Xinwanda vs. Desay: Gross profit margin exceeds that of its competitors, and profitability differentiation increases dramatically

With the development of 5G communication technology, the power consumption of 5G mobile phones is about 20% higher than that of 4G mobile phones, which puts higher requirements on the battery life of smartphones.

As the two leading lithium battery manufacturers in the A-share market, Xinwoda and Desay Battery have had very different business layouts in consumer lithium batteries and power batteries in recent years, as well as their different advances and retreats in Apple's supply chain, which has also led to corresponding fluctuations in their performance. The "catch-up" competition between them has also become a focus of industry attention in recent years.

With the arrival of the intensive release period of the 2020 semi-annual report, Xinwangda and Desay Battery have also disclosed their performance reports. Jiwei.com found that the gap in the revenue scale of the two companies has gradually widened, and the fluctuation range of net profit is also large, while the non-net profit is also polarized, and Xinwangda has suffered a large loss.

Net profit: Xinwanda's performance fluctuated greatly, while Desay's performance remained stable

It can be said that the first confrontation between these two major lithium battery suppliers was over the seat of Apple's supplier, and the second confrontation was over the very different business layouts, which led to multiple fluctuations in the performance of the two major manufacturers and a continuous "catch-up".

To this day, Desay Battery, which is deeply tied to Apple, has maintained a stable development trend, with revenue and net profit levels similar in recent years. In contrast, after entering the supply chain system of domestic mobile phone brand manufacturers, although Xinwangda continued to deepen its presence in the power battery field, its performance suffered a large loss.

As can be seen from the above table, Xinwangda's net profit level has dropped sharply this year compared with last year's positive growth; while Desay Battery's net profit level is relatively stable, with a slower growth rate.

The reason why Xinwangda's net profit declined sharply is actually related to its business layout.

Although Xinwangda's revenues in the three major businesses of mobile phones and digital devices, laptop computers, and smart hardware were 6.593 billion yuan, 1.691 billion yuan, and 2.059 billion yuan, respectively, with growth rates of 7.37%, 25.23%, and 32.72%, respectively, it still could not match the sharp decline in investment and revenue in the power battery business.

As the saying goes, "Success is due to Xiao He, failure is also due to Xiao He." Xinwangda has been making great strides in the field of power batteries, but it has also suffered a great impact due to the impact of this year's epidemic. According to Xinwangda's semi-annual report, affected by the epidemic and the order scheduling cycle, the power revenue in the first half of the year was 129 million yuan, a year-on-year decline of 86.75%. At the same time, due to continued R&D investment and capacity expansion, the loss has expanded.

In contrast, Desay Battery, backed by Apple's supply chain, has focused on the layout of the lithium battery industry chain as its entry into power batteries has not been smooth. Among them, Huizhou Battery mainly engages in small and medium-sized lithium battery packaging and integration business, Huizhou Blue Micro mainly engages in small and medium-sized lithium battery power management system business, and Huizhou Xinyuan mainly engages in large-scale power batteries and energy storage batteries.

At present, Desay Battery's revenue source is still the consumer electronics lithium battery business, and its related products account for 90% of the revenue. Among them, battery and accessories revenue accounted for 99.57%, with revenue of 7.542 billion yuan, a year-on-year increase of 3.11%; materials and others accounted for only 0.43%, a year-on-year increase of 131.49%.

In general, due to the weak demand for smartphones in recent years and the impact of the epidemic, the growth rate of consumer battery business of Xinwoda and Desay Battery has slowed down. In terms of gross profit margin, the difference between the two companies is still large.

Gross profit margin: Xinwangda surpasses Desay Battery

The difference in business layout also has a profound impact on the gross profit margins of the two companies.

Looking at the table above, in recent years, the gross profit margin of Xinwangda has surpassed that of Desay Battery. Xinwangda's gross profit margin remains at around 14%, while Desay Battery is only around 8%.

As a state-owned enterprise, Desay Battery is steadily advancing, and both the Apple supply chain and the domestic mobile phone market are relatively dependent on the consumer electronic lithium battery business. Its semi-annual report disclosed that the company's gross profit margin in the first half of the year was 8.34%, basically the same as the previous year. Due to the intensified competition in the consumer lithium battery industry, there is a risk that the gross profit margin of the industry chain may further decline in the future.

After being eliminated from Apple's supply chain, Xinwanda focused on the domestic market and continued to expand its business scope, covering 3C consumer batteries, smart hardware, power batteries, energy storage business, etc. According to the semi-annual report, the gross profit margins of Xinwanda's three major businesses, mobile phones, notebook computers, and smart hardware, increased by 2.66%, 0.08%, and 1.59%, respectively.

In addition, Xinwangda's continued investment in electric vehicle power cells, automotive power battery BMS and other fields also has a certain impact on its gross profit margin.

According to Jiwei.com, as early as 2015, due to high subsidies for new energy vehicles and the fact that raw material costs had not risen significantly, the gross profit margin of power batteries generally exceeded 30%. In 2019, due to the widespread problems of high accounts receivable and difficulty in collecting payments in the industry, coupled with changes in subsidy policies, power battery companies are also facing the risk of high accounts receivable and a continuous decline in gross profit margins under pressure. The industry predicts that the gross profit margin of power batteries will be less than 10%.

Overall, the competition between Xinwoda and Desay Battery has resulted in different degrees of profit competition in different business layouts. With the innovation of 5G, new energy and other technologies, both consumer lithium batteries and power batteries will have a lasting impact on the profitability of the two major manufacturers. Under the competition, it is worth looking forward to which of the two major lithium battery manufacturers in the A-share market will rise or fall.