Riding the wave of a recovering global lithium battery market this year, demand for electrolyte has been unleashed rapidly, leading to an improved supply-demand landscape across the industry. Recently, Kunlun New Energy Materials Technology (Yichang) Co., Ltd. (hereinafter referred to as Kunlun New Materials) has re-filed its listing application with the Hong Kong Stock Exchange. According to its prospectus, the company generated revenue of RMB 1.972 billion in the first half of this year, already surpassing its full-year revenue of RMB 1.746 billion for the previous year. Kunlun New Materials attributed this surge in revenue primarily to accelerating demand from downstream power batteries and energy storage systems, supported by rising EV penetration rates and the rapid development of storage solutions.

Against the backdrop of a warming market, the electrolyte industry has gradually emerged from its loss-making predicament. In the first half of this year, Kunlun New Materials saw its gross margin expand by 8.3 percentage points year-over-year to 14.2%, successfully turning profitable with net earnings reaching RMB 148 million. After enduring significant pressure during the earlier industry downturn, the company has now emerged from the cyclical trough, with semi-annual revenue exceeding its entire prior year figure and profitability showing substantial repair. With this renewed momentum and its upcoming listing, can Kunlun New Materials convince Hong Kong market investors with its fundamentals and growth projections for the next phase?

Business Recovery Accelerates Amid Industry Upturn

Tracing its roots back to 2004, Kunlun New Materials stands among China's earliest developers and manufacturers of lithium-ion power battery electrolytes. Its core product, lithium battery electrolyte, serves four key sectors: power batteries, energy storage systems, consumer electronics, and emerging applications. Based on 2025 electrolyte revenue, it ranks as the third-largest independent supplier globally, holding a 3.6% market share.

Within the prospectus period, Kunlun New Materials posted a distinct V-shaped revenue trajectory: RMB 1.577 billion in 2023, plunging to RMB 1.021 billion in 2024 amid industry overcapacity and collapsing lithium hexafluorophosphate prices, rebounding to RMB 1.746 billion in 2025 as storage demand picked up, and surging further to RMB 1.972 billion in just the first half of 2026. Structurally, power battery electrolytes remain the company's core business, though their revenue share eased from 77.7% in 2023 to 70.4% in H1 2026. Meanwhile, electrolytes for energy storage systems jumped from 11.9% to 24.1% over the same period, establishing a robust second growth engine. Consumer electronics electrolyte shrank from nearly 10% in 2023 to a mere 1.9% in H1 2026, while emerging application electrolytes are still in their infancy, contributing negligible revenue.

The recovery on the profitability front has been even more striking. In 2024, Kunlun New Materials witnessed its gross margin dip to 4.4%, resulting in a full-year net loss of RMB 28 million. By 2025, margins improved to 9.4% with a turnaround to a net profit of RMB 36 million. In H1 2026, driven by economies of scale from higher sales volumes and firmer product pricing, gross margin climbed 8.3 percentage points year-on-year to 14.2%, yielding a net profit of RMB 148 million – significantly exceeding the entire prior year's earnings in just six months. This comprehensive upturn is closely tied to shifting industry dynamics. Data shows average electrolyte sales volume reached 77,164 tonnes in the first six months, up 82.3% year-on-year, while average selling prices recovered to RMB 25,000 per tonne from RMB 15,000 in the same period last year. This simultaneous volume and price growth unleashed the company's earnings elasticity. It is worth noting, however, that in 2023, average selling prices stood at RMB 30,000 per tonne – still higher than H1 2026 levels.

Can Aggressive Expansion Translate Into Long-Term Growth?

Alongside the earnings rebound, Kunlun New Materials is advancing a strategic production expansion. Current total electrolyte capacity stands at 180,000 tonnes per year, with plans to build or expand facilities in Yichang, Jining, Huzhou, Yibin, and Szolnok, Hungary, which would push total capacity beyond 500,000 tonnes annually. The Hungarian base is strategically positioned for localized European supply, serving a leading global new energy technology group and other international clients. The rationale is clear: Europe's electrolyte market is projected to grow at a compound annual rate exceeding 35% from 2025 to 2030 – faster than both China and global averages – and localized production is a prerequisite for entering European supply chains.

Upstream integration is also moving forward. In November 2025, Kunlun New Materials acquired a 51% stake in Shandong Lizhong to enter lithium hexafluorophosphate production, following earlier investments in Yingkou Changcheng and Sichuan Mingfang to secure additive and solvent supplies. In H1 of this year, internally supplied lithium hexafluorophosphate accounted for 16.7% of total procurement, while internally supplied additives reached 48.3% of total purchases. The contribution of this vertical integration to margin improvement is already visible, with H1 gross margin rising to 14.2%, partly due to higher self-sufficiency in raw materials. On the technology front, the company has laid out plans across solid-state electrolytes, gel electrolytes, solid-liquid hybrid electrolytes, and sodium-ion electrolytes, with sulfide solid-state electrolyte achieving ionic conductivity of 12 mS/cm. Still, revenue from emerging battery materials remains minimal, unlikely to meaningfully contribute in the near term.

However, while capacity expansion can amplify earnings elasticity, it also carries the risk of mismatched timing with demand growth. From 2022 to 2024, rapid industry-wide capacity additions alongside subdued demand drove capacity utilization down to roughly 30%, triggering price wars. During that period, Kunlun New Materials itself saw persistently low utilization rates, which only recovered to 87.3% in H1 this year. That recovery hinges on concentrated storage demand; should power battery or storage installation growth decelerate, utilization rates could slip again, with depreciation and fixed operating costs eroding profits. From an investment standpoint, the core thesis for Kunlun New Materials hinges on the dual flexibility of "cyclical recovery plus market share expansion." That said, the lithium battery electrolyte sector remains inherently cyclical, and the alignment between the company's expansion pace and downstream demand will be decisive for its performance trajectory. Looking ahead, whether Kunlun New Materials can successfully list on the Hong Kong Stock Exchange at this opportune industry moment, and whether it can fulfil its growth promises post-listing, will be closely watched.