From funding through the "Zhongzhi Group" to Hong Kong stock fundraising, Gem Co.'s "resource empire" faces short-term debt pressure exceeding 25 billion yuan. What confidence supports its expansion strategy?
Key Points: 1. Significant short-term debt pressure: Gem Co. has over 10 billion yuan in debt maturing within one year, while cash and cash equivalents at period-end were only 5.4 billion yuan, creating substantial debt servicing pressure with continuously rising asset-liability ratios.
2. Profitability quality: Gem Co. maintains steady revenue growth, but gross margins have declined.
3. Stable core customers: Gem Co. maintains deep partnerships with top ten global battery manufacturers including CATL, Tesla, Volkswagen, Samsung SDI, and ECOPRO of South Korea. While customer concentration is high, this positions Gem Co. at the core of the global new energy industry chain.
On September 22, "battery recycling leader" Gem Co.,Ltd. (002340.SZ) officially submitted its listing application to the Hong Kong Stock Exchange, launching a new round of capital operations.
As "China's first circular economy stock," Gem Co. has experienced both highlights with Zhongzhi Group capital support and concerns about "revenue growth without profit increase" and soaring debt.
From 2022 to the first half of 2025, Gem Co.'s total liabilities doubled to 48.6 billion yuan, with sudden increases in short-term debt pressure. However, its expansion confidence stems from "three firsts" - high-nickel precursors, battery recycling, and "urban mining" businesses.
Can financing for expansion support cash flow? The "resource empire" story of actual controller Xu Kaihua is once again thrust into the capital market spotlight.
**Financing Path from "Zhongzhi Group" to Hong Kong Stocks**
Gem Co. was established in 2001 by founder Professor Xu Kaihua in Shenzhen, based on green ecological manufacturing ideals. Xu Kaihua pioneered the industrial concept of "limited resources, unlimited circulation" in China, advocating the business model of mining urban resources to "eliminate pollution and recreate resources," promoting circular society development.
In January 2010, Gem Co. listed on the Shenzhen Stock Exchange as "China's first circular economy stock" with an IPO P/E ratio of 78.05 times. Net proceeds of 704 million yuan were primarily used for recycling secondary cobalt and nickel resources and related high-tech cobalt and nickel product projects, plus working capital supplementation. Subsequently, Gem Co. also listed on the Swiss Stock Exchange.
Currently, Gem Co. has an annual output value exceeding 30 billion yuan and employs over 10,000 people.
During Gem Co.'s expansion, it received investment from the "Zhongzhi Group."
In 2014, the Zhongzhi Group signed strategic cooperation with Gem Co. through its Shenzhen Zhongzhi Industrial Investment Environmental Protection Investment Partnership (Limited Partnership), subsequently participating in Gem Co.'s private placement at 12.36 yuan per share, investing 2.417 billion yuan for 60.68 million shares (approximately 4.16% stake), becoming an important shareholder. At that time, Zhongzhi Group director Zhang Yang also served as Gem Co.'s director.
Leveraging Zhongzhi Group capital, Gem Co. accelerated expansion: acquiring Jiangsu Kailicke Cobalt Industry, partnering with South Korea's ECOPRO to enter high-nickel precursors, and developing Indonesian nickel mines to build a "recycling-materials" closed loop.
In 2021, the Zhongzhi Group experienced a debt crisis, with its asset management plans successively reducing holdings. Gem Co.'s 2022 announcement showed that Shenzhen Zhongzhi Industrial Investment had completely cleared its holdings at the beginning of the year, completely exiting the shareholder list. Both parties clarified "no equity, business, or benefit relationships," with Gem Co. emphasizing that "Zhongzhi Group never participated in operational decisions." This clearance occurred over three years after the private placement lock-up period expired (2018), coinciding with Gem Co.'s transition from "capital-driven" to "technology-driven," focusing on Indonesian nickel mine production (2022) and high-nickel technology breakthroughs.
With the Zhongzhi Group clearing its holdings, Gem Co. shifted from "capital-driven" to "self-generating," but "revenue growth without profit increase" accompanied this transition.
From 2022 to 2024, Gem Co.'s revenue continued growing from 29.332 billion yuan to 33.2 billion yuan; however, net profit fluctuated, with approximately 1.296 billion yuan in 2022, but 935 million yuan and 1.02 billion yuan in 2023 and 2024 respectively. Gross margins were 14.54%, 12.24%, and 15.29% respectively.
Behind the "revenue growth without profit increase" lies volatility in key metal prices. Taking 2023 as an example, declining average selling prices of cobalt tetraoxide, combined with reduced production due to fire at the Jiangsu Taizhou production base, caused this business segment's gross margin to fall from 16.3% in 2022 to 13.2% in 2023. In lithium-ion battery and scrapped vehicle recycling businesses, gross margins dropped from 10% in 2022 to 3.8% due to declining lithium market prices and significant drops in scrap steel prices.
The prospectus disclosed that in the first half of 2025, Gem Co.'s gross margin declined again, falling from 15.3% in 2024 to 12.5%, with new energy materials segment gross margins declining 3.58 percentage points year-over-year.
This time, Gem Co. launched its Hong Kong listing plan, intending to raise funds for metal resource capacity construction and related industrial chain business layout, overseas R&D innovation and digitalization construction, global marketing center construction, and working capital supplementation.
It's worth noting that amid global metal price volatility, can Gem Co.'s choice to expand capacity stabilize profitability levels?
**"Hidden Champion" of Circular Economy**
While Gem Co. plans to expand capacity through Hong Kong stock fundraising, its debt scale has grown like a snowball.
From 2022 to the first half of 2025, Gem Co.'s total liabilities surged from 23.26 billion yuan to 48.65 billion yuan, with asset-liability ratios climbing from 52.7% to 66.01%. Short-term debt due within one year (including bank borrowings, non-current liabilities due within one year, notes payable, etc.) also climbed from 14.162 billion yuan to 25.897 billion yuan.
As of the end of the first half of 2025, cash and cash equivalents balance was only 5.449 billion yuan, making debt servicing pressure evident.
While markets focus on debt, Gem Co. is building a little-known "resource empire" - perhaps Xu Kaihua's confidence for this Hong Kong gamble.
Gem Co. holds three "global firsts" with considerable substance.
Gem Co.'s high-nickel precursors shipped 126,600 tons of 8-series/9-series in 2024, capturing 37.4% global market share, serving as core supplier for Tesla's 4680 batteries and CATL's Qilin batteries. In battery recycling, Gem Co.'s six major bases are included in the Ministry of Industry and Information Technology whitelist, with third-party recycling of 359,000 tons in 2024 (first in China), and nickel-cobalt recovery rates exceeding 98% (industry average 90%).
In "urban mining," Gem Co. processes 1 million tons of electronic waste annually, with extracted cobalt equivalent to 3.5 times China's primary ore production, and tungsten accounting for 6% of domestic mining output.
This capability allowed Gem Co. to maintain supply during Democratic Republic of Congo cobalt export bans, establishing its "nickel-cobalt-tungsten resource pool" industry position.
Additionally, Gem Co.'s "circle of friends" binding with global top ten battery manufacturers provides confidence for capacity expansion.
Opening Gem Co.'s customer roster reveals virtually an all-star lineup of global new energy giants, including CATL's Brunp Recycling; partnerships with Korean champions ECOPRO (15.1% of 2024 procurement) and Samsung SDI (exclusive high-nickel precursor supplier); signing 500,000-ton precursor long-term contracts with Tesla for 2026-2030, and partnering with Volkswagen to build European recycling bases.
Beyond resource technology and major customers, one advantage of Gem Co.'s Hong Kong listing easily overlooked by the public is the "carbon business."
In 2024, leveraging clear carbon emission reduction achievements, Gem Co. earned 120 million euros in EU carbon credit income, representing 1.5% of overseas revenue that year. The company set 2025 targets to increase carbon trading income proportion to 5%, making it a new profit growth driver. Carbon-related income primarily comes from credit trading in EU carbon markets, relying on Certified Emission Reductions (CERs) generated by recycling operations or carbon credits meeting EU carbon market requirements, further expanding profit sources.
In lithium-ion battery recycling operations, Gem Co. establishes "carbon accounts" for each retired battery, quantifying carbon emission reduction benefits from recycling processes. Taking Tesla retired batteries as an example, after Gem Co. recycling processing, 2.3 tons of CO₂ emissions can be reduced (equivalent to planting 127 trees). This quantified data serves as core basis for participating in carbon trading and obtaining carbon credits, while enhancing downstream customers' (such as automakers and battery manufacturers) ESG performance.
This "circular + low-carbon" narrative represents exactly the ESG premium valued by Hong Kong stock investors. UBS reports indicate Gem Co.'s carbon footprint data has reached international automaker supply chain entry standards, potentially becoming a "ticket" to European and American markets in the future.
**From Professor to "Resource Godfather": Xu Kaihua's Wealth Formula**
Professor Xu Kaihua, who emerged from Central South University, has built a "resource empire" valued at nearly 38 billion yuan after over 20 years of entrepreneurship. He currently serves as executive director, chairman and general manager, while his wife Wang Min serves as executive director of Gem Co.
Additionally, Xu Kaihua's nephew Xu Dingbang serves as company vice general manager, responsible for business development, sales and marketing activities. Previously, Xu Dingbang served as vice general manager or general manager at Jingmen Gem New Materials Co., Ltd., Jiangxi Gem Resource Recycling Co., Ltd., and Gem (Wuhan) Urban Mining Industry Group Co., Ltd.
Currently, the Xu Kaihua couple jointly hold 16.5% of Gem Co. shares through Shenzhen Huifengyuan, having established and operated 93 subsidiaries.
Beyond A-shares and Hong Kong stocks, the Xu family's capital reach extends overseas: Gem Co. issued GDRs on the Swiss Stock Exchange in July 2022, raising $381 million (approximately 2.4 billion yuan); Gem Co. built core platform Qingmei Bang New Energy Materials Co., Ltd. (Qingmei) in Indonesia, holding a 63% stake.
However, Gem Co.'s "circular business" has attracted regulatory attention. In 2024 and the first half of 2025, four of its top five customers were suppliers (mainly purchasing Indonesian nickel ore from Tsingshan Group while selling MHP to them), with transactions from these customer-suppliers accounting for 6.3% and 2.7% respectively of Gem Co.'s total procurement in those periods.
Most typical is trading with Morowali Group (Tsingshan Holdings subsidiary). From 2022-2024, Gem Co. purchased 2.87 billion yuan in nickel ore from Morowali while selling 4.12 billion yuan in MHP. Pricing mechanisms float 3%-5% above LME nickel prices, while market price volatility reached 20% during the same period. The Shenzhen Stock Exchange previously questioned whether "low-price mineral purchases, high-price product sales" constituted benefit transfers.
Gem Co.'s response was: "Indonesian projects are joint ventures with third-party audited pricing." However, the prospectus shows Morowali holds 25% equity in Gem Co.'s Indonesian subsidiary, while Tsingshan Group is a nickel ore giant. This "both shareholder and customer" relationship perpetuates questions about related transaction fairness.
Although Gem Co. currently leads in market share, short-term debt pressure is evident, especially nickel price volatility or policy changes (such as Indonesian policies), which represent risks Gem Co. must guard against.
Comments