Style Change! Sinopec Invests 200 Million in Another "Little Giant"

DT New Materials has learned that recently, Sinopec Capital injected 200 million RMB to acquire equity in Zhejiang Fengdeng Green Energy Environmental Protection Co., Ltd. (hereinafter referred to as "Fengdeng Green Energy Environmental Protection"), becoming its second-largest shareholder (with a stake of approximately 9.7%). The funds will be mainly used for the construction of the company's two "zero-waste industrial parks" in Shangyu, Zhejiang, and Weifang, Shandong.

Zhou Wei, Capital Investment Director of Sinopec, and Zhang Lei, Chairman and CEO of Fengdeng Green Energy Environmental Protection, signed the agreement on behalf of both parties.

According to available information, Fengdeng Green Energy & Environmental Protection was formerly known as Lanxi Fertilizer Plant, which was established in 1965. In 1993, it was transformed into a joint-stock company through the reform of state-owned enterprises, and it is now a subsidiary of the Kang Enbei Group. The company specializes in the efficient resource utilization of waste, and has successfully converted hazardous waste into high-purity hydrogen, lithium battery materials, and other high value-added products. Currently, the company is headquartered in Jinhua City, Zhejiang Province, and has two major production bases in Lanxi and Shaoxing, with a disposal capacity of 241,400 tons. It is recognized as a national-level "Little Giant" enterprise specializing in special, refined, and innovative fields, as well as a national green factory.

It is worth mentioning that Fengteng Green Energy Environmental Protection applied for listing on the Shanghai Main Board in March 2023, but the application was withdrawn in June 2024 due to a voluntary request, resulting in termination. A year later, Sinopec's high-profile entry into the scene suggests that there might soon be new developments.

Because Sinopec's investment style has clearly changed now.

Looking back to last year and earlier, Sinopec Capital still had a strong preference for mid-stage, and even early-stage projects, focusing on fields such as new energy, new materials, high-end intelligent manufacturing, big data and artificial intelligence, biotechnology, and others. Notable examples include Zhongke Fuhai (key technologies and products for large-scale cryogenic systems), Henrui Carbon Fiber (carbon fiber composites), Qingyun New Materials (specialty fibers), Feize Technology (carbon fiber composite parts for the automotive sector), Puli Materials (CO₂-based polyols), Tiangang Additives (polymer additives), Kuntian New Energy (battery anodes), Zhongke Shenlan Huize (solid-state batteries), and others.

The turning point of the story began in the middle to late 2024, when Sinopec noticeably reduced its actions. Then, at the end of December, it suddenly announced the completion of a mixed-ownership reform project by investing in Xuzhou XCMG Automobile Manufacturing Co., Ltd., a subsidiary of XCMG Group, China's leading construction machinery company. Immediately afterwards, in January 2025, it announced its investment in Wanhua Chemical, a leading electronic materials company. In March, it invested in Zhongjian Technology, a top Chinese carbon fiber enterprise. In May, it entered CATL, the world-leading lithium battery company. In July, it got involved with Huadian New Energy, the largest listed company in terms of domestic new energy power generation capacity. All of these are top publicly listed companies.

In addition, Changde New Materials Technology, which announced investment in February, like Fengdeng Green Energy Environmental Protection, is a pre-IPO company whose IPO was terminated. At the same time, Longhe Intelligent (logistics automation), which announced equity participation in January, Qilin Software (domestic Xinchuang operating system) in June, and Haide Hydrogen Energy (square electrolyzer) are also mostly leading companies with the largest market share in their respective niche industries after years of operation.

There may be three underlying reasons behind the change in Sinopec's investment style.

Firstly, it is related to the prosperity of the capital market, especially since IPOs have noticeably "quieted down" since last year. It wasn't until around June this year that they became "lively" again. The slowing pace of listings has led to a longer wait for exit and realization. Long-term capital and patient capital are directions advocated by the state.

Secondly, and in my opinion most importantly, the failure rate of early and mid-stage projects is too high. Take Sinopec’s own investments as an example: three companies—Yi Dao New Energy (N-type photovoltaic cells, PV modules and systems), Meike Solar (PV silicon ingots and wafers), and Baijia Niandai Thin Film (PV encapsulation films)—all had their IPOs terminated. Given the current main trend of “anti-involution” and elimination throughout the entire photovoltaic industry chain, there is little hope for IPOs in the short and medium term. The same situation applies to the hydrogen energy sector: apart from established companies like Refire and Guofu Hydrogen that have gone public in Hong Kong, and Kerun, which has just entered the counseling stage, the rest are still waiting to see how the industry performs once it truly scales up. As for new materials, it goes without saying—it is inherently the most cyclical and uncertain segment, and can only be patiently awaited. As a result, industry leaders and nationally designated “Little Giant” enterprises with specialized and sophisticated expertise have basically become Sinopec’s current standard investment targets, as they are more stable.

Finally, putting aside business cooperation, investing in mature, publicly listed companies offers quicker returns. For example, although Sinopec’s 2024 revenue is more than eight times that of CATL—several levels higher—their net profits are almost the same, both just over 50 billion yuan. Meanwhile, CATL’s total cash dividends actually distributed to shareholders in 2024 reached as high as 19.976 billion yuan! Not only can there be synergy along the industrial chain, but investors can also enjoy stable, timely, and considerable returns. The overall fit is better, liquidity is higher, and even if it’s expensive, it’s worth squeezing in.

Of course, the above represents the typical perspective of an ordinary investor. For large state-owned enterprises like Sinopec and PetroChina, the focus is more on supporting national strategies. For example, the recently popular concept of "fusion energy" has attracted participation from China National Nuclear Corporation, Kunlun Capital of PetroChina, China Nuclear Power, and Zhejiang Energy, among others, who have collectively invested 15 billion yuan in China Fusion Energy Co., Ltd.

Sinopec has made the largest investments this year in the fields of hydrogen energy and resource recycling. The hydrogen energy fund it initiated was registered in May this year, with an initial scale of 5 billion yuan, aiming to proactively layout and cultivate key materials, core equipment, and original technologies in the hydrogen energy industry chain. Additionally, like Fengdeng Green Energy & Environmental Protection mentioned at the beginning of the article, Sinopec joined China Resource Recycling Group, the 98th central enterprise established under national-level promotion, this year by injecting 10 billion yuan. The grand strategy has just begun.