Investment Research Team
In 2023, Chinese investors showed a strong preference for backing new materials companies, completing 200 investment deals valued at a total of 16.56 billion yuan (approximately US$2.34 billion) to date, as per IT Juzi data.
The fervor for the new materials sector among investors is mirrored in Huaxing Capital’s primary market temperature index. This index revealed that the new materials sector ranked second only to artificial intelligence in terms of primary market activities.
New materials refer to a range of advanced materials developed through technological innovations with novel properties or functionalities that significantly improve upon or differ from traditional materials.
An example demonstrating the impact of new materials is Eliud Kipchoge’s extraordinary marathon record of 1 hour 59 minutes in 2019, a feat partly attributed to the Nike Air Zoom Alphafly NEXT% running shoes.
These shoes incorporate advanced material technologies, leading to a revolution in shoemaking driven by innovations in materials like EVA, TPU, and PEBA over the past 30 years. Such advancements have led to materials capable of increasing the shoe sole’s rebound to 55% or even higher, significantly enhancing athletic performance.
New materials can be used in various sectors. For instance, POE (Polyolefin Elastomer) and EVA have broader applications in automotive parts, photovoltaic films, wires and cables. In recent years, the growing demand from the development of electric vehicles and the photovoltaic industry is driving these materials into the fast lane.
Specifically, new materials related to new energy, semiconductors, aerospace, and environmental biomass materials have received the highest attention in the capital market. These fields generally have better technological certainty and fast market growth.
Some investment deals in new materials include:
Ningxia Hanyao, which primarily researches high-energy-density lithium-rich manganese-based cathode materials, completed its B+ round of financing in January 2023. Together with its series B financing in 2022, its financing total exceeded 500 million yuan. Investors included CITIC Goldstone and Hongtai Fund.
Hebei Kuntian New Energy, a company specializing in synthetic graphite anode materials, completed over 2 billion yuan in Pre-IPO round financing in January 2023. Investors included SK China, Sinopec Capital, and Fosun Chuangfu.
Zhongke Haina, a research and development company for sodium-ion batteries, completed its B round of financing in April 2021. Since 2018, Zhongke Haina has raised multiple financing rounds from investors including Temasek, Three Gorges Capital, Hubble Investment, and Haisong Capital.
Tiancheng Aviation Materials, a titanium alloy material research and production company, announced the completion of over 600 million yuan in pre-IPO round financing this month. Investors include the China National Building Material New Materials Fund, Jianxin Investment, and Agricultural Bank Capital.
Pulai Materials, a developer and producer of carbon dioxide-based materials, completed nearly 200 million yuan in B round financing this month. This round was led by Hefei Industry Investment, Kunlun Trust under PetroChina, and Anshu Capital.
Several investments are strategically focused on the theme of domestic substitution. For instance, Zhongke Kele is a company whose technological advancements are anticipated to reduce China’s longstanding reliance on imported high-end polyolefins.
Currently, China’s self-sufficiency in high-end polyolefins is relatively low, at about 58%. Particularly in the domain of polyolefin elastomers, the country’s dependency on foreign imports stands at 100%, highlighting the significance of Zhongke Kele’s breakthroughs in this area.
Another new material company, Zhongke Baiyi Jin, has seized the incremental demand for bio-based materials in the low-carbon economy. Traditional chemical companies, international brands in chemicals, beauty, and food and beverages are joining the commercial application of bio-based materials, with some bio-based products gradually replacing traditional petroleum-based products.
The biomass ethylene glycol technology underwent nearly 10 years of R&D in the laboratory. With the deepening of sustainable concepts and the setting of carbon neutrality goals, the application for bio-based materials have been further expanded. Based on this demand, biomass ethylene glycol technology has welcomed the opportunity for large-scale commercialization.
The new materials industry is not without its challenges. Characterized by a long capitalization cycle and prolonged phases of research and development, it poses a test of endurance for investors.
Additionally, several technologies in this sector still struggle with the hurdles of mass commercialization. Consequently, the financial success of startups in this field remains uncertain, underscoring the inherent risks and complexities of investing in new material technologies.
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