New stock preview | Failed to make three attempts at the Northern Exchange and turned to the Hong Kong Exchange, leading stock Xinzhong shares are troubled by "multiple issues"

In the first half of this year, against the backdrop of tightened IPOs in the A-share market, several companies listed on the New Third Board are planning to shift their focus to the Hong Kong stock market, and Xunzhong Technology is one of them. Recently, Beijing Xunzhong Communication Technology Co., Ltd. (hereinafter referred to as "Xunzhong Technology") submitted an IPO application to the main board of the Hong Kong Stock Exchange, with DBS Bank as the sole sponsor. It is worth noting that the company successfully listed on the New Third Board as early as June 2015 with the stock code 832646.NQ. The company had also applied to be listed on the Beijing Stock Exchange three times before, but without success. So, what are the highlights of Xunzhong Technology's listing this time that are worth paying attention to? Performance continues to fluctuate According to the prospectus, Xunzhong Technology was established in 2008 and is a comprehensive cloud communication service and solution provider dedicated to simplifying communication. As one of the few companies in China that can provide full-stack cloud communication services, they offer multidimensional and multi-level services to customers, covering the full industry chain of information communication services for enterprise marketing, operations, and production, reducing the difficulty for customers to connect with multiple suppliers and business systems at the same time. According to Frost & Sullivan's data, in terms of revenue ranking by 2023, Xunzhong Technology is the largest full-stack cloud communication service provider in China. Xunzhong Technology is one of the earliest providers of cloud communication services in China, and also one of the few providers of AI-driven communication services in China. In terms of performance, in the first three months of 2021, 2022, 2023, and 2024, Xunzhong Technology's operating income was 994 million, 810 million, 916 million, and 152 million yuan respectively, showing a fluctuating downward trend in revenue performance, with a significant year-on-year decline of 20.6% in the first quarter of this year. Regarding business types, Xunzhong Technology has been providing cloud communication services since its establishment in 2008, and introduced a new business branch of intelligent communication solutions in May 2020. Up to now, the company mainly provides three types of solutions: cloud communication services, intelligent communication solutions, other communication solutions, and accessories. Among them, cloud communication services are the company's main source of revenue. In 2021, 2022, 2023, and the first three months of 2024, the revenue from this business was 883 million, 695 million, 851 million, and 138 million yuan respectively, accounting for 88.9%, 85.8%, 92.9%, and 91.2% of total revenue. It can be seen that the revenue share of this business during the reporting period showed a fluctuating uptrend, but the revenue performance was in a declining fluctuation. Looking further into it, this business can be divided into CPaaS business and contact center SaaS business. The company started to provide contact center SaaS services in 2009, accumulating 15 years of operational experience. In addition, the company gradually developed CPaaS services in 2012. Clients can use a variety of comprehensive telecom resources purchased from major Chinese telecom operators and other service providers on their CPaaS platform, including messaging, voice, and mobile traffic capabilities. Currently, CPaaS business has become the company's main business, bringing in about 80% of the revenue. However, it should be noted that the revenue from this business has shown a declining fluctuation trend. During the reporting period, the revenue from this business was 826 million, 633 million, 780 million, and 127 million yuan. It is understood that in 2022, the company decided to reduce the mobile traffic service on CPaaS due to increased market competition and low profitability, while in 2023, the surge in message service demand on CPaaS due to increased customer needs led to another decline in revenue from CPaaS voice services in the first quarter of 2024. However, the revenue of the contact center SaaS business has steadily grown from 57.29 million yuan in 2021 to 70.97 million yuan in 2023. But due to strategic changes within the company, the termination of relationships with some low-profit customers led to a decline in revenue in the first quarter of this year. Therefore, in the first quarter of this year, Xunzhong Technology actively expanded its emerging branch of intelligent communication solutions to compensate for the decline in revenue from cloud communication services. According to the prospectus, from 2021 to 2023, revenue from intelligent communication solutions continued to decline due to the impact of the pandemic, reaching 22.72 million, 20.53 million, and 13.76 million yuan. Since the first quarter of this year, with the dissipation of the impact of the pandemic, the investment and development of the emerging branch have increased, leading to a significant year-on-year increase of 2036.14% in revenue from this business to 5.319 million yuan. Although revenue fluctuated downward, the company's profitability showed a fluctuating improvement trend. During the reporting period, the company's gross profit margin was 18.5%, 24.1%, 21.4%, and 22.2% respectively. The company stated that the change in gross profit margin is affected by the services and solutions provided by the company and their respective profit margins. In the CPaaS service, the gross profit margin of voice services is higher than that of text messages and mobile traffic. Changes in revenue and gross profit contribution from voice, text messages, and mobile traffic will also change the overall profit margin of the CPaaS service, which will also change the overall profit margin of the company. It is worth mentioning that, due to the anticipation of increased competition or low profitability in the future, the company has gradually reduced some existing services. Strategic business decisions of the company have already and will continue to bring changes to the company's service portfolio and overall gross profit margin. During the reporting period, the company's net profit was 74.816 million, 74.660 million, 76.584 million, and 5.148 million yuan respectively. It can be seen that the net profit performance from 2021 to 2023 was relatively stable, but in the first quarter of this year, the company's net profit dropped significantly by 55.1%. The industry scale continues to expand, and the "dependency syndrome" between upstream and downstream is difficult to resolve Looking at the industry outlook, the future prospects of the cloud communication service market that Xunzhong Technology focuses on are promising. With the continuous expansion of cloud technology applications and the increasing demand for cloud migration from downstream customers, China's cloud communication service market has been growing steadily in recent years. From 2019 to 2023, the total revenue of China's cloud communication service market increased from 31.2 billion yuan to.The total revenue of China's cloud communication service market is expected to reach 485 billion yuan, with a compound annual growth rate of 11.7%. In the future, as digital transformation deepens and cloud communication application scenarios continue to expand, the market is expected to maintain rapid growth. By 2028, the total revenue of China's cloud communication service market is projected to reach 881 billion yuan, with a compound annual growth rate of 12.7% from 2023 to 2028.The cloud communication service market in our country is relatively decentralized and highly competitive. As of December 31, 2023, there are approximately 800 cloud communication service providers in China. In recent years, downstream demand for cloud communication services has become more diverse, expanding from the demand for telecommunications resources to comprehensive solutions for enterprise communication and customer service. Instead of purchasing resources and services from different providers, downstream customers tend to prefer efficient and convenient full-stack cloud communication services from a single provider. In the future, cloud communication service providers will focus on developing full-stack service capabilities to meet the needs of different customers. In terms of revenue generated from cloud communication services in 2023, the top five full-stack cloud communication service providers in China account for approximately 6.5%, with Xunzhong Holding ranking first but only holding a market share of 1.8%. Facing such a fragmented industry landscape, deep integration with upstream and downstream has become a way for companies to strengthen their market position. During the reporting period, the company's cloud communication service customers mainly include technology service providers, software and IT companies, financial institutions, and a telecommunications operator. The main customers for intelligent communication solutions include government entities and state-owned enterprises in the public sector. During the reporting period, the top five customers accounted for approximately 40.8%, 41.8%, 36.7% and 55.4% of the company's total revenue, with the largest customer accounting for 19.2%, 12.3%, 9.7% and 19.1% of total revenue. The company acknowledges in its risk factors that it cannot guarantee the maintenance of business relationships with existing customers and suppliers, or the ability to enter into new contracts with them in the future. If the company fails to obtain contracts of similar value and quantity from new customers in a timely manner, or fails to generate sufficient new business from existing customers, then its business, operations, and financial performance will be significantly adversely affected. From the perspective of suppliers, the company maintains good cooperation with major Chinese telecommunications operators and other service providers. Since 2008, the top three telecommunications operators and their channel partners have been stable long-term suppliers for the company. The company's procurement mainly includes communication resources and outsourced hardware and software purchases. In the reporting period, the top five suppliers collectively accounted for 52.4%, 38.1%, 50.4% and 67.5% of the total service costs, with the largest supplier accounting for 28.3%, 11.6%, 20.9% and 31.8% of the total service costs. The company points out that any significant increase in prices charged by suppliers will increase the company's costs. If the company is unable to timely or fundamentally pass on the increased costs to customers, its operational performance may be adversely affected. Overall, despite being a leading player in the industry, Xunzhong Holding's advantages are not significant. As market competition intensifies in the future, how will Xunzhong Holding, with its continued dependence on upstream and downstream, maintain its position as the industry leader? With fluctuating performance, capturing the heart of the Hong Kong Stock Exchange may not be easy.