DeYe Co. Goes Crazy

De Ye Co. Ltd. has recently been facing some turbulent times, marked by a significant decline in its stock values over the past few days.

On the 16th, the company's shares nearly hit the limit down, and the following day, they experienced another substantial drop of over 6%.

Since October 9th, the stock has retraced by an alarming 23.68%, effectively erasing almost all gains made in the recent market rally.

What’s more critical is the increasing trading volume accompanying this downward trend:

The trading volume reached 1.387 billion yuan two days ago, further escalating to 1.54 billion yuan yesterday.

The effects on investors have been unmistakable.

In just two trading days, the company's market capitalization plummeted by 7.363 billion yuan, leading to an average loss of approximately 201,600 yuan per household based on 36,500 investors holding its shares.

What has befallen this energy storage leader with a market cap exceeding 50 billion yuan?

Demand Fluctuations in Key Markets

The last time De Ye faced a trading halt was on September 23.

A report regarding a potential drop in electricity prices in Pakistan sparked a significant sell-off of De Ye's shares.

Advertisement

According to Global Energy Storage Observer, there are plans for a considerable reduction in electricity rates in Pakistan this October. Pakistan's Minister of Power expressed intentions to negotiate with Independent Power Producers (IPPs) to achieve lower rates.

Data from China Energy News indicated that the average monthly electricity bill for households in Pakistan was around $350 in 2024, which has significantly dropped to approximately $100 in 2023.

What does this have to do with De Ye?

In fact, Pakistan is one of the cornerstone markets for De Ye's operations overseas.

In its mid-year report for 2024, De Ye stated that their inverter products are primarily sold to Pakistan, Germany, Brazil, India, and South Africa, with a total sale of 711,700 units, which included 214,100 energy storage inverters, 242,700 micro-grid inverters, and 254,900 string inverters.

Placing Pakistan at the forefront highlights the company’s high regard for this market.

This emphasis is not without reason.

In the first half of 2024, decreased electricity shortages in the South African market, combined with heightened competition and an increase in industry inventory, led to a downturn in market demand, causing a year-on-year decline in De Ye's sales of energy storage inverters in South Africa.

However, emerging markets, such as Pakistan, India, the Philippines, and Myanmar, are witnessing a formidable demand due to severe electricity shortages, soaring electricity prices, policy initiatives, and falling component and battery prices that enhance economic viability.

"Our extraordinary performance in emerging markets has somewhat compensated for the shortfall in the South African market," De Ye stated.

According to research from Guodu Securities, demand in Pakistan is set to increase starting December 2023, raising the monthly demand for De Ye inverters from 3,000-4,000 units to 15,000 units, with a month-on-month increase. It is estimated that in the first half of 2024, De Ye's income contribution from Pakistan will account for 14%.

This proportion is not negligible.

What worries the market, however, is the potential reduction in demand for De Ye's inverters following the electricity price cuts in Pakistan.

Thus, the saying encapsulates the sentiment: when the market is performing well, De Ye's stock follows suit; when the market falters, the stock plunges without hesitation.

Compounding the Misery?

Should such a decline in Pakistan's demand actually occur, it could have a detrimental impact on De Ye's revenue from their inverter business.

The South African market has already set a precedent for this decline.

Due to this market impact, the company saw its inverter business revenue plummet by 26.06% year-on-year to 2.322 billion yuan in the first half of 2024, contributing only 48.89% to overall revenue.

As the company's primary source of income, inverters have contributed approximately 60% to De Ye's revenue over the past two years.

This has cascaded downwards, dragging both De Ye's revenue and net profit into decline.

In the first half of 2024, the company reported revenues of 4.748 billion yuan, net profit attributable to shareholders of 1.236 billion yuan, and net profit after excluding non-recurring items of 1.162 billion yuan, showing year-on-year declines of 2.97%, 2.21%, and 16.19% respectively.

This is not an isolated incident; as early as the second half of 2023, all three of these indicators had already shown declines, both year-on-year and quarter-to-quarter.

Looking at it quarterly reveals an even grimmer picture, as the adjusted net profit has recorded year-on-year declines for four consecutive quarters.

The quarters from Q3 2023 to Q2 2024 experienced declines of 42.01%, 73.09%, 19.04%, and 14.45% respectively.

The toll has been painful.

Since the second half of 2023, the company’s stock price has been on a downward spiral, reaching a low of 38.82 yuan per share (on a post-split basis) on December 13, marking a staggering 77.89% drop from its historical peak.

Correspondingly, the company’s market capitalization shrank by an astonishing 84.3 billion yuan.

Could this time be different?

Cash-out of 360 million yuan

Zhang Hejun is the actual controller of De Ye Co., Ltd., who is now 72 years old.

As an elder statesman in business, Zhang's success in the marketplace carries a distinctly legendary character.

You see, he has only a high school diploma. At the age of 17, Zhang began working in mold development, initially as a sole proprietor in Xiapu, Chenhua Village, Beilun District, Ningbo.

By 19, he was already the head of the Xiapu Chenhua Mold Hardware Factory; thirteen years later, he became the director of the Ningbo Zhenhai Chengguan Xingye Plastic Electric Factory.

At 38, Zhang transitioned into the plastics sector, taking on roles as chairman and general manager for companies like Ningbo De Ye Plastics and Ningbo De Ye Jin Su Mold.

Entering the new millennium, Zhang officially founded De Ye Limited (the predecessor to De Ye Co.), steering the business into frequency conversion and electrical appliances. By this time, Zhang was 48 years old.

Zhang didn't venture into the inverter sector until he was 55, marking the beginning of his greatest achievements.

At its peak, De Ye’s total market capitalization soared to 108.285 billion yuan, allowing Zhang's personal fortune to exceed 60 billion yuan at one point.

It certainly validates the saying, "As long as you remain on the path, success is never too late."

However, the perception suffers somewhat as the Zhang couple has recently reduced their holdings through companies they control.

In June 2024, Hengli Chuangtou and Depai Chuangtou cumulatively reduced their stake by 0.61% and 0.2% through centralized bidding, amounting to 360 million yuan.

This occurred less than two months after the lockup period expired.

These are personal opinions and are for reference only.