Can HSC break free from vicious cycle of global leadership but unsteady profits?

The maker of lithium-ion battery electrolyte additives is seeking a Hong Kong listing, but its profitability remains highly vulnerable to price cycles

Key Takeaways:

• HSC has applied to list in Hong Kong, saying it’s the world’s largest supplier of lithium-ion battery electrolyte additives with 15.2% of the global market
• The company returned to the black last year with a recovery in prices for its products, reporting a profit of 13.25 million yuan

By Lee Shih Ta

In theory, being the world’s top manufacturer for any established product should make profits come easy. But for Jiangsu HSC New Energy Materials Co. Ltd. (688353.SH), which filed last week for a Hong Kong IPO, that logic doesn’t quite hold.

Founded in the 1990s when electric vehicles (EVs) were mostly an unproven concept, HSC moved into the business of making lithium battery electrolyte additives that are a key component for EV batteries in the early 2000s. It was one of China’s first companies to achieve mass production of vinylene carbonate (VC) and later developed a differentiated process for fluoroethylene carbonate (FEC), which are both used in lithium batteries.

After nearly two decades of building its expertise, the company has secured a leading position in this small but important upstream segment of the lithium battery supply chain. It became the world’s largest lithium-ion battery electrolyte additives supplier by volume last year, commanding 15.2% of the market, according to third-party market data in its listing application.

However, the company’s financial results over the past three years show this leading position has yet to translate to stable profits. Its revenue fell slightly from 525 million yuan ($77 million) in 2023 to 505 million yuan in 2024, before rebounding sharply to 869 million yuan in 2025, a yearly increase of 72.2%. But recovery for its profits lagged considerably. The company lost 23.91 million yuan and 174 million yuan in 2023 and 2024, respectively, before returning to a modest net profit of 13.25 million yuan last year. Despite that return to the black, the size of the profit was hardly impressive.

The problem hasn’t been demand. Sales volume for HSC’s two core products, VC and FEC, has been rising steadily over the last few years, driven by rapidly growing sales of new energy vehicles (NEVs) and expansion of the energy storage market. The company’s VC sales volume jumped from about 5,390 tons in 2023 to 12,487 tons last year, more than doubling over that period. Its FEC sales volume also jumped from 2,669 tons to 7,952 tons, roughly tripling over that time.

In 2024, however, the addition of major new industry capacity led to a sharp drop in electrolyte additive prices. Prices of FEC plummeted from an average of 57,400 yuan per ton in 2023 to 31,800 yuan per ton in 2024, with VC prices coming under similar pressure. As that happened, the company’s gross profit fell into negative territory in 2024, resulting in a gross loss margin of 22.9% for the year. The gross loss margin for FEC was a staggering 53.3%, while VC recorded a loss margin of 10.2%. HSC found itself trapped in a situation where the more it sold, the bigger its losses.

Market conditions began improving in 2025 as inventory levels normalized and downstream demand kept growing, with VC and FEC prices recovering in the second half of last year. As that happened, the company’s revenue surged and its gross profit margin returned to positive territory at 9.7%.

At the same time, the company made progress on cost control. By recycling triethylamine, it reduced its consumption of the chemical compound by about 85%. Similar recycling helped to cut wastage for its solvent recovery units by approximately 75%. These measures lowered its cost-to-revenue ratio from 122.9% in 2024 to 90.3% in 2025. Nevertheless, the return to profitability was mostly dependent on the rebound in VC and FEC prices.

Soaring receivables

The company’s profit recovery has been overshadowed by intense pressure on its operating cash flow, which has been negative over the last three years. HSC’s net cash outflow from operating activities widened to 257 million yuan in 2025 from 135 million yuan in 2023. Over the same period, its cash plunged from 1.99 billion yuan at the end of 2023 to 333 million yuan by the end of last year.

Its core issue lies in payment collection from its customers. Its trade receivables and notes surged from 168 million yuan in 2023 to 593 million yuan in 2025, more than tripling over that time. Meantime, turnover days stretched from 127 days to 190 days over that period, as cash-strapped customers took significantly longer to pay their bills.

Fluctuations in the company’s capacity utilization further reflect industry cycles that are playing havoc with HSC’s business. Its VC capacity utilization climbed from 40.6% in 2023 to 63.4% in 2024 on strong demand, even as prices sagged, and reached 95% in 2025 as prices rebounded. After technical adjustments, the utilization for its FEC capacity also hit 102.6% in 2025. Higher utilization helps keep the production lines busy, but the big loss in 2024 and only mild profit recovery last year also suggest the company rapidly ramped up its operations at the first sign of demand recovery.

Undeterred by such cyclicity, HSC still plans to further expand with the addition of 60,000 tons of VC capacity involving a roughly 950 million yuan investment. This move is essentially a bet on future demand and steady prices. But many of its rivals may be thinking similarly and adding more capacity as prices recover.

In terms of valuation, shares of Tinci Materials (002709.SZ), which has also applied to list in Hong Kong, trade at price-to-sales (P/S) ratio of about 5.53 times for its shares already listed in Shenzhen, while Shenzhen Capchem (300037.SZ) trades at roughly 5.02 times. In contrast, HSC’s Shenzhen-listed shares boast a much higher P/S ratio of around 23 times, perhaps reflecting investor bets on the company’s better earnings potential. In its niche of the battery materials market, a rebound in product prices can indeed amplify profits, potentially justifying a higher valuation.

The company retains a technological edge, demonstrated by its 6N-grade VC purity and its differentiated FEC production process, benefiting also from a trend toward silicon-carbon anodes. Yet, these advantages are primarily concentrated in existing products, with no clear second growth curve in sight. Moreover, its profitability remains highly tethered to the electrolyte additive price cycle. Against a backdrop of rising receivables, strained cash flow, and ongoing expansion plans, the company’s ability to maintain stable earnings is an open question. The arrival of another downward cycle, which seems quite likely at some point, could deliver significant downward pressure to its stock.

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