Analysis of US stock market IPOs | Huachan Technology (HCAI.US), which has transferred from the New Third Board to the Nasdaq and has high performance growth, has reduced the number of shares issued by 70%

At the end of 2024, Chinese intelligent parking solution and equipment component provider Huachen Technology (HCAI.US) further pushed forward its process of going public in the US. After initially submitting an IPO application to the SEC on August 14th, Huachen Technology updated its prospectus twice on September 13th and December 31st. Compared to the prospectus updated on September 13th, the latest version has two significant differences. The first is a significant decrease in the number of shares issued. According to the latest prospectus, Huachen Technology plans to issue 1.5 million common shares at a price of 4 to 6 US dollars per share, raising up to 9 million US dollars. In the previous prospectus, the company planned to issue 5 million common shares, meaning that the number of shares issued has decreased by 70% in just three and a half months. The second difference is the update of financial performance in the latest prospectus. Data shows that Huachen Technology's revenue in the first half of 2024 increased by 184% to 29.913 million US dollars, with a net profit increasing by 157.35% to 2.4975 million US dollars. This significant improvement contrasts with the performance in 2023, where revenue grew but profits decreased significantly. It is worth noting that Huachen Technology was previously listed on the New Third Board and was officially delisted on April 12, 2022. However, even with a significant increase in performance, the company is reducing the number of shares issued by 70%, indicating potential challenges in market reception and the company's return to the capital market after two years. Equipment components business continues to surge with a "quantity over price" strategy Established in 2005, Huachen Technology is one of the early companies in China to manufacture parking equipment, accumulating years of experience in the intelligent parking industry. The company is dedicated to providing comprehensive smart parking solutions for customers and supplying complementary multi-level parking equipment to optimize the use of vertical and horizontal parking spaces, addressing the limited parking space issues faced by Chinese cities. Huachen Technology's smart parking solutions can be customized and cover intelligent multi-level parking garage design, equipment manufacturing, sales, installation, and maintenance. To meet various parking needs, the company employs multiple working principles such as lifting and shifting, convenient lifting, vertical circulation, vertical lifting, and multi-level circulation to produce various multi-level parking products. Currently, Huachen Technology's parking solutions customers include government agencies, hospitals, property management companies, real estate developers, institutions, residential communities, and other businesses with parking lots or garages. In addition to intelligent parking solutions, Huachen Technology also provides equipment structural components for customers, including conveyor belts, feeding system components, garage structural components, custom steel materials for multi-level parking equipment, weight-bearing materials, and railway accessories. According to the prospectus, the customers of Huachen Technology's equipment structural components are mainly industrial manufacturing companies, including producers of mining transporters, industrial conveyors, railway tracks, and other products. In terms of income structure, Huachen Technology's products and services mainly involve three sectors: multi-level parking garages, equipment structural components, and maintenance and repair services. However, the income proportions of each business have fluctuated significantly in recent years. In 2023, Huachen Technology's multi-level parking garage business and equipment structural components business were moving in opposite directions. The revenue of the multi-level parking garage business was severely affected by the downturn in the real estate industry, with its revenue halving to 8.012 million US dollars during the reporting period, compared to 16.9573 million US dollars in the same period of 2022, reducing its revenue share from 80.92% to 23.37%. Meanwhile, the revenue from equipment structural components surged to 25.5269 million US dollars, a 662.67% year-on-year increase, and its share of the total revenue increased from 15.97% to 74.47%. Driven by the surge in equipment structural components revenue, Huachen Technology's total revenue in 2023 grew by 63.58% to 34.279 million US dollars. The surge in equipment structural components was mainly due to the company actively lowering product prices during the reporting period to expand market share with a "quantity over price" approach. However, this approach had a noticeable side effect: the "quantity over price" model would decrease the company's profit level. Additionally, due to two parking garage businesses operating at a loss, the company's gross profit margin in 2023 dropped to 18%, a direct decrease of 23 percentage points. Operating expenses also significantly increased with the expansion of the equipment structural components business, further suppressing profit. As a result, Huachen Technology's net profit in 2023 plummeted by 63.4%. In the first half of 2024, Huachen Technology's multi-level parking garage business continued to shrink, with revenue dropping by 16.58% year-on-year to 3.1362 million US dollars, accounting for only 10% of total revenue. Meanwhile, the equipment structural components business continued its high growth, surging by 304.45% year-on-year, and its revenue share increased to 88.87%, driving Huachen Technology's total revenue to grow by 184% to 29.913 million US dollars in the first half of 2024. The renewed surge of the equipment structural components business further lowered Huachen Technology's gross profit margin. In the first half of 2024, the company's gross profit margin dropped to 13%, a 15 percentage point decrease from the same period in 2023. However, with the significant increase in total revenue, the company's gross profit still increased by 31% during the reporting period. Combined with a reduction in operating expenses and other expenditures, Huachen Technology's net profit surged by 157.35% to 2.4975 million US dollars in the reporting period. High customer concentration brings significant drawbacks While Huachen Technology's adoption of a "quantity over price" strategy for its equipment structural components business effectively offset the continuous decline of its multi-level parking garage business due to the real estate downturn, at least in terms of profits, the company's performance in the first half of 2024 showed improvement compared to the stagnation in revenue growth and profit decline in earlier years.High growth makes Huachen Technology's "face" more brilliant.However, the rapid development of the equipment structure business also comes at a cost. In fact, the market competition in the equipment structure business market where Huachen Technology is located is very fierce, with many market players. The explosive growth of this business by Huachen Technology was achieved through a proactive sales strategy of lowering prices, which is not the core competitiveness of the company. On the contrary, this may further intensify market competition. It is worth noting that while Huachen Technology's equipment structure business continues to explode, its customer concentration is also accelerating. According to the prospectus, by 2022, the revenue from Huachen Technology's top four customers accounted for 43.08%, but by 2023, this figure had significantly increased to 65.5%. The revenue from the largest customer accounted for a whopping 31.21%. In the first half of 2025, the revenue from Huachen Technology's top three customers accounted for 51%, and the revenue from the top two customers accounted for 39%, while in the same period in 2024, the revenue from the top two customers accounted for only 22%. Clearly, the high explosive growth of Huachen Technology's equipment structure business was achieved by shipping to a few customers at low prices. This type of growth model has significant drawbacks, as it limits Huachen Technology's bargaining power in the entire transaction, making it difficult to improve its profitability. In addition, high customer concentration can increase the likelihood of significant fluctuations in performance, and any decrease or loss of demand from key customers will directly impact Huachen Technology's business operations. Furthermore, the changes in the balance sheet also indicate the shortcomings of this development model. As of June 30, 2024, Huachen Technology's accounts receivable totaled $39.3449 million, accounting for 60% of the total assets of the company, compared to 48.38% on December 31, 2023. It is clear that the total amount of accounts receivable continues to soar. High accounts receivable not only significantly increase the risk of impairment provisions for bad debts but also significantly affect the company's cash flow, affecting cash flow turnover. Due to the delay in collecting accounts receivable, as of June 30, 2024, Huachen Technology had less than $20,000 in cash on hand, compared to less than $500,000 on December 31, 2023. It is evident that the pressure on Huachen Technology's fund turnover is already very high. In addition, after the delay in collecting large accounts receivable, Huachen Technology must borrow money or finance to accelerate expansion. This is also the reason why the debt ratio of Huachen Technology rose to 55.46% as of June 30, 2024, compared to 50.13% as of December 31, 2023, an increase of over 5 percentage points. It appears that although Huachen Technology achieved double growth in revenue and net profit in the first half of 2024, making the income statement look good "face", the foundation of the balance sheet is not solid. Relying too much on key customers has led to a surge in accounts receivable, depletion of cash reserves, and an increase in the debt ratio, with multiple indicators showing a deteriorating trend. This makes the profit statement seem like a "mirage". In addition, the short-term prospects for Huachen Technology's three-dimensional parking garage business due to the downturn in real estate also show no signs of recovery, increasing the challenges faced by Huachen Technology. Accelerating IPO fundraising to relieve pressure has become the most important issue for Huachen Technology.