US Stock New Stock Interpretation|Core business growth slowing down, can the industrial wind of mechanical arm still rescue InfuSystem (INLF.US)?

With the global leading Siasun Robot&Automation main manufacturers represented by Figure, Agility, Zhiyuan, Yushu, and Leju starting to ship one after another, 2024 has been established as the "commercial year" for humanoid Siasun Robot&Automation. According to CITIC SEC statistics, the global shipment of humanoid Siasun Robot&Automation in 2024 will reach over 2000 units, and is expected to reach 10,000-20,000 units in 2025. Based on this industry trend, the Siasun Robot&Automation sector is gaining popularity in the capital market. According to the wind Siasun Robot&Automation index, the sector has seen a surge of over 80% since September, with the emergence of hot stocks such as Efort Intelligent Equipment Co., Ltd. (688165.SH) and Keli Sensing Technology (603662.SH). Upon closer examination, it can be noted that the market speculation is not only focused on humanoid Siasun Robot&Automation, but also on branches such as quadruped robotic dogs and industrial robotic arms. In this market sentiment, a robotic arm manufacturer from Quanzhou, Fujian, Yilif accelerated its journey to go public in the United States. It is reported that after submitting its IPO prospectus to the SEC on May 21, Yilif updated its prospectus for the fifth time on December 10, showing its swift actions. According to the latest prospectus, Yilif has applied to be listed on NASDAQ with the code "INLF", and will issue 2 million shares of common stock in this IPO at a price of $4-6 per share, raising up to $12 million. If the oversubscription option is not exercised, the 2 million shares of common stock issued by Yilif will account for 14.03% of the total shares of the company, meaning Yilif's IPO valuation is between $57.02 million and $85.53 million. In terms of performance, Yilif's revenues for 2022 and 2023 were $6.6523 million and $12.6109 million, with growth rates of 89.6% and 151.6% respectively. In the first half of 2024, Yilif's revenue grew by 39.67% to $6.7357 million, but net profit declined by 28.33% to $390,000. The market is curious as to why Yilif's net profit declined in the first half of 2024 and whether it can leverage the popularity of the Siasun Robot&Automation sector for speculation. Answers may be found through the company's IPO prospectus. Benefiting from rapid industry growth Robotic arms (also known as Cartesian robots) are one of the most common types of robots used in industrial applications, commonly used in injection molding machines and computer numerical control (CNC) machine tools. Robotic arms belong to the industrial robot category and are mainly divided into three types: three-axis robotic arms, five-axis robotic arms, and multi-head robotic arms. The development of the robotic arm industry is strongly supported by national policies. As early as 2016, to implement "Made in China 2025" and guide the healthy and sustainable development of China's robot industry, the Ministry of Industry and Information Technology, the National Development and Reform Commission, and the Ministry of Finance jointly issued the "Robot Industry Development Plan (2016-2020)". By 2020, a relatively complete robot industry system will be formed, and China's industrial robot production will reach 100,000 units. Under the support of policies and the demand for cost reduction and efficiency improvement in manufacturing, China's robotic arm market has experienced rapid development. According to Frost & Sullivan data, from 2017 to 2022, the sales of robotic arms in China increased from approximately 35,700 units to 93,800 units, with a compound annual growth rate of 21.3%; during the same period, the sales revenue of robotic arms in China increased from approximately $220 million to $490 million, with a compound annual growth rate of 17.6%. It is worth noting that from 2020 to 2021, the difficulty in recruiting workers due to public health events caused an accelerated penetration of automated production in the market, especially in the manufacturing industry. This further stimulated the demand for robotic arms in the market, resulting in continued high growth in the Chinese robotic arm market in these two years, and this trend is expected to continue. Frost & Sullivan predicts that with the introduction of government support policies and the continuous growth in demand from downstream industries (such as automotive, electronics, and medical industries), the sales of robotic arms in China are expected to continue to grow rapidly, reaching approximately 230,300 units by 2027, with a compound annual growth rate of 19.7% from 2022 to 2027, and the domestic sales revenue of robotic arms will reach approximately $1.061 billion in 2027, with a compound annual growth rate of approximately 16.5% from 2022 to 2027. Yilif is one of the beneficiaries of the rapid development of the robotic arm industry. According to public information, Yilif's domestic operating entity is Ivate Robot Equipment Manufacturing Co., Ltd., which was established on September 28, 2016. This means that Yilif has been deeply involved in the robotic arm market for over 8 years, specializing in the research, development, manufacturing, and sales of robotic arms for injection molding machines, as well as providing installation and maintenance services for robotic arms and selling robotic arm accessories and raw materials. Maintenance services for robotic arms are the core business of Yilif, with this business accounting for 77.8% of its revenue in 2023.3%.According to the prospectus, in the first half of 2022, 2023, and 2024, Yinfu's products were sold to 101, 117, and 96 customers, respectively. With the growth in the number of customers, Yinfu's performance achieved continuous rapid growth. In 2023, revenue increased by 89.6% to 12.61 million US dollars, and in the first half of 2024, revenue increased by 39.67% to 6.7357 million US dollars. However, in the first half of 2024, Yinfu's net profit decreased by 28.33% to 390,000 US dollars, mainly due to the decrease in gross profit margin from 31.27% to 25.45% during the period, coupled with a significant increase of 65.85% in total operating expenses. The increase in expenses exceeded the increase in revenue, putting pressure on profits and leading to stagnant profit growth, resulting in a situation where revenue increased but profitability did not. Warning signs of core business slowdown? In fact, although Yinfu has benefited from the continuous rapid development of the robotic arm industry, it faces numerous potential operational challenges, with the lackluster profit growth in the first half of 2024 being just one of them. It is easy to see from the prospectus that Yinfu's gross profit margin is on a downward trend. In 2022 and 2023, Yinfu's gross profit margin was 34.48% and 32.98%, respectively. In the first half of 2024, Yinfu's gross profit margin was 25.45%, a decrease of nearly 6 percentage points year-on-year. Specifically, the decline in the gross profit margin in 2023 was mainly due to the decrease in gross profit margins of two major businesses, robotic arm installation and maintenance services, and sales of raw materials and corner materials. In the first half of 2024, although the gross profit margin of robotic arm installation and maintenance services improved year-on-year, the gross profit margins of parts sales and raw materials and corner materials sales significantly declined, especially the parts gross profit margin decreased by almost 50%. By looking at the performance of each business on the revenue side, anomalies can be discovered. In the first half of 2024, the revenue growth of Yinfu's robotic arm installation and maintenance services was only 6.82%, significantly lower than the 58.8% growth rate in 2023, showing a noticeable "cooling down." However, the revenue growth rates of parts sales and raw materials and corner materials sales were as high as 146.4% and 96.21%, respectively, demonstrating explosive growth. It is clear that amidst the slowdown in the core business of robotic arm installation and maintenance services, Yinfu has achieved explosive growth in parts sales and raw materials and corner materials sales through a "quantity over price" strategy. While this approach keeps the overall revenue growth from slowing down, it has led to a significant decline in gross profit margins during the period, affecting the company's profitability. Based on the above analysis, the ability of the core business of robotic arm installation and maintenance services to return to rapid growth becomes particularly important. If the growth of this business continues to slow down or decline, it may further impact Yinfu's overall profitability. Looking at the industry level, the entire robotic arm industry is currently in a stage of intensifying competition. Although the robotic arm market will continue to maintain rapid double-digit growth, it is a highly fragmented market with approximately thousands of market participants, placing Yinfu in a fiercely competitive environment. According to Frost & Sullivan data, the top 10 manufacturers in the Chinese robotic arm market in terms of revenue accounted for 28% of the market share in 2022. While Yinfu is one of the largest robotic arm manufacturers in Fujian Province, its revenue ranking in China was tenth in 2022, with a market share of only 1.4%. This indicates the significant competitive pressure faced by Yinfu. Furthermore, a significant increase in customer concentration is another thorny issue that Yinfu needs to address. In 2022, no customer accounted for more than 10% of Yinfu's revenue, but by 2023, one customer's share of Yinfu's total revenue skyrocketed to 22.68%. In the first half of 2024, the revenue from two customers accounted for 34.83% and 12.05% of Yinfu's total revenue, totaling a high 46.88%. Clearly, the rapid growth in Yinfu's performance in 2023 was largely due to a significant increase in demand from one customer. However, in the first half of 2024, while customer concentration soared significantly, the core business growth of Yinfu slowed down again, indicating that Yinfu may have difficulties in acquiring new customers. After the significant increase in customer concentration, if the demand from major customers declines or the company's efforts to attract new customers fall short, Yinfu's business operations may suffer a noticeable impact. Overall, while the rapid development of the robotic arm market presents opportunities, the intensifying competition also brings new challenges. After a year of rapid growth in 2023, Yinfu's core business growth in the first half of 2024 has visibly slowed down, and the overall profitability of the company is under pressure. If Yinfu cannot introduce more competitive products in the future, the high-flying moments of Yinfu's rapid development may be difficult to replicate.