Interpretation of U.S. Stocks | TTG International (TTG.US): Explosive Growth in Revenue Breaks Through Fierce Competition, Can the Post-95 Chairman Solve the New Challenge?

Customers, but this also brings multiple potential operational risks, one of which is a high dependence on key customers.According to the prospectus, in 2023, the revenue of Chengtian International from Shenzhen First Line Supply Chain Co., Ltd. and Shenzhen Yongli Badatong Logistics Technology Co., Ltd. accounted for 32.32% and 18.81% respectively, totaling over 50%. Both of these companies are logistics suppliers for e-commerce platforms, and Chengtian International's role may be to handle the overload of freight volume from these two companies. In the first half of 2024, Chengtian International had three important customers: Fujian Wanxiang Modern Logistics Co., Ltd., Shenzhen Zhongtao International Logistics Co., Ltd., and Shenzhen First Line Supply Chain Co., Ltd, with revenue proportions of 29.74%, 13.85%, and 11.81% respectively, totaling over 55.4%. The trend of relying on a few key customers is accelerating. Secondly, profitability is weakening. Relying on a small number of key customers can bring about rapid revenue growth in the short term, but it also increases operational risks. If these key customers are lost, it will have a significant impact on performance. Relying on a few key customers puts the company in a relatively weak position, with weak bargaining power, which can suppress profitability. According to the prospectus, behind the high-speed revenue growth of Chengtian International is a significant decline in gross profit margin. In 2023, the gross profit margin of Chengtian International was 15.6%, down nearly 10 percentage points from 2022. In the first half of 2024, the gross profit margin of Chengtian International was 10.9%, a year-on-year decrease of 14 percentage points. Such a large decrease may be due to taking orders for comprehensive cross-border logistics services at a low price and the low margin level of air freight agent services dragging down overall profitability. Due to the significant decrease in gross profit margin in the first half of 2024, Chengtian International recorded a greater net loss despite a year-on-year explosive increase of 496.38% in revenue. Clearly, behind the prosperity in revenue, Chengtian International's profit side may have begun to experience the dilemma of "increased revenue without increased profit", which is in line with the intense competition in the entire cross-border logistics industry. Thirdly, high debt levels. With explosive revenue growth and continuously declining profitability leading to increased losses, Chengtian International must raise high levels of debt to maintain the significant growth in revenue, as reflected in the company's prospectus. Data shows that in 2023, Chengtian International had total assets of 82.0141 million yuan, total liabilities of 75.08 million yuan, with an asset-liability ratio of 91.55%. By the first half of 2024, its total assets were 106 million yuan, total liabilities were 98.388 million yuan, with an asset-liability ratio of 92.88%, further increasing. Through the above analysis, the development trajectory of Chengtian International is very clear. In a highly competitive market, it has achieved explosive revenue growth by relying on a few customers in a low-price manner, and increasing its fame through strategic "quantity exchange for price". This can be seen as an effective "breakthrough" strategy. However, if Chengtian International wants to have a more sustainable future, it must address the potential operational risks brought about by this "breakthrough" strategy, such as high dependence on key customers, declining profitability, and high debt levels. This poses a new challenge for Feng Lingju, the post-95 chairman.