Preview of new stocks listing on US stock market | Zhichong Technology: Delivery growth rate slows down, profit profitability fluctuates.

The issue of electric vehicle charging is the "last mile" of the promotion of electric vehicles. China is the world's largest new energy vehicle market, with the penetration rate and ownership of new energy vehicles continuing to increase significantly, driving strong demand for charging stations. Public information shows that as of the end of June this year, the total number of charging stations nationwide reached 10.24 million, a year-on-year increase of 54%; among them, there are 3.122 million public stations and 7.122 million private stations, with a total rated power of public stations exceeding 1.1 billion kilowatts, meeting the charging needs of 24 million new energy vehicles. However, for overseas markets, the infrastructure of charging stations seems to have not kept up. A survey conducted by the OECD last year found that one-third of respondents in some European countries said there are no charging stations within a 3 km radius of their residences. With more cars than charging stations, it is good news for businesses revolving around charging, from selling components, hardware, to building and operating charging stations, and even developing third-party platforms for finding charging stations, there are abundant opportunities in this field. With the support of subsidy policies, major charging station companies in China are accelerating their overseas standard certifications to seize the initiative. ZhiChong Technology is one of them. According to Frost & Sullivan, based on sales projections for 2023, ZhiChong Technology is the leading high-power charger supplier in Europe. After establishing a foothold in overseas markets, ZhiChong Technology is now making a move into the capital market. It is understood that ZhiChong Technology, which secretly submitted its IPO filing to the SEC on June 2, 2023, has recently updated its prospectus and plans to list on the NASDAQ with the stock code "XCH". The prospectus shows that ZhiChong Technology plans to issue 3.15 million shares at a price of $6 to $8 per share, with fundraising between $18.9 million and $25.2 million. Profitability Roller Coaster Founded in 2015, ZhiChong Technology, based in Beijing, is a supplier of electric vehicle charging equipment and energy solutions, providing comprehensive electric vehicle charging solutions, including the C6 series and C7 series of DC fast chargers, as well as the "Net Zero Series (NZS)" advanced battery-integrated DC fast chargers and related services. As of the date of the prospectus, the company has begun commercial deployment of its NZS solution in Europe, the Americas, and Asia, with customers including electric vehicle manufacturers, global energy companies, and charging point operators. ZhiChong Technology's business spans the globe, with offices, research centers, and sales centers in Europe, the Americas, and Asia. Currently, the company mainly deploys solutions in Europe, while also generating revenue from the U.S., China, Brazil, Chile, and other regions. In addition, the company plans to build a production factory in the U.S., which is expected to start production by the end of 2024 to further enhance its global presence. From a performance perspective, thanks to the rapid growth in demand for charging stations in overseas markets, ZhiChong Technology has seen a steady increase in revenue. From 2021 to 2023, the company's revenue was approximately $13.156 million, $29.424 million, and $38.512 million, with year-on-year growth of 30.9%. For the first three months of 2024, the company's revenue was approximately $11.152 million, an increase of 51% compared to the same period last year. In terms of revenue sources, charger product revenue is the main source of revenue. During the period, it accounted for approximately $12.5 million, $28.7 million, $38.1 million, and $10.7 million, representing 95.3%, 97.7%, 98.8%, and 96.3% of total revenue. Service revenue accounts for a small proportion of total revenue, less than 5%. Unlike the steady upward trend in revenue, ZhiChong Technology's profitability has been like a roller coaster, with losses again in 2023. For the period from 2022 to the first three months of 2024 (hereinafter referred to as the reporting period), the company's net profit was approximately -2.067 million, $1.61 million, -8.084 million, and $0.733 million. The roller coaster profitability behind is closely related to the significant increase in expenses. During the reporting period, the company's total expenses were approximately $6.594 million, $9.077 million, $24.519 million, and $4.777 million, accounting for approximately 50.1%, 30.9%, 63.7%, and 42.8% of total revenue, respectively. Total expenses surged in 2023, mainly due to the growth in general and administrative expenses. General and administrative expenses were approximately $2.460 million, $2.745 million, $14.025 million, and $1.660 million, accounting for approximately 18.7%, 9.3%, 36.4%, and 14.9% of total revenue, respectively. In 2023, ZhiChong Technology's general and administrative expenses increased significantly by 410.9%, leading to a substantial increase in the company's expense side. The prospectus indicated that the significant increase in these expenses from 2022 to 2023 was mainly due to the increase in equity compensation and professional fees related to restructuring, financing, and this offering, which cannot be capitalized. It is worth noting that the net cash flow from operating activities of the company is almost always negative. For the reporting period, it was approximately -6.479 million, $0.849 million, -5.576 million, and -4.036 million, showing that the company's main business is in a state of continuous "bleeding." Fast charging demand brings room for imagination Channels still rely on large customers Fast recharging has always been a demand of electric vehicle owners, both domestically and overseas. Apart from residential and workplace locations, scenarios such as highways, shopping mall parking lots, etc., require fast charging. However, there is a disparity in the number of AC and DC chargers in the European and American markets, with only 25% of public chargers in the U.S. being fast-charging DC chargers, and even fewer in Europe, with only 10%. With confirmed demand and ample policy subsidies, the market growth for fast-charging DC chargers is foreseeable. Soochow Research Institute predicts that the market space for DC chargers in Europe could reach $18.7 billion by 2025, with a compound annual growth rate of 76% from 2022 to 2025, while the market space for DC chargers in the U.S. is $7.9 billion, with a compound annual growth rate of 112% from 2022 to 2025. In its IPO prospectus, ZhiChong Technology stated that the installed capacity of global DC fast charging stations is projected to increase significantly from 270,000 units in 2024 to 2028.Approximately 10.7 million units, with a compound annual growth rate of 41.8%.At the manufacturing end, the overseas charging pile product line is almost the same as in China, with AC slow charging piles and DC fast charging piles being the main products. ZhiChong Technology is able to establish a foothold in the European and American markets, which is not unrelated to its NZS charger. In terms of competitive landscape, ZhiChong Technology is one of the earliest companies dedicated to the research and development of battery-integrated energy storage chargers. In April 2022, the company successfully launched the independently developed NZS charger, which is one of the few battery-integrated energy storage chargers sold globally to date. Compared to competitors, the NZS charger has outstanding performance in terms of larger battery capacity, higher charging efficiency, stronger tolerance to extreme environments, and longer lifespan. In addition, the NZS charger is one of the first electric vehicle chargers in the world to provide bidirectional charging services. During the reporting period, the company delivered a fluctuating growth of 807, 1934, 1688, and 351 units of DC fast chargers. As a leading player in the market, ZhiChong Technology is expected to continue to benefit; and the company has already commercialized the NZS charger with bidirectional charging system, and will accelerate its expansion into the US market in 2024, which will be a new growth point for ZhiChong Technology's performance. However, from the customer end, ZhiChong Technology's bargaining power is not strong. The company has a clear dependence on large customers. During the reporting period, the revenue from the largest customer accounted for 32%, 63%, 42%, and 47% of the total revenue respectively. Customer reliance has led to a continuous increase in accounts receivable, with net accounts receivable amounts of approximately 8.338, 15.661, and 12.781 million RMB during the same period. The growth of accounts receivable has resulted in a decrease in the cash content of its performance, causing adverse effects on the company's liquidity. In addition, the attitude of European and American countries towards foreign charging pile companies has always cast a shadow over the development of ZhiChong Technology. In February of this year, the US required that all subsidized charging piles must be manufactured domestically in the US. Starting in July 2024, at least 55% of the cost of all components must be produced in the US. Europe is also advancing policies such as the "Critical Raw Materials Act", the "New Battery Act", and "Carbon Tax". What impact will these policies have on the development of ZhiChong Technology in the future? In summary, thanks to the strong demand for charging piles in overseas markets, ZhiChong Technology has achieved rapid revenue growth. However, due to significant fluctuations in costs, the company's profitability has been on a roller coaster. With its market size advantage, the company still has the potential to continue benefiting from the industry's growth, especially commercialization of the NZS charger is expected to boost its performance. However, ZhiChong Technology also faces several potential operational challenges, including intensified industry competition, technological upgrades and iterations, overseas domestic industry protection subsidy policies, and the need for validation of the mass production of the NZS charger.