Can the global leader HSC break free from the cyclical dilemma?

The global leader in lithium battery electrolyte additives, HSC, is going public in Hong Kong, but its profitability is highly influenced by price cycles. As prices and shipments rebound, the company is trying to regain market recognition. Key Points: Third-party documents show that the company is the largest supplier of lithium battery electrolyte additives in the world, with a market share of approximately 15.2%. With the market price rebounding, the company turned a profit of 13.25 million yuan last year after a loss. Li Shida For a company to achieve global leadership, it should theoretically be easy to make a profit. However, this logic does not fully apply to Jiangsu HSC Materials Co., Ltd. (688353.SH), which has just submitted its listing application to the Hong Kong Stock Exchange. Founded in the 1990s, HSC entered the lithium battery electrolyte additive field as early as the early 2000s and was one of the first companies in China to achieve large-scale production of VC (Vinylene Carbonate). It later developed a differentiated route in the FEC (Fluoroethylene Carbonate) process. After nearly 20 years of accumulation, the company has established a leading position in this niche market. The application documents cite third-party data indicating that by 2025, based on sales volume, the company will be the largest supplier of lithium battery electrolyte additives globally, with a market share of approximately 15.2%. However, from its financial performance over the past three years, this market position has not fully translated into stable profitability. From 2023 to 2025, the company's revenue slightly decreased from 525 million yuan to 505 million yuan, before rebounding significantly to 869 million yuan in 2025, a year-on-year increase of 72.2%. However, the recovery in profitability has been noticeably lagging, recording net losses attributable to shareholders of 23.91 million yuan, 174 million yuan, and a net profit of approximately 13.25 million yuan during the same period. Although the company achieved profitability in 2025, the profit base remains relatively low. The issue does not lie in demand; HSC's core products, VC and FEC, have seen continuous sales growth with the expansion of the new energy vehicle and energy storage markets. VC sales increased from approximately 5,390 tons in 2023 to 12,487 tons in 2025, more than doubling in two years; FEC sales also rose from 2,669 tons to 7,952 tons, nearly tripling. In 2024, as industry capacity was concentrated and released, the prices of electrolyte additives fell rapidly. The average selling price of FEC dropped from 57,400 yuan per ton to 31,800 yuan, and VC prices also came under pressure, leading to an overall negative gross profit for the company. The overall gross loss rate that year was 22.9%, with the gross loss rate for FEC reaching 53.3% and VC at 10.2%. The company found itself in a predicament of increasing volume but falling prices, where more shipments resulted in greater losses. Entering 2025, the market environment began to improve. Industry inventory gradually cleared, downstream demand warmed up, and prices for VC and FEC rebounded in the second half of the year. As a result, the company's revenue rebounded significantly, and the gross profit margin rose to 9.7%. At the same time, the company also made progress in cost control. By recycling triethylamine, related consumption was reduced by approximately 85%, and through solvent recovery devices, losses were reduced by about 75%, leading to a decrease in the cost-to-revenue ratio from 122.9% in 2024 to 90.3% in 2025 However, this round of profit improvement largely relies on the rebound in prices. Significant Increase in Accounts Receivable Compared to the recovery of profits, the pressure on cash flow is more pronounced. In 2025, the company's net cash outflow from operating activities is expected to be 257 million yuan, further expanding from 135 million yuan in 2023. During the same period, cash on hand dropped significantly from 1.985 billion yuan at the end of 2023 to 333 million yuan at the end of 2025. The issue mainly lies in the collection of payments. The company's trade receivables and notes receivable increased from 168 million yuan in 2023 to 593 million yuan in 2025, an increase of about 253% over two years, while the turnover days extended from 127 days to 190 days, indicating a significant delay in converting sales into cash. The change in capacity utilization further reflects the impact of the industry cycle. The VC capacity utilization rate increased from 40.6% in 2023 to 63.4% in 2024, and further rose to 95% in 2025; the FEC utilization rate also reached 102.6% in 2025 after undergoing technical adjustments. The increase in utilization helps to dilute fixed costs but also shows that the company quickly ramped up production capacity at the early stage of demand recovery. However, against this backdrop, the company still plans to further expand, intending to invest about 950 million yuan to build a 60,000-ton VC capacity project. This decision is essentially a bet on future demand and price trends. From a valuation perspective, Tian Ci Materials (002709.SZ), which also submitted a listing application in Hong Kong earlier, currently has a price-to-sales ratio of about 5.53 times in the A-share market, while Xinzhou Bang (300037.SZ) is about 5.02 times, and HSC in the A-share market has a ratio of 23 times, reflecting investors' bets on its profit elasticity to some extent. In the niche field of electrolyte additives, once product prices rebound, profits may indeed experience a more significant amplification, thereby creating room for valuation digestion. The company still holds technological advantages, such as VC purity reaching 6N level and a differentiated route in FEC processes, benefiting from the development trend of silicon-carbon anodes. However, these advantages are mainly reflected in existing products and have not yet formed a clear second growth curve. At the same time, the company's profitability is highly dependent on the price cycle of electrolyte additives. Given the continuous rise in accounts receivable, pressure on cash flow, and ongoing expansion plans, its profit stability remains uncertain. If cyclical fluctuations reoccur, its performance and valuation may also face significant downward pressure, and investors need to observe cautiously