions. In this process, VC and PE funds have played a very large role in the process of M&A transactions, and we have even accounted for 60% and 80% of M&A transactions.
S funds, although the global private equity secondary market is developing rapidly, is still in the early stage of development in our country, and domestic S funds are divided into two types, the first market-oriented investment institutions led by strong excess returns and expectations and weak liquidity requirements; If we want to manage the fund and the invested project can be withdrawn in the form of S fund in the future, we need to plan in advance, consider the buyer's demands, and plan the matching of risk, return, liquidity and period.
IPO, needless to say objective data in this regard, in the past one or two years, the overall financing scale of IPO has shrunk by eighty, and the number of listed and issued has also shrunk by seventy.
Through the analysis of these three exit paths, I am here to throw bricks and jade, my personal point of view is that in the next one or two years, we will focus on mergers and acquisitions in practice, not necessarily subjective and active choices, and the reality will be based on mergers and acquisitions, supplemented by IPOs and S funds.
Zhu Zhi: The topic of exit is an eternal topic faced by our investment institutions, especially in each cycle, the exit is difficult to reflect different characteristics, and now there are indeed some new challenges, just listened to the previous guests including the previous speakers, and also mentioned the view of patient capital, the country's policies in this area will get better and better, whether it is in the S fund, in the IPO, in the mergers and acquisitions will be introduced one after another, patient capital is not only a matter of capital, It may be a problem of patient capital ecology, but in this regard, there is still more confidence and determination for our investment institutions. The exit path, just talked about a lot, add a point, build a fund, fundraising, investment, management and withdrawal of the four links is a whole, from the beginning of the design of the fund to the difficulties and challenges encountered in these four links to think clearly, the fund includes the selection of LP, term setting, investment conditions, decision-making process, transaction structure, should be considered in the fund design in a unified manner, for the later exit when there is more space, our fund manager role, value will also be more fully played.
Ma Weiguo: I personally did 20 years of brokerage investment banking, and finally from Huatai United out of the investment, has been very concerned about the IPO and capital market changes, so many years, the biggest problem of doing listed investment banks, the severity of the whole policy, the whole industry chain accountability unprecedented, to our exit caused a great obstacle, we always say to withdraw from the investment, basically when investing to think about the exit path, we have a fund of 4 billion, invested in 11 projects, according to our plan, this year should be 100% full declaration of IPO, has been on the two, there are four or five in the meeting, as soon as the policy comes out, there are a few loss-making chip projects, and they can't report it now, so I can only say that I hope to look at next year's performance this year, so I have encountered the problem of updating, what do I think of this problem.
On the one hand, whether it can be successfully exited depends on the quality of the project and the cost of investment. On the other hand, to classify the project, the fundamentals of the project to maintain excellent and in the growth stage of the enterprise, believe that the growth value of the enterprise can cover the cost of holding, the strategy adopted is to be a friend of time, waiting for the IPO policy change, can also consider backdoor. I have done statistics, in the past 20 years, the annual change in the number of IPOs is highly correlated with the changes in the secondary market index, the index changes in the secondary market have nothing to do with GDP, IPOs also have cycles, the secondary market also has cycles, and the policy will definitely make some adjustments, I think the IPO policy will not last for a year, and there will definitely be changes that are more conducive to the market.
In addition, for the growth and industry status in general, but the product has some particularities, sales channels have certain characteristics of the enterprise, you can consider mergers and acquisitions, now we also have individual projects in the discussion with listed companies, listed companies are also very active, as long as the enterprise has its own differentiation characteristics can also be sold. Another point is that for companies with a lot of valuation improvements, if they cannot IPO in the short term, they can transfer old shares in combination with the company's refinancing.
That's all for today's roundtable discussion, this market is now very volatile, don't be afraid of volume, volume is also volume competitiveness, who is competitive, who does technological innovation, who can survive the past few years will have greater opportunities for development, enterprises also need to do more fine management, and more technology investment, so that their product costs are lower, the conversion rate is higher, we think this industry is still worth looking forward to.