Good News on Listing | Frost & Sullivan Assists Zhongbei Energy Group Co., Ltd. to Successfully List on the US Securities Exchange (NASDAQ:CNEY)

China North Energy Group Co., Ltd. (hereinafter referred to as "CNENG") successfully listed on February 5, 2021, issuing 5 million common shares. Calculated at a maximum issue price of $5 per share, the raised funds were approximately $287.5 million. Frost & Sullivan (hereinafter referred to as "Frost & Sullivan") provided exclusive industry advisory services for CNENG's listing and hereby warmly congratulate them on their successful listing.

During this listing process in the United States, Frost & Sullivan mainly undertook the following tasks: helping the company accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the company's competitive advantages, assisting the company, investment banks, and other intermediaries in completing the writing of relevant parts of the prospectus (such as the overview, competitive advantages and strategy, industry overview, business and other important sections), helping the company communicate with the NASDAQ capital market and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and assisting the company in completing various feedback on industry-related issues from the NASDAQ capital market.

Introduction

Activated carbon is a type of carbon with high absorption capacity because it has undergone other chemical processes. It is mainly made from wood, bamboo, charcoal, and various fruit shells. The manufacturing process includes crushing, screening, catalyst activation, washing, drying, and screening. It has the ability to selectively adsorb in gases and liquids under various conditions to achieve decolorization, disinfection, deodorization, dirt removal, and purification.

In recent years, with the continuous development of China's economy and consumption upgrading, consumers' awareness of the safety and purity of food, medicine, and drinking water has been continuously improving, thus increasing the market demand for activated carbon products.

Lignite activated carbon is made from wood raw materials such as sawdust and wood blocks and processed by common methods such as physical methods, phosphoric acid methods, and zinc chloride methods. In contrast, coal-based activated carbon is made from coal.

Advantages: Since the raw materials of lignite activated carbon are renewable and there is less carbon dioxide emissions during the production process, lignite activated carbon is more environmentally friendly than coal-based activated carbon.

In the past century, especially in the past 20 years of industrial reform and development, China's lignite activated carbon manufacturing industry has achieved remarkable achievements. The manufacturing process has developed from simple flat furnaces and smoldering furnaces to more advanced production methods such as rotary furnaces, fluidized bed furnaces, and other production processes.

Industrial Chain

The upstream suppliers of the activated carbon industry supply chain are producers and suppliers of activated carbon raw materials, including suppliers of forestry residues and packaging materials. The midstream suppliers of the supply chain are lignite activated carbon manufacturers, while downstream consumers are different industries that use activated carbon as raw materials, including the food industry, chemical industry, pharmaceutical industry, etc.

Market Scale

Due to the rapid development of industrial technology, stricter environmental protection regulations, and increasing attention to food safety, many industries such as food and beverages, pharmaceuticals, metallurgy, environmental engineering, and automotive are increasing their demand for lignite activated carbon. China's production of lignite activated carbon products has increased from 123,000 tons in 2014 to 172,100 tons in 2019, with a compound annual growth rate (CAGR) of 8.1% from 2014 to 2019. Due to the COVID-19 pandemic at the end of December 2019, the Chinese government implemented corresponding measures, so China's production of lignite activated carbon products slowed down at the beginning of 2020, and it is expected that the production will decline in 2020. It is expected that the production will start to grow again in 2021, reaching 202,100 tons by 2024, with a compound annual growth rate of 5.5% from 2020 to 2024.

● Rapid Growth Trend: With the strong support of China's social and economic development, the downstream activated carbon industry continues to expand, especially in fields such as water treatment, air purification, automotive applications, solvent and waste gas recovery, which provides strong growth momentum for lignite-based products. In addition, with the improvement of living standards and environmental awareness of the Chinese people, the demand for activated carbon in industries such as food, pharmaceuticals, water treatment, and air purification is expected to maintain a rapid growth trend.

● Rising Awareness of Food Safety: In the past few decades, more and more food safety-related incidents have attracted the attention of Chinese citizens. Due to consumption upgrading on the Internet and rich food safety information, Chinese consumers are paying more and more attention to food safety issues, which has led to an increasing demand for activated carbon used as food and water filters and purifiers by food producers. It is expected that the improvement of living standards and food safety awareness in China (especially first- and second-tier cities) will provide strong growth momentum for the activated carbon industry, especially China's lignite activated carbon industry.

● Fierce Competition: Due to the increase in the number of local and international activated carbon producers in China, the competition in China's activated carbon manufacturing market is becoming increasingly fierce, promoting industry reform and optimization. In the foreseeable future, it is expected that there will be more mergers and acquisitions activities because smaller and less competitive market participants will be eliminated, while stronger participants capable of effectively producing activated carbon are more likely to gain market share. Since the development of China's activated carbon manufacturing technology is slower than that of developed economies such as the United States and Japan, Chinese manufacturers are also expected to face fierce international competition, which may hinder the development of the overall Chinese activated carbon market in the next few years.

Market Scale

Although biomass resources such as firewood and agricultural by-products are abundant and have become important energy sources in China, especially in rural areas, they are mainly used for conventional energy consumption such as cooking and heating. There is an urgent need to develop clean energy based on modern biomass technology, which is reflected in the goal of installing cumulative biomass power generation capacity (including the power generation capacity of waste-to-energy projects). According to Frost & Sullivan's data, as of December, the cumulative total capacity of biomass power generation reached 9,869 megawatts.

Driving Forces

● Favorable Policy Support: According to the Medium- and Long-Term Renewable Energy Plan issued by the National Development and Reform Commission (NDRC) of China in 2007, the Chinese government set a target of installing a cumulative power generation capacity of 30.0 gigawatts for the country. By 2020, biomass power generation will be achieved. To encourage the development of the biomass power industry, the NDRC issued the Notice on Improving the Pricing Policy for Agricultural Waste and Forestry Residue Power Generation in July 2010, unifying the on-grid electricity price at 0.75 yuan per kilowatt-hour for all biomass energy power generation projects. According to Frost & Sullivan, this is much higher than the on-grid electricity price of conventional coal-fired power, from 0.30 yuan per kilowatt-hour to 0.50 yuan per kilowatt-hour. In addition, local governments have taken specific policies to support the development of the biomass industry, including subsidies for biomass supply and reducing interest on financing loans for biomass facility projects. According to Frost & Sullivan, the development of the carbon emission market may provide additional income sources for China's biomass energy industry in the future. Frost & Sullivan expects that this favorable regulatory environment will continue in the future to support the biomass power generation industry in achieving its capacity target.

● Demand for Controlling Air Pollution and Reducing Greenhouse Gas Emissions:Air pollution has become an important public health issue in China and has attracted widespread attention across the country. In areas with high population density and serious pollution, including eastern provinces such as Jiangsu Province, Shandong Province, and Anhui Province, the public's awareness and requirements for pollution control are particularly prominent. Compared with the common burning of biomass raw materials in open areas in rural China, this has a negative impact on air quality. Controlling biomass combustion to generate electricity and heat is a low-emission way of using biomass raw materials. Compared with fossil fuels, the emissions of sulfur dioxide and nitric oxide can be negligible and are expected to play an important role in controlling China's air pollution.

● Rural Power Grid Construction and Rural Development:In recent years, China's power grid companies have been increasing investment in rural power grid construction, which may promote the construction of biomass power plants usually located in these areas. In addition, building biomass energy power generation facilities can improve living standards, promote industrialization, and create employment opportunities in rural areas. By purchasing agricultural and forestry residues, biomass power plants also provide additional income sources for farmers. According to Frost & Sullivan, due to these benefits, local governments committed to increasing farmers' income are expected to continue supporting the construction of additional biomass facilities.

Market Opportunities and Crises

● Rising Awareness of Biomass Energy:Due to the limited fossil fuel resources and the adverse environmental problems they bring, biomass energy has become increasingly important in the country's energy structure. China is the world's largest energy consumer. However, the supply of fossil fuels and natural gas is relatively insufficient. According to Frost & Sullivan's data, China's per capita fossil fuel and natural gas possession is only 6% of the world average level. Therefore, in order to meet energy needs, the biomass energy industry has huge market potential.

● The Infrastructure Development of the Biomass Power Industry is Not Mature: Although a large amount of undeveloped biomass resources provide excellent market potential for the biomass power generation industry, the geographical distribution of biomass fuels is scattered in China. Some areas rich in biomass resources such as Yunnan currently do not have facilities for developing biomass resources and a logistics system to transport these biomass resources, resulting in a large amount of resources not being developed and wasted, leading to low utilization rates.