Preview of US stock new shares | Evergreen International: Performance fluctuates greatly with sales volume, how to break the crisis in the luxury watch industry?

The luxury goods industry, as an important part of the global economy, has always been a focus of consumer and investor attention. From relevant data, it is not difficult to see that luxury goods consumption has "cooled down", with fluctuations in the "hard luxury" market. Taking watches as an example, in July 2023, the total Swiss watch export value decreased by 0.9% compared to the same period last year, with the watch category export value also falling by 1%. This is the first time in two years that the Swiss watch industry has seen a decrease in monthly export value. At a time when the industry is cooling down, Hong Kong luxury watch wholesaler Top Win International has submitted an IPO application to the U.S. Securities and Exchange Commission (SEC), planning to raise up to $13 million. The company plans to issue 2.7 million shares of stock at a price of between $4 and $6 per share, raising $13 million. Based on the midpoint of the proposed price range, Top Win International's market value will reach $124 million. Performance fluctuations indicate weakness in fundamentals Heng Rong International, from Hong Kong, is a wholesaler specializing in the trading, distribution, and retail of international luxury watch brands. The company directly or indirectly purchases luxury goods from authorized dealers, distributors, and brand owners in Europe, Japan, Singapore, and other regions, and sells them to customers, including independent watch dealers, watch distributors, and retail buyers in the watch industry. The company currently offers a selection of over 30 internationally renowned watch brands, including Blancpain, Breguet, Cartier, Chopard, Hermes, IWC, Jaeger-LeCoultre, Rolex, Omega, and Longines. The company mainly sells watches in the price range of $1,900 to $7,500, targeting middle to high-income customers. According to industry commentator and investor Danny Younis, the luxury watch secondary market is undoubtedly a "buyer's market" now, and prices for Rolex watches in the secondary market are expected to further decline. The sluggish market will also affect watch wholesalers. From the first half of 2022 to the first half of 2024, Heng Rong International's performance fluctuated significantly. In 2022, Top Win's total revenue reached $14.225 million, and by 2023, this number had significantly increased to $18.814 million. However, in the first half of 2024, revenue declined to $7.9254 million. At the same time, net profit also fluctuated, with the company achieving a net profit of $71,500 in 2022, rising substantially to $198,100 in 2023. However, in the first half of 2024, the company incurred a loss, with a negative net profit of $218,600. It is understood that Heng Rong International's revenue fluctuations are related to sales. For example, the decrease in revenue in the first half of 2024 was mainly due to a significant decline in sales by 41%, partially offset by an 18% increase in the average unit price. In addition, the company relies on a small number of customers. For example, in the first half of this year, two customers generated revenues of $1.945 million and $1.096 million, accounting for 25% and 14% of total revenue, respectively, totaling 39%. As of December 31, 2023, three customers accounted for approximately 40% of total annual revenue. The aftermath of relying on customers is evident in the financials, with a sharp increase in accounts receivable. In the first half of this year, one customer's accounts receivable accounted for 10% or more of the total balance, and 100% of the total balance. In 2023, one customer's accounts receivable accounted for 10% or more of the group's total balance, and 98% of the total balance. In 2022, three customers' accounts receivable accounted for 10% or more of the group's total balance, accounting for 46%, 20%, and 11% of the total balance, respectively. If the company encounters significant delays or defaults in payments from customers, its cash flow, liquidity, and financial position may be significantly affected. The crisis in the luxury watch industry is emerging How to overcome it? Johann Rupert, chairman of the Richemont Group, which owns luxury watch and jewelry brands such as Cartier, Vacheron Constantin, IWC Schaffhausen, Jaeger-LeCoultre, and Van Cleef & Arpels, recently issued a warning about the issues facing the global luxury watch industry. At the Richemont annual shareholders' meeting, Rupert emphasized that the high demand for luxury watches has gradually weakened globally; he pointed out that weak sales in mainland China and Hong Kong are the group's main concerns and suggested that watchmakers reduce production to adapt to the sluggish market. The financial situation of the Richemont Group also highlights the serious current situation facing the luxury watch industry. Aligning with the global trend of the Swiss watch industry, Richemont Group's sales in the first quarter of 2024 increased by only 1% at fixed exchange rates, while sales in the Asia-Pacific region fell by 18%. More alarmingly, sales in the Greater China region plummeted by 27%. Richemont Group is not the only company facing difficulties. The entire Swiss watch industry is struggling to cope with the decrease in exports to mainland China and Hong Kong, as well as the subdued demand resulting from high youth unemployment, a sluggish real estate market, and generally low consumer confidence. At the end of the month, luxury brand Herms, which focuses on ultra-high spending consumers, also released its financial report for the third quarter of 2024, showing an 18% decline in its watch department, becoming the only department with negative growth. From 2020 to 2023, Hong Kong was respectively the largest Swiss watch import destination in Asia and globally and the second largest Swiss watch import destination, with imports totaling approximately 2.3564 billion Swiss francs, accounting for around 8.8% of the total Swiss watch exports in 2023.Located in Hong Kong, International enjoys a superior geographical position and consequently benefits from the growth dividend of luxury watches. According to Migo's data, sales of luxury watches in Hong Kong wholesale will reach $1 million by 2023, with a compound annual growth rate of approximately 1.6% during the relevant period.However, currently the luxury watch industry is facing a crisis. How will Hengrong International, as a wholesaler, "survive"? According to the prospectus, the company plans to enrich its product portfolio, expand its market share in the second-hand luxury watch market, and strengthen its retail customer base to enhance its business resilience. The prospectus reveals that Hengrong International plans to use the net proceeds from this offering for the following purposes: approximately 45% ($4.91 million) for enhancing brand awareness and implementing strategic marketing initiatives; approximately 25% ($2.73 million) for strengthening the sales team and expanding into new geographical market areas, including the Southeast Asian market; approximately 15% ($1.64 million) for establishing a more robust procurement network and acquiring a diverse range of watch products; the remaining funds will be used for supplementing operating capital and other general corporate purposes. In conclusion, amid fluctuating performance, the crisis in the luxury watch industry has emerged as a hidden concern for Hengrong International's growth. However, this listing on the US market is an important milestone for the company, as it is expected to bring in more funds and resources, enabling the company to further expand its business in the luxury watch market and enhance its brand influence.