Rate Of ReturnHK IPO Subscription | Innovative Industries, Deeply Linked to Innovative Materials, But Why Do Star Cornerstone Investors Back It?
After experiencing multiple new stock price drops below the issue price, finally a non-second-marriage stock is coming. This time the window period lasted for more than a week.
Getting back to the point, let's start by analyzing its fundamentals.
One-sentence summary
Innovation Industries is a comprehensive energy and aluminum company mainly engaged in the production and sales of electrolytic aluminum and alumina, with deep layout in green energy.
In-depth fundamental analysis
The company is mainly engaged in alumina refining and electrolytic aluminum smelting. It reduces production costs through internal supply of electricity and alumina, and sells the smelted aluminum to downstream customers, including aluminum processing enterprises and alloy factories, mainly to its affiliated company Innovation New Materials. The funds raised this time will mainly be used for expanding overseas production capacity and building green energy power generation facilities to further reduce smelting costs.
The country implements total capacity constraints on electrolytic aluminum, and the growth rate of future capacity will decline significantly, which means that the current capacity is the core competitiveness. The company is currently among the top 12 electrolytic aluminum enterprises in China, and this pattern is unlikely to change in the future. The main competitors are Hongqiao, Chalco, etc.
In the industry cost structure, electricity and alumina account for more than 70% of the total cost. Leading enterprises effectively reduce unit costs through scale effects, self-owned power plants or high-quality energy layout, forming a deep cost moat. The company's electrolytic aluminum plant is located in Inner Mongolia, where it has wind and solar power facilities with high self-sufficiency rate of electricity, and the overall electricity price in Inner Mongolia is relatively low. The cash cost in 2024 is about RMB 15,112/ton, lower than the national average.
The upstream bauxite resources are highly dependent on overseas procurement. Enterprises with overseas resource mines or raw material self-sufficiency capabilities have significantly enhanced risk resistance. The company's alumina plant is located in Binzhou, Shandong, close to the port, with obvious transportation cost advantages.
Leading enterprises often achieve full-chain layout from raw materials to production and processing, relying on vertical integration of upstream and downstream to reduce intermediate links, which not only reduces costs but also enhances supply and demand regulation capabilities.
Moreover, the supporting financial derivatives in the industry can provide risk hedging for price fluctuations of raw materials and products, which can effectively improve the stability of industrial chain profits.
Financial health assessment
Revenue from 2022 to 2024 was approximately RMB 13.49 billion, RMB 13.815 billion and RMB 15.164 billion respectively, with modest growth. Revenue for the first five months of 2025 was RMB 7.214 billion, compared with RMB 5.883 billion in the same period last year.
In terms of net profit, from 2022 to 2024, it was RMB 881 million, RMB 1.004 billion and RMB 2.056 billion respectively, increasing rapidly, but this was mainly due to cyclical fluctuations in aluminum prices and the decline in raw material prices. Net profit for the first five months of 2025 was RMB 756 million, compared with RMB 880 million in the same period last year, a year-on-year decrease of 15%, mainly due to the rise in raw material prices.
The company's revenue is stable with growth, but the net profit fluctuates significantly, mainly due to cyclical fluctuations in product and raw material prices. This is similar to the petrochemical industry, where a large number of financial derivatives must be used to hedge risks.
Core highlights
1. New energy and electric vehicles drive the overall demand for aluminum, and the supply structure is expected to be adjusted through green and high-quality production capacity.
2. The company's full-chain integrated layout is conducive to reducing unit costs.
3. The funds raised will mainly be used for overseas production expansion and green power generation, which is expected to form a new profit growth engine.
4. The cornerstone investor lineup is strong, including well-known capital such as Hillhouse and Glencore, which not only endorses its IPO but may also bring industrial synergy and international resources.
Investment risks
1. Fluctuations in aluminum and alumina prices may cause significant fluctuations in the company's profits.
2. Frequent transactions with affiliated companies such as Innovation New Materials may involve issues of benefit transfer or non-market pricing.
3. The funds raised will mainly be used for overseas production expansion, but cross-border expansion faces execution difficulties. At the same time, domestic environmental protection and carbon emission policies may tighten, and subsidies for the company may be reduced.
4. The high shareholding of controlling shareholder Cui Lixin concentrates risks. If management makes wrong decisions, the impact on the company will be significant.
Final subscription strategy
In terms of valuation, if calculated based on the 2024 net profit of RMB 2.056 billion (HK$2.254 billion), the PE is about 9.03 to 9.75. Compared with China Hongqiao's TTM and LYR of 11.3 and 12.97 respectively, and Chalco's 12.57 and 14.48 respectively, we can directly compare LYR and conclude that the company's valuation is at least 25% lower than that of leading companies.
In terms of market sentiment, the listed companies in the commodity sector in Hong Kong stocks have seen significant gains this year, especially the previous listings of Jiaxin International Resources and Zijin Gold International, which also saw impressive gains. Moreover, this issuance has received positive media coverage, and the cornerstone investor lineup behind it is strong.
The biggest flaw this time is the sponsors, CICC and Huatai, two famous Hong Kong stock IPO education bases, most people have been deeply educated by them.
There is a greenshoe, but CICC's greenshoe can be ignored. Of course, we don't hope to use the greenshoe this time.
If issued at the upper limit, it is conservatively estimated that there could be a gain of 15% to 20%. If market sentiment is good, a gain of more than 30% is not impossible.
This time, due to the large issuance volume, although it is mechanism B, there are still 100,000 lots, 50,000 for each of Group A and Group B. Based on the estimated frozen capital of RMB 250 billion to 350 billion, the multiple is estimated to be between 450 and 600 times. It is estimated that the tail of Group A will get 1-2 lots, and the head of Group B will get 2-3 lots. It is estimated that Group B head is better.
Personally, I will apply for one Group B head and two 100-lot applications. This time, since the winning rate for 100 lots is higher than 40%, I will directly use the fafa package with a financing fee of 30, without using the guaranteed base.
The above content is based on my analysis of public information and is only for my own records. It does not constitute professional investment advice. Please think twice before acting.
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