In a notable turn of events in the Chinese industrial automation landscape, Huichuan Technology, a behemoth with a market capitalization exceeding 150 billion yuan, is set to spin off one of its subsidiaries for an independent public listingThe subsidiary, which has garnered significant attention, is estimated to have a valuation close to 50 billion yuan.

Despite being a key player in the automotive components sphere, this subsidiary has operated somewhat under the radar until recentlyIts profile elevated significantly following the unveiling of the Xiaomi SU7, as it began to capture public and investor interest.

With the recent acceptance of its IPO application on the ChiNext board, the company in question can no longer remain in the shadows.

The subsidiary, Suzhou Huichuan United Power Systems Co., Ltd., or simply United Power, is seeking to raise approximately 4.857 billion yuan through its IPODepending on the issuance ratio of its shares, the valuation for United Power's IPO may range from approximately 19.428 billion yuan at its lowest to as high as 48.57 billion yuan.

At the end of 2023, Xiaomi made waves by showcasing its groundbreaking technologies, which included innovations such as super motors, an integrated CTB battery, advanced die-casting techniques, autonomous driving technologies, and smart cockpit featuresNotably, Xiaomi’s launch of three super motors, including the HyperEngine V6 and V6s, and the independently developed HyperEngine V8s, sparked considerable excitement in the market.

However, post-presentation, skepticism arose online, hinting that these super motors were sourced from supplier technologies rather than being entirely homegrownObservers noted that the HyperEngine V6 had been in mass production for several years.

In response to these criticisms, Huichuan Technology clarified its role in the collaborative development of the super motor V6s while asserting that the V8s version is indeed a product of Xiaomi's own R&D efforts

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This response not only cleared the air regarding the authenticity of Xiaomi's self-developed motors but also placed Huichuan and its subsidiary, United Power, firmly in the spotlight.

According to their prospectus, United Power is recognized as a leading provider of intelligent electric vehicle components and solutions in ChinaIts product portfolio prominently includes electric drive systems and power systems, comprising core components like electric control units, motors, and integrated power assemblies.

Among these, the electric drive system is crucial for Huichuan's business, contributing over 80% of total revenue, showcasing considerable competitive strengthThe prospectus revealed that in the first half of 2024, United Power captured around 11% of the electric control market within China's new energy passenger vehicle sector, ranking first among third-party suppliers and second overall, following the self-produced components of BYD; the assembly product market share stood at approximately 5.9%, ranking fourth, while motors accounted for about 4.7% at fifth place.

From 2021 to 2023, United Power's revenues soared from 2.903 billion yuan to 5.027 billion yuan, culminating in approximately 9.365 billion yuan, portraying impressive growthIn the first half of 2024, the revenue reached about 6.055 billion yuan.

With this upward trajectory in revenue, United Power transitioned from losses to profitabilityIt reported losses of 250 million yuan and 179 million yuan in 2021 and 2022, respectivelyBy 2023, however, it achieved profitability with a net profit attributable to shareholders of 186 million yuan, escalating to 285 million yuan in the first half of 2024.

In the fiercely competitive Chinese new energy vehicle market, United Power has maintained a particularly strong alliance with Li Auto.

In 2021, 2022, and the first half of 2024, Li Auto ranked as United Power's largest customer

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During 2021, Li Auto provided a staggering 52.58% of United Power’s revenueAs United Power expanded its client base, this contribution gradually declined, dropping to 19.93% in 2023 but spiking to 33.16% in early 2024.

Furthermore, in 2021, United Power entered a joint venture with Li Auto to establish Changzhou Huixiang New Energy Components Co., LtdTogether, they invested to develop a five-in-one drive assembly tailored for Li Auto’s range-extended electric vehicles, with United Power holding approximately 12.66% of this entity.

In addition to Li Auto, United Power has forged long-term purchase agreements with prominent automotive manufacturers like Changan Automobile and Yutong, while securing extended collaboration agreements with the likes of GAC Group, Chery Holding, Geely, and Great Wall Motors.

As part of its upcoming IPO, United Power intends to raise 4.857 billion yuan, earmarked primarily for constructing production facilities for core new energy vehicle components and developing research centers along with other platform-based research projects.

The production initiatives include projects in the manufacturing bases located in Suzhou and Changzhou, which, upon completion, are anticipated to significantly enhance the production capabilities of United Power’s electric drive systems, motors, control units, power supplies, and moreThe other ventures focus on research aimed at next-generation multi-in-one drive systems for both passenger and commercial vehicles, strategically positioning the company to strengthen its technological prowess and core competitiveness.

The prospectus reveals that United Power plans to publicly issue no more than 705.405 million shares, representing at least 10% and not more than 25% of the total equity being offeredWith this, the lowest valuation of United Power’s IPO is projected at around 19.428 billion yuan, soaring as high as 48.57 billion yuan, marking it as a true "junior giant" in its sector.

At the heart of United Power is Huichuan Technology, the significant player in China’s industrial control sector

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Following the IPO, United Power will still be classified as a consolidated subsidiary of Huichuan TechnologyThe prospectus indicates that Huichuan Technology retains a 94.67% ownership stake in United Power, with its founder, Zhu Xingming, serving as the effective controller.

Zhu Xingming's journey began at Huawei, where he worked at Huawei Electric Technology Co., LtdIn 2000, Huawei Electric was the leading manufacturer of communication power supplies in China, producing a range of devices like inverters, power supplies, monitoring equipment, and UPS systems.

In 2003, Zhu founded Huichuan Technology, choosing to focus on vector inverters, a staple among Huawei Electric’s productsVector inverters are essential for motor speed regulation, widely used across various industrial applications, including elevatorsLeveraging his experience at Huawei Electric, he accelerated Huichuan’s market penetration, introducing integrated elevator products swiftly.

Recognizing the future potential of industrial automation, he expanded beyond inverters in 2006, venturing into servo systems.

In 2015, Huichuan Technology acquired Jiangsu Jingwei, entering the railway transport traction system sectorThe following year, the company set up United Power as an independent entity focusing on new energy vehicle components.

United Power, the youngest among Huichuan Technology's ventures, is aptly described as the “young son” of the conglomerateSurprisingly, it has rapidly matured, endowing itself with the capability for self-sufficiency, particularly as China’s new energy vehicle sector has surged.

According to Huichuan Technology's 2024 half-year report, the revenue from new energy vehicles stood at approximately 6 billion yuan, showcasing an impressive year-on-year growth of over 100%. The IPO documents revealed that United Power's revenue for the first half of 2024 was 6.055 billion yuan.

Meanwhile, Huichuan Technology reported total revenue of 16.183 billion yuan during the same period, representing a year-on-year increase of about 29.98%. This indicates that United Power's revenue accounted for a staggering 37.42% of Huichuan Technology's total revenue in the first half of 2024, positioning it as the second-largest segment after general automation business.

What's more, United Power is significantly outpacing the growth rates of Huichuan's other business segments

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