During this digital era, high technologies, including AI, 5G and renewable energies, are increasingly popular and widely adopted in different industries.
● The electric equipment sector contributed over half of TGOOD's operating income in the first half of 2020. TGOOD focused more on developing its renewable energy vehicle sector with the emerging trend of growing markets.
● TGOOD's system integrator is well-performed under beneficial conditions, including governmental support, social investments, and its effective post-COVID management.
New energy vehicles (NEVs) are ramping over the automobile markets with a continuously growing potential. Statistically speaking, the ratio of NEVs to the total number of cars in China was merely about 1.54% by the end of June 2020, indicating a considerable room to expand.
However, the lack of charging piles is an inevitable challenge to promote a wide array of applications for NEVs. There were 7.37 times more NEVs than charging piles in 1H 2020. The overwhelmingly imbalanced ratio indicates the shortage of charging piles in the automobile market. This situation exposes the comparative hysteresis in the NEV infrastructure, requiring governments and firms to put more efforts into its evolution.
TGOOD (300001:SZ) is a professional system integrator focusing on developing outdoor electrical boxes. After accumulating experiences in this field, TGOOD outreached the renewable energy vehicle sector by engaging with intelligent charging networks worldwide. Noticeably, this firm had a domestically leading position by owning more than 178,000 units of charging piles by the end of October 2020.
Regarding the system integrator's profitability, COVID-19 did not affect too much on TGOOD's business performance. According to the company's financial statement in 1H 2020, its operating income hit CNY 2.65 billion, up by 11.08% year-on-year. Taking a glimpse at its operating income structure, electrical equipment and new energy vehicles are two main segments. Specifically, electrical equipment occupied about 67.64% of the total revenue in 2019. The electrical equipment-related gain uplifted 16% to CNY 2 billion in 1H 2020. Also, with the recovery of electric charging, it stimulates the growth of the charging piles sector. In detail, renewable energy vehicles contributed CNY 650 million in operating income. It leads to an inevitable increased demand for charging piles within the last two years.
Why does TGOOD still maintain exceptional business performance nowadays? There are three external factors.
The first factor is governmental policy. The State Council's standing committee passed the legislation called the 'Industrial Development Planning of New Energy Vehicles from 2021 to 2035' in October 2020. This policy buttresses the renewable energy vehicle industry. Specifically, the State Council aimed to increase the renewable energy vehicles' sales volume as much as 20% of all vehicles in 2025. As a result, the renewable energy vehicles' sales volume is expected to reach 5.3 million units by 2025.
Secondly, the emerging renewable energy concept has increasingly popularized in the automobile sector since 2013. The companies in the sector had accumulated over CNY 39.4 billion of funding by 2019, indicating institutional investors' profound interest in the nascent field. The final factor relates to the economic recovery after COVID-19 pandemic. When people are gradually free from lockdowns, there is likely to be more domestic travels in China. The increased frequency of travels will positively impact the automobile industry, subsequently boosting the charging piles sector along with the usage of renewable energy vehicles.
Aside from external beneficial factors, TGOOD also compacts with internal strengths in different sectors, including technology, customer, and entry barriers.
First of all, in terms of the technological advantage, TGOOD is a highly functional system integrator with a complete technical system for charging networks. It contains a cloud platform technology system for four-tier network architectures that unified controlling power transformation, power distribution, charging, and discharging. The cloud platform has an efficient protection system that can lower 73% of accident rates during operations.
Secondly, TGOOD can dissolve customers' problems immediately and efficiently due to its extensive charging networks. From 2017, there was an upward trend in numbers of registered users. Specifically, the compound growth rate of registered users climbed up to 99% for the last four years.
Thirdly, TGOOD's transmission network has a stable electric power supply while installing one charging pile in each district. Hence, the charging pile sector has a strong industry barrier. TGOOD predominates many places for installing charging piles as it outs other competitors in those regions.
Although TGOOD is in the tier-one position compared to other companies it still contains risk factors. The first factor is debt repayment risk. The current ratio and asset-liability ratio is two main indexes for a firm' s ability to repay debt in the short term and long term separately. Its current average ratio was 0.94 for the last three years, indicating a short-run liquidity problem for the system integrator. The average was over 60% for the asset-liability ratio during this period, indicating the firm' s comparatively high pressure of long-term debt.
The second factor is policy risk. The rapid development of the pile charging industry is not mutually exclusive with governmental support. If policies are not implemented on time or its impact does not meet the expectation, TGOOD' s operation will be affected devastatingly.
Last but not least, the final factor is market uncertainties due to the coronavirus pandemic. The coronavirus has shown its ability to mutate, and vaccines might lose efficacy. In this scenario, travel rates are likely to decline, which will affect the usage ratio of charging piles.
In a word, the appearance of new infrastructure in China is a primary drive for the new energy vehicle and charging piles, which giving TGOOD's policy and financial supports. However, the uncertainty of COVID-19 and TGOOD's debt pressure might hinder its development in the future. It is better for TGOOD to find a more affordable way to expand its businesses.