New Stocks Analysis | Bolayton: Revenue and net profit diverge, thin profit business controlling costs fall behind market leaders.

After the second challenge to the Hong Kong Stock Exchange, Boreton finally obtained a pass for the Hong Kong Stock Exchange. On April 16th, Boreton passed the listing hearing on the main board of the Hong Kong Stock Exchange, with CICC and Zhaoyin International as its joint sponsors. It is understood that Boreton's continued loss-making status has not yet eased, and a capital injection is imminent. This time entering the capital market, can Boreton win the favor of the capital market? Revenue growth cannot stop nearly 700 million losses in three years According to the prospectus, Boreton was established in November 2016, as a provider of new energy solutions specializing in designing and developing electric loading machines and wide-body dump trucks. At the beginning of its establishment, Boreton mainly engaged in the development of core technology for power system components, and in 2019 officially entered the complete vehicle market for industrial transport. According to information from Zhuo Shi Consulting, in 2024, the company ranked third and seventh among all Chinese manufacturers of new energy wide-body dump trucks and loading machines respectively, with market shares of 18.3% and 3.8% based on shipment volume, making it the only purely new energy engineering machinery manufacturer among the top manufacturers in these categories. From 2022 to 2024, the shipment volume of the company's electric wide-body dump trucks increased from 59 units to 307 units, and the shipment volume of electric loading machines increased from 326 units to 450 units, with compound annual growth rates of 128.1% and 17.5% respectively. According to Zhuo Shi Consulting, in 2022, 2023, and 2024, the company ranked first in the shipment volume of electric wide-body dump trucks with a battery capacity exceeding 650 kilowatt hours. Unfortunately, the impressive market rankings did not bring substantial operating performance to the company. The prospectus shows that the company's revenue for the years 2022 to 2024 were 360 million, 464 million, and 635 million yuan respectively. However, the company has been in a loss-making state, with net losses of approximately 178 million, 229 million, and 275 million yuan during the same period, totaling 6.82 billion yuan in losses over the past three years. It is worth noting that the continuous expansion of losses is mainly due to an increase in impairment losses totaling 44.9 million yuan on trade and other receivables, contract assets, and impairment of guaranteed financial assets, mainly due to an increase in the average age of outstanding trade receivables and overdue trade receivables; an increase in administrative expenses related to expenses incurred in 2024 by 20.8 million yuan; and an increase in research and development expenses due to increased employee costs and material consumption leading to an increase in research and development expenses by 13.1 million yuan. In terms of business segments, electric wide-body dump trucks have become the company's main source of revenue over the past three years, with revenues of 76.29 million, 1.26 billion, and 3.65 billion yuan respectively, accounting for 21.2%, 27.3%, and 57.4% of total revenue. As a result, the once dominant revenue from electric tractors has gradually declined, with revenue in 2024 only 7.035 million yuan, accounting for only 1.1%. In addition, the revenue scale of electric loading machines shows a fluctuating growth trend, reaching 1.84 billion, 2.81 billion, and 2.24 billion yuan respectively, accounting for 51%, 60.6%, and 35.3% of total revenue. In terms of gross profit margin, the main revenue pillar of electric wide-body dump trucks had gross profit margins of 13.8%, 12.4%, and 13.5% respectively, while electric loading machines recorded gross losses, with gross loss margins of -6.5%, -4.2%, and -7.%. Moreover, the company's gross profit margin has been very low during the reporting period, with a gross profit margin of only 2.0% in 2023, almost selling products at the edge of production costs. With insufficient gross profit margin, even with cost compression in various areas, profitability cannot be achieved. At the same time, Boreton has not been able to generate positive cash flow during the reporting period. "During the reporting period, the company's operating cash flow has been in a net outflow situation. In the three years, the net outflow was 290 million, 194 million, and 270 million yuan respectively. The company has been relying on continuous external financing to survive, but this is not a long-term solution. It is understandable that Boreton operates in a capital-intensive industry, where the overall gross profit margin is not very high, so cost control becomes a top priority. In the markets Boreton is involved in, such as loaders and wide-body dump trucks, XCMG Construction Machinery (000425.SZ), Guangxi Liugong Machinery (000528.SZ), Sany Heavy Industry (600031.SH), Yutong Heavy Industries (600817.SH), and other well-known industry players have set benchmarks in cost management, with total expense ratios being controlled at around 15%, while Boreton had an expense ratio of 39.5% in 2024. In a low-profit market, if cost control cannot be strict, Boreton's profitability difficulties may increase further. Broad industry prospects aim for development through listing "replenishment"? In our view, although profitability still seems to be without a timetable, considering the industry outlook, Boreton may currently be more inclined to sacrifice profits for scale growth in order to establish a larger competitive advantage in the rapidly expanding field of new energy engineering machinery. Due to the economic benefits of new energy loaders and the convenience of constructing charging stations and piles, the demand has been growing, and the market for loaders has experienced rapid growth in Shanxi Guoxin Energy Corporation. The market size of loaders in Shanxi Guoxin Energy Corporation has increased from 200 million yuan in 2020 to 6.9 billion yuan in 2024, with a compound annual growth rate of 129.7%. With the continuous development of electrification technology, the improvement of economic benefits, and the introduction of favorable policies, it is expected that the market for loaders in Shanxi Guoxin Energy Corporation will continue to grow rapidly, with its market size increasing from 69 billion yuan in 2024 to 287 billion yuan in 2029, with a compound annual growth rate of 33.0%. The penetration rate of new energy increased from 0.4% in 2020 to 202421.7% and is expected to continue growing to 57.6% by 2029.Despite optimistic prospects for industry growth, the market size of Boreaton seems somewhat inadequate. In 2024, the company's market share was only 4.1%, still far from the leading 25%. It is worth noting that there is a situation of customer-supplier overlap in Boreaton. From 2022 to 2024, the company sold and purchased from 38, 74, and 78 business partners respectively. These business partners are both customers and suppliers (overlapping business partners). Although Boreaton has stated that all transactions with these customers and suppliers are conducted in the normal course of business in accordance with fair commercial terms and principles, and sales and purchases with these entities are neither interrelated nor conditional, overlapping customers and suppliers could easily pose supply chain risks. If any issues arise with the business partners, their ability to supply goods as suppliers and pay as customers could negatively impact the company's ongoing operations. Overall, while a successful listing may help Boreaton seek market share and provide support, it still has a long way to go in realizing profits from its early mover and scale advantages in the field of new energy engineering machinery. The uncertainty of this growth undoubtedly reduces the appeal of the company to conservative investors in the secondary market.