Interpreting new stocks in the US Stock Market | Deterioration in fundamentals, cold response to listing in the US, Funxing Group (FFFZ.US) significantly reduces fundraising amount.

Having many well-known brand clients including Anta, Fujian Septwolves Industry, LI NING, 361, SAMSONITE, and Arctic China, the Fu Xing Group, with a total customer base of over 1600, faced a cold reception when it went public in the United States. On April 2, as the fourth largest zipper manufacturer in mainland China, Fu Xing Group submitted its public offering prospectus to the SEC for the first time, seeking to list on the NASDAQ under the code "FFFZ". At this time, it planned to issue 2 million shares of common stock at a price of 4-4.5 USD per share, raising up to 9 million USD. Based on the midpoint of the proposed offering price range, Fu Xing Group's market value would reach approximately 82 million USD. By September 9, Fu Xing Group had updated its prospectus for the third time, but the company's valuation experienced a drastic decline. In the latest prospectus, Fu Xing Group indicated that it would issue 1 million ADS at a price of 4-6 USD per ADS, raising up to 6 million USD. After the issuance of 1 million ADS, the corresponding public ownership percentage would be as high as 53.76%, meaning that if calculated at a median offering price of 5 USD, Fu Xing Group's market value had significantly decreased to approximately 9.3 million USD. The valuation for listing plummeted from 82 million USD to about 9.3 million USD. Why did Fu Xing Group's valuation change so drastically? And what signal does the fact that Fu Xing Group is issuing a high percentage of shares (53.76%) for its US listing send? Decline in revenue and profit, high dependence on subsidies Established in 1993, the Fu Xing Group has been deeply rooted in the zipper industry for over thirty years, and after years of development, it has established a complete business portfolio from zipper production to processing and sales. According to the Euromonitor report (2023 edition), based on the 2021 sales volume, Fu Xing Group has become the fourth largest zipper manufacturer in mainland China. In terms of business types, Fu Xing Group has three main sources of revenue, namely zipper products, trade in textile raw materials, and zipper processing services. In the 2024 fiscal year (end of 12 months on March 31), revenues from these three main businesses accounted for 54.1%, 37.9%, and 8% respectively. Clearly, zipper products are the core business of Fu Xing Group, consisting mainly of zipper sliders and zipper chains, widely used in clothing, shoes, camping equipment, luggage, such as handbags, briefcases, suitcases, and laptop bags, as well as indoor decorative furniture, such as bedding and sofa covers. From a customer perspective, with years of market reputation, Fu Xing Group has accumulated a wide customer base, with a total of over 1600 customers, including well-known brands such as Anta, Fujian Septwolves Industry, LI NING, 361, SAMSONITE, and Arctic China. In terms of market region, Fu Xing Group's revenue mainly comes from mainland China, with 62.1% of revenue in the 2024 fiscal year (end of 12 months on March 31) coming from mainland China, while the remaining 37.9% comes from Hong Kong, where traders export their products globally. In terms of performance, Fu Xing Group did not perform well in the 2024 fiscal year. During the reporting period, its revenue declined by 12% to 106 million USD, and its net profit declined by 34% to 1.056 million USD, showing a situation of declining revenue and profits. Specifically, the decline in revenue was mainly due to the global economic slowdown, declining customer demand, and the subsequent deterioration of the domestic zipper market competition, resulting in a significant contraction of Fu Xing Group's three main business sectors. Among them, revenue from zipper products decreased by 11%, revenue from the trade of textile raw materials decreased by 14.2%, and revenue from zipper processing services decreased by 7.4%. In terms of market region, revenue from the mainland China market decreased by 10.6% year-on-year, while revenue from Hong Kong decreased by 14.2%. Obviously, overseas demand decreased faster than domestic demand. Although revenue declined, the gross profit margin of Fu Xing Group remained stable at 6.1%. At the same time, the company increased efforts to reduce operating expenses, resulting in a 13% decrease in total operating expenses. This led to Fu Xing Group's operating income increasing by 116% year-on-year to 292,000 USD, but due to a 36% decrease in other income, Fu Xing Group's net profit declined by 34% during the period. It appears that Fu Xing Group's profitability is not actually high, and other income is one of the core factors supporting its net profit. During the reporting period, Fu Xing Group's other income was 7.205 million USD, most of which were government subsidy income, indicating that Fu Xing Group's profitability is closely related to government subsidy income. Looking at the balance sheet, as the company's business continued to decline, Fu Xing Group reduced its debt levels. In the 2023 fiscal year, Fu Xing Group's debt-to-asset ratio was 36.67%, while in the 2024 fiscal year, this indicator decreased by over 4 percentage points to 32.18%, putting the overall debt ratio at a relatively reasonable level. Multiple challenges putting pressure on fundamentals From the perspective of market demand, Fu Xing Group's business operations will continue to be affected by sustained low demand. Although the Euromonitor report (2023 edition) indicated that the global clothing market experienced fluctuations over the past five years (2018 to 2022), with a slight contraction, there is expected to be a noticeable recovery in the global clothing market from 2023-2027 as the global economy picks up, with an annual compound growth rate expected to reach 4.9%. However, based on the current industry situation, the Euromonitor report seems to have overestimated the resilience of the global economy, as the global clothing market industry has not recovered, and there is even a trend of further decline in demand. In such market conditions, zipper companies often face more severe challenges, as the competition in the zipper industry is particularly fierce. According to statistics from the China Zipper Association, there are approximately 2000 zipper manufacturers in mainland China. due to the lack of significant competitive barriers, once market demand declines, competition between companies can quickly deteriorate, and there is even a possibility of price wars. In the company's performance for the 2024 fiscal year, Fu Xing Group has clearly indicated the deterioration of the domestic zipper market, as well as the relationship between the company's net profit and government subsidies.Bigger, also proves the severity of industry competition, as the fourth largest zipper manufacturer in the country, Fuxing Group still faces the challenge of worsening demand and intensifying market competition.In addition, high customer concentration is also one of the potential challenges for Fuxing Group. According to the prospectus, in the 2023 fiscal year, the revenue from the top three customers of Fuxing Group accounted for 16%, 14%, and 15% respectively, while in the 2024 fiscal year, the four top customers accounted for 16%, 13%, 11%, and 11% of the company's total revenue, totaling up to 51%. With such high customer concentration, the loss of a single customer could have a significant impact on the performance of Fuxing Group. Overall, in addition to having a certain advantage in market position, Fuxing Group faces significant pressure in terms of its fundamentals. The company not only needs to address challenges such as low demand, intensified competition, and high customer concentration, but also the over-reliance on subsidies for profitability is a negative factor. Only when global economic recovery brings about a resurgence in demand, can the fundamentals of Fuxing Group potentially improve. It is worth noting that Fuxing Group actually went public on the Singapore main board as early as 2007, with the code "AWK". This current IPO in the US is Fuxing Group's second time entering the capital market. Data shows that as of September 6th, Fuxing Group's market value in Singapore is approximately 8 million US dollars.