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Shares in Yunnan Energy New Material sharply declined today after the Chinese manufacturer of lithium battery separators decided to abandon its plan to acquire Zhongkehualian New Material, an equipment supplier, due to disagreements over key contractual terms. Instead, the company announced plans to invest 4 billion CNY (approximately $589.4 million) to expand its production capacity.
The company’s stock closed 6.9% lower at 75.78 CNY (around $11), despite having gained 34% this year. Meanwhile, the Shenzhen Component Index fell 2.1% on the same day.
After thorough evaluation and friendly negotiations, the company opted to terminate the acquisition of the Qingdao-based Zhongkehualian because the partners could not agree on several critical deal terms, according to a statement released yesterday.
The acquisition was initially announced on November 30 of last year, with intentions to buy Zhongkehualian—company specializes in developing and manufacturing complete equipment for wet-process lithium battery separators—via a share issuance, along with additional fundraising efforts.
Had the deal gone through, the company aimed to leverage Zhongkehualian’s equipment to produce high-performance separators, thereby improving supply chain stability and production flexibility. This move would also have mitigated issues related to overseas equipment suppliers, such as slow response times, extended upgrade cycles, and high replacement costs.
On the same day, the company revealed a strategic shift by announcing a 4 billion CNY investment to build a separator manufacturing plant in Zigong, Sichuan Province. The facility is expected to have an annual capacity of five billion square meters.
This project will be established as a joint venture, with the company controlling 67% of the stake, while a local industry partner recommended by Zigong’s municipal government holds the remaining 33%.
Positive Outlook
The lithium battery separator sector has undergone significant restructuring, resulting in an increasingly concentrated competitive landscape dominated by leading companies. Demand for power and energy storage batteries continues to grow steadily, with applications expanding across various industries.
Against this backdrop, the company anticipates that the new investment will reinforce its manufacturing network, boost market share, and enhance profitability.
Founded in 1996, the company began as a manufacturer of cigarette packaging before expanding into new energy materials. Today, it is the world’s leading supplier of lithium battery separators, serving prominent clients such as Contemporary Amperex Technology, BYD, and Eve Energy.
With the sector’s recovery, the company achieved profitability last year, reporting a net profit of 143 million CNY ($21.1 million), compared to a net loss of 556 million CNY the previous year. Revenue also increased by 34%, reaching 13.6 billion CNY ($2 billion), according to its annual report.
This positive momentum carried into the first quarter of this year, with net profits skyrocketing tenfold to 260 million CNY ($38.3 million), and revenue rising 43% to 3.9 billion CNY ($574.7 million), based on the latest financial disclosures.
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