A Dialogue With Hengshen - The Carbon Fiber Unicorn Company In Jiangsu
Source：Organizing Committee of China Composites Expo
‘Unicorn’, as a terminology used in capital investment industry, refers to an unlisted company valued at over 1 billion U.S dollars with private equity investment.
In late March 2017, China’s Torch High Technology Industry Development Center of Ministry of Science and Technology released a 2016 China Unicorn Enterprise Development Report, in which Hengshen ranked 107 among 164 companies.
A leading Carbon Fiber Manufacture
In May 5th, China’s domestically-built large aircraft - C919 made its initial flight. That means China has become one of the few countries in the world that can produce large aircraft. But many people do not know the new material companies like Hengshen which contribute themselves to the making of domestic large aircraft. Hengshen is the only supplier of Commercial Aircraft Corporation of China (COMAC), and it provides both carbon fiber materials and composites components for aerospace applications.
Hengshen has overcome a bunch of difficulties and obstacles. In the past 10 years, the company solved lots of tough technical problems with respect to precursor, carbonization, resin, prepreg and composites molding process. Hengshen boasts that it has earned itself many title of ‘First’ in Jiangsu province and China since the first time it started up his production line. Hengshen was China’s ‘first’ company that accomplished the construction of the kiloton carbon fiber production line through self-developed technology. It was also the ‘first’ company in China that realized whole-industry-chain construction ranging from carbon fiber manufacturing to composites manufacturing. It was the ‘first’ company that established overseas carbon fiber R & D platform, and the ‘first’ one listed in the New OTC (Over the Counter) Market in China. Moreover, it was the ‘first’ company that established a science and technology innovation team for the research and development of carbon fiber and composites and undertook state-level projects in Jiangsu province. In 2017, Hengshen became China’s ‘first’ carbon fiber company ‘going globally’ and entered into a strategic cooperation agreement with Bombardier which is world’s third largest commercial aircraft manufacture, and became the ‘first’ Chinese company that gained access to the carbon fiber prepreg supply chain of foreign large-scale commercial aircraft manufacturers. It was also in that year that Hengshen worked closely with CRRC and developed world's ‘first’ full carbon fiber composites subway car.
The Misinterpreted Unicorn
Despite the large proportion of the market share it has, a large number of state/provincial-level science and technology projects it undertakes, and its recent year’s debuts in such fields as aerospace, large aircraft, and transportation, Hengshen has witnessed and experienced a winding road in the capital market. Hengshen listed on the New OTC Market on May 8th, 2015. Its financial statement showed that the company had sustained a 4-year economic loss since 2014. Due to the aforesaid fact, the company was dubbed as ‘King of Loss’.
‘Is New Economic Loss and Cash Burning reasonable?’ ‘Why economic loss not understandable?’ asked Qianjing, chairman of the board of Hengshen. He thought the exaggerated phrase ‘King of Loss’ was a sort of unfair misinterpretation. It is a kind of hurt to the brick-and-mortar business companies and all entrepreneurs who devote themselves in such business. In Qianjing’s view, the present financial loss of Hengshen is a road of initial investment and incubation that the company must take. The material industry is a special field that calls for heavy investment, and confronts problems of high start-up threshold, long business cycle and slow return on investment.
To see flowers blooming entails patience and inner peace. Even the global industrial leaders have experienced tortuous development. For example, Toray’s carbon fiber business unit sustained losses in more than 2 decades. And Hexcel had undergone 2 bankruptcy protections before it fell on its feet.
‘China needs its own definition of what a unicorn company should be,’ Said Qianjing. He thought the Chinese unicorns should better live up to China’s development model, and should be more diversified and tilted toward cloud computing, AI, and high-end production. To incubate a unicorn, financial institutes including investment banks or brokerage firms, should not focus only on valuation and return. They should take a long view of their business.
The ‘spring of manufacturing’ is coming
‘The spring of manufacturing is coming. I could feel the breeze against my face.‘ Said Qianjing with a smile.
For Hengshen, the company also has an expectation. That is to accomplish a new round of financing by utilizing the power of capital to attract more investment for the development of the company. And this small goal is progressing smoothly. Good news came that China established Strategic Emerging Industries development fund. With increasing state support for brick-and-mortar business, Hengshen has received many requests for business talks. With financial resources increasingly tilted toward the industry, Qianjing becomes more confident in making his company an industrial behemoth.
‘New material in each new generation needs new equipment. And material goes ahead of industrial production,’ said Qianjing. He also believed that materials are the basis of industry, and they are crucial to advanced manufacturing and smart manufacturing. Given that the foundation of Chinese new material industry is relatively weak, the new material companies all remain true to their original will and bear in their minds their missions. ‘We are pragmatically dedicated to our primary business and care nothing with respect to making quick money. We focus on basic research and development so that we can gather strength for the future.’ Meanwhile, Qianjing added that Hengshen currently had made smooth headway, and it is expected to achieve cash flow balance this year and realize profitability next year.