Pihsiang Machinery Manufacturing Co (必翔實業), which makes motorized carts and electrical wheelchairs, yesterday inked a deal with China-based alkaline battery maker Ningbo Sonluk Group Holding Corp (寧波雙鹿控股) to purchase batteries and exchange technological know-how.
Ningbo Sonluk will buy US$120 million lithium iron phosphate batteries from Pihsiang Energy Technology Co (必翔電能高科技), a subsidiary of Pihsiang Machinery, over the next three years.
BATTERY BUYS
The Chinese company will purchase US$15 million in lithium iron phosphate batteries next year, US$37.5 million in 2016 and US$67.5 million in 2017, Donald Wu (伍必翔), chairman and CEO of Pihsiang Machinery, said at a news conference after signing the deal.
In exchange, Pihsiang Energy will provide the technological know-how on the battery and the two companies will work together to develop new products, he said.
“Ningbo Sonluk already set up a laboratory to develop lithium iron phosphate battery, which is suitable for large power system for electric vehicles, but we discovered that Pihsiang Energy is more advanced in the product,” Ningbo Sonluk chairman Song Hanping (宋漢平) said.
Song said the two companies will use the product to enter China’s electric vehicle battery market.
The Chinese market for lithium iron phosphate batteries will become larger than the market for alkaline battery within five to 10 years, he said.
The Chinese alkaline battery market is about 15 billion yuan (US$2.44 billion) at present, he added.
Ningbo Sonluk is the largest alkaline battery maker in China, with a market share of 20 percent, Song said, adding that it sells about 3 billion yuan worth of alkaline batteries annually.
The company said it also manufactures 90 percent of Panasonic alkaline batteries sold in Asia on a contract basis.
UTILIZATION RATE
The deal will raise the utilization rate of Pihsiang Energy from the current 20 percent to 100 percent next year, returning the company to the black next year, Pihsiang Machinery chief financial officer Jeffrey Chang (張嘉祐) said.
Pihsiang Energy would need to expand its capacity to satisfy the orders from Ningbo Sonluk in 2017, Chang said.
Pihsiang Energy is forecast to post revenue of about NT$800 million (US$26 million) next year on new orders from Ningbo Sonluk and a US$10 million order for military-use batteries, with profit margin likely to reach 20 percent next year, according to Pihsiang Machinery.
Pihsiang Energy is set to become a listed company in the Emerging Stock Market in the second quarter next year, and will shift its listing to the Taiwan Stock Exchange in the first half of 2016.
SHARE SALE
In related developments, Pihsiang Machinery sold 15 percent of shares of Pihsiang Energy to Fubang Holdings (Hong Kong) Ltd (富邦控股集團香港) for NT$889 million on Oct. 31.
Fubang Holdings (Hong Kong) is a subsidiary of Ningbo Fubang (Holdings) Ltd, which owns 65 percent of shares of Ningbo Sonluk, according to Pihsiang Machinery.
After the transaction, Pihsiang Machinery will have 30 percent of shares of Pihsiang Energy, while Wu will hold 41 percent, Pihsiang Machinery said.
The transaction will increase the profit of Pihsiang Machinery by NT$889 million, or NT$3.2 per share, to NT$3.8 per share this year, up from losses of NT$355.54 million, or NT$1.92 per share last year, the company said, adding that it would remain profitable next year.
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