Core Perspective: Behind Gem Co.,Ltd.'s Hong Kong IPO plan lies the company's tight cash flow situation, with nearly 9 billion yuan debt funding gap potentially requiring urgent financing support. Notably, while the company's revenue scale has continued to expand in recent years, its unit output value has declined sharply. Meanwhile, the company's capacity utilization rate far exceeding industry peers is accompanied by massive inventory accumulation. This raises questions about whether there are hidden issues in the company's asset portfolio.
Recently, Gem Co.,Ltd. announced its plan for a Hong Kong stock listing.
The announcement shows that on August 21, 2025, the company convened board and supervisory board meetings, approving the proposal to issue H shares and list on the main board of the Hong Kong Stock Exchange. Gem Co.,Ltd. stated in its announcement that this move aims to meet the company's global development needs, enhance international brand image and comprehensive competitiveness, diversify financing channels, and support the company's sustainable development.
Notably, Gem Co.,Ltd. appears to be extremely "capital hungry," with its main business cash generation unable to cover massive capital expenditures, making it heavily dependent on external funding.
Stock Financing as "Emergency Relief" Under Debt Pressure?
Public information shows that the company has formed a dual-track business model of "urban mining + new energy materials manufacturing." In the urban mining field, the company recycles and utilizes key mineral resources including nickel, cobalt, lithium, and tungsten, retired power batteries, electronic waste, scrapped vehicles, waste plastics and other typical waste materials. It has constructed multi-level urban mining demonstration models including "battery recycling boxes - waste recycling supermarkets - waste resource distribution markets - low-carbon recycling factories - urban mining industrial parks," achieving remanufacturing of over 20 key mineral resources including nickel, cobalt, lithium, copper, manganese, tungsten, gold, silver, platinum, germanium, gallium, and scandium. In the new energy field, the company "puts laterite nickel ore in and produces battery materials," constructing a complete nickel resource new energy industrial chain of "nickel resources - precursors - cathode materials." Its ternary precursors for power batteries, ternary cathode materials, and cobalt tetroxide materials for 3C digital batteries have all entered global leading market chains.
The 2025 half-year report shows the company achieved operating revenue of 175.61 billion yuan, up 1.28% year-over-year. New energy battery materials business revenue accounts for nearly 60% of total revenue, with year-over-year growth of only 0.56%.
Notably, the company has been aggressively expanding capital expenditures in recent years, with capital expenditures surging from 14.26 billion yuan in 2020 to 119.38 billion yuan in 2024. In the first half of 2025, capital expenditures reached 66.28 billion yuan.
It should be noted that the company's main business cash generation cannot cover its aggressive capital expenditures, forcing it to rely on external funding for expansion.
However, the company mainly relies on debt financing for expansion, creating enormous short-term debt pressure. On one hand, the company faces a short-term funding gap of nearly 10 billion yuan; on the other hand, the debt-driven expansion has resulted in massive financial expenses consuming part of the company's profits.
As of the end of the first half of 2025, the company's short-term debt was 142.94 billion yuan and long-term debt was 186.86 billion yuan, while cash (excluding restricted funds) and trading financial assets totaled only 5.4 billion yuan. The company's short-term debt gap alone approaches 10 billion yuan. Wind data shows that the ratio of the company's financial expenses to net profit reached its highest point exceeding net profit for the same period, with this indicator at 49% in 2024 and 45% in the first half of 2025. It's evident that the company's massive financial expenses are consuming part of its profitability.
Under enormous debt pressure, besides planning the Hong Kong IPO, the company has simultaneously initiated equity financing.
On July 16, Gem Co.,Ltd. announced that its wholly-owned subsidiary Gem (Jiangsu) Cobalt Industry Co., Ltd. and wholly-owned grandsub NEW HORIZON INTERNATIONAL HOLDING LIMITED plan to introduce overseas strategic investors to PT INDONESIA QINGMEI ENERGY MATERIALS (hereinafter referred to as "QINGMEI") through capital increase and share expansion, to strengthen its global competitiveness and promote deep integration of the company's business into European and American markets.
QINGMEI, as Gem Co.,Ltd.'s core asset in Southeast Asia, has completed construction and put into production an annual 50,000-ton high-nickel power battery ternary precursor material production line. The project leverages Indonesia's abundant nickel ore resources and policy advantages, focusing on producing high-end power battery raw materials that meet international standards, with products widely used in new energy vehicles, energy storage and other fields. Analysis indicates that as the global new energy vehicle industry upgrades toward high energy density and long range, demand for high-nickel ternary materials continues to grow, and QINGMEI's capacity release is expected to become a key lever for Gem Co.,Ltd. to expand international markets.
Gem Co.,Ltd. clearly stated in its announcement that this capital increase and share expansion aims to "reduce capital expenditures and optimize capital structure," while enhancing QINGMEI's technological R&D, market channels, and brand influence through strategic investor support. Industry speculation suggests potential partners may include European and American battery manufacturers, multinational material suppliers, or financial institutions with global resources. If cooperation materializes, Gem Co.,Ltd. will use this to connect the entire industrial chain from resource development to terminal markets, accelerating breakthrough of European and American market entry barriers.
Are There Issues Hidden in the Balance Sheet? Counter-trend Rising Capacity Utilization Rates and Soaring Inventory
In recent years, the company's revenue scale has continued to expand, surging from 12.5 billion yuan in 2020 to 33.2 billion yuan in 2024.
In the first half of 2025, the company achieved simultaneous growth in revenue and net profit. During the reporting period, the company achieved operating revenue of 175.61 billion yuan, up 1.28% year-over-year; net profit attributable to shareholders was 7.99 billion yuan, up 13.91% year-over-year; net cash flow from operating activities was 14.48 billion yuan, up 9.69% year-over-year.
However, despite the company's continued revenue scale expansion, unit output efficiency appears suboptimal. Wind data shows that from 2020 to 2024, the company's unit fixed asset output values were 1.37, 1.89, 2.18, 1.73, and 1.34 respectively. This indicator shows volatility and has declined sharply since 2022, with the company's fixed asset unit output value at 2.18 in 2022 dropping precipitously to 1.34 in 2024. Considering the company's new fixed asset additions in 2024, with 2025 revenue Wind consensus expectation of 42.2 billion yuan, the unit output value is only 1.46. Clearly, even based on forecast estimates, the company's fixed asset unit output value has declined significantly compared to 2022.
Surprisingly, in 2024, against the backdrop of overall industry weakness, the company's new energy business and urban mining business achieved counter-trend dual growth in production and sales volumes. The company's new energy materials business sales account for 77.59% of total sales, while urban mining business sales account for 22.41%; the company's new energy materials business achieved operating revenue of 25.762 billion yuan, up 10.24% year-over-year; the company's urban mining business achieved operating revenue of 7.437 billion yuan, up 3.87% year-over-year.
In the power battery materials business, in 2023, global new energy industry competition intensified, with average capacity utilization rates around 50% across the entire industrial chain from batteries to upstream materials and components. Among these, ternary precursor capacity utilization was 44%, cathode material capacity utilization was only 40%, and power battery capacity utilization was 42%. Meanwhile, since 2023, prices of lithium battery ternary cathode materials and their raw materials have declined. In 2024, lithium battery industry chain overall capacity utilization recovered somewhat, but raw material nickel and chromium prices generally performed weakly.
Simultaneously, in the 3C new energy materials industry, global sales of smartphones and other 3C digital terminal products have continued to weaken in recent years, with declining lithium cobalt oxide demand leading to continued weakness in demand for its precursor material cobalt tetroxide. IDC data shows global smartphone sales in 2023 were approximately 1.167 billion units, down 3.2% year-over-year. The 2023 laptop market demand remained weak, with annual shipments of only 166 million units according to TrendForce statistics, down 10.8%, though 2024 shipments rebounded somewhat.
Notably, in 2024, Gem Co.,Ltd.'s new energy business capacity utilization averaged over 95%, far exceeding industry average capacity utilization rates. The company's ternary precursor capacity utilization was 95%, cobalt tetroxide capacity utilization was 83%, cathode materials was 101%, and nickel resources was 103%.
Against the backdrop of declining company unit output efficiency and industry weakness, why did the company significantly boost capacity utilization rates at full throttle? What's behind this?
Industry insiders indicate that behind capacity utilization rate improvements is sufficient allocation of fixed costs, thereby reducing unit costs. Higher capacity utilization rates can not only improve company product gross margins but also allow related high depreciation costs to be reallocated and deposited into inventory and other accounts.
Quite coincidentally, the company shows counter-trend high capacity utilization on one side while having extremely high inventory and prepayment ratios on the other.
Wind data shows the company's inventory and prepayments have surged alongside revenue scale growth, from 7.479 billion yuan in 2020 to 16.506 billion yuan at the end of the first half of 2025, representing 94% of revenue for the same period.
According to Frost & Sullivan data, CNGR Advanced Material's ternary precursor market share was 20.3% in 2024, maintaining industry leadership for five consecutive years; in cobalt materials, the company's cobalt tetroxide market share was 28%, maintaining industry leadership for five consecutive years. How do inventory and prepayment levels compare for industry leader CNGR Advanced Material? Wind data shows that overall, Gem Co.,Ltd. exceeds CNGR Advanced Material.
It should be noted that Gem Co.,Ltd.'s gross margin is higher than CNGR Advanced Material's, with Gem Co.,Ltd. at 15.29% in 2024 versus CNGR Advanced Material's 12.12%.
This raises two major questions: First, are there accounting techniques being used behind the company's high capacity utilization, high inventory, and high gross margins to defer related cost recognition? Second, should we be concerned about fund safety behind high prepayments? Has the company hidden related fixed assets in prepayments?
Of course, these are merely questions, and whether the company has such issues may require regulatory follow-up. It should be noted that the company's auditing firm received warning letters due to inadequate audit procedures, and subsequently the company changed auditors from Asia Pacific to Zhongshen.
On November 8, 2021, the Shenzhen Securities Regulatory Bureau issued a decision to issue warning letters to Asia Pacific (Group) Certified Public Accountants (Special General Partnership) and certified public accountants Chen Qisheng and Wang Hongning. The warning letter pointed out that the Shenzhen Securities Regulatory Bureau conducted a special inspection of monetary fund auditing for the 2020 annual report audit project of Gem Co.,Ltd. executed by Asia Pacific (Group). Investigation found that Asia Pacific (Group) had the following problems in practice: 1. Inadequate execution of risk assessment procedures; 2. Inadequate execution of control testing; 3. Inadequate execution of confirmation procedures; 4. Inadequate execution of other substantive procedures; 5. Insufficient evidence for issuing attestation reports.
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