Preview of US stocks IPO | With only 23 employees and poor fundamentals, how does the commodity trading company Tongying Group write its IPO story?

In commodity trading, metals such as gold, silver, and copper have always been the most profitable categories, while commodities such as corn, wheat, and soybeans have a relatively weaker earning effect, easily constrained by factors such as supply and demand, price fluctuations, and cost changes. However, surprising to many, a "small but profitable" commodity trading company has recently emerged among a group of companies going public in the US. On February 21, China-based commodity trading company Tongying Group, specializing in chemicals, metals, and agricultural products, submitted its initial public offering (IPO) application to the US Securities and Exchange Commission (SEC), planning to list on Nasdaq with a maximum fundraising of $10 million, under the stock symbol "TYZ". Tongying Group was established in 2020 in Shanghai, China, with 23 full-time employees. It is a commodity trading company focusing on chemicals, metals, and agricultural products. The company mainly engages in commodity trading and supply chain consulting services in China, involving purchasing chemicals, non-ferrous metal products, and agricultural products from upstream suppliers and selling them to downstream customers. By 2024, the company had revenues of up to $785 million. The company's main operational branches in China include Shanghai Zhangyang Supply Chain Management Co., Ltd. and Zhejiang Xinyu Trading Co., Ltd. The company's commodity trading business mainly involves purchasing ethylene glycol, purified terephthalic acid (PTA), rebar, corn, and other products. By 2024, the company's revenues reached $785 million. With only 23 employees, but generating revenues of $785 million annually, what kind of commodity trading company is this? What is its real strength? Price and quantity fluctuations, weak fundamentals It is reported that Tongying Group's main operating companies in China include Shanghai Zhangyang Supply Chain Management Co., Ltd. and Zhejiang Xinyu Trading Co., Ltd. The company's commodity trading business mainly involves purchasing ethylene glycol, purified terephthalic acid (PTA), rebar, corn, and other products. The company's commodity trading business mainly involves bulk purchasing products from upstream suppliers and selling them to downstream customers. During this process, the company does not provide transportation and warehousing services, but mainly hires third-party warehouses to store the products purchased from suppliers. It uses online resources to quickly match suitable suppliers, provide solutions for customers and suppliers to maximize production and optimize their efficiency and operating costs, and achieve profitability by properly allocating product supply and demand. In short, Tongying Group's commodity trading business is similar to "middlemen making a profit from the price difference." However, this also means that the company's performance is highly susceptible to fluctuations in "quantity and price." According to the prospectus, in recent years, the company's volume of commodity trading has mainly shown a stable upward trend, increasing from approximately 725,833.53 tons in the fiscal year ending December 31, 2022, to 1,259,390.70 tons in the fiscal year ending December 31, 2023. In contrast, from 2022 to 2023, there was a significant downward trend in customer demand, inquiries, and average prices for rebar and ethylene glycol during daily operati On the whole, in recent years, the total volume of the chemical raw materials industry in mainland China has continued to grow, laying the foundation for the development of the chemical raw material supply chain. Meanwhile, certain bulk products still have considerable potential for further development.In terms of specific sectors, in the PTA market, from 2020 to 2023, with the development of the global fiber industry, especially the rapid growth of the polyester fiber market, the demand for PTA has increased significantly. In 2020, the global PTA market size was 267.9 billion yuan. By 2023, the global PTA market size will be 521.8 billion yuan. Ethylene glycol demand is also on the rise. Ethylene glycol is an important raw material for many industries such as textiles, dyes, antifreeze, and wetting agents. With the upgrading of the economy and consumption, demand will continue to increase. It is expected that by 2024, demand for ethylene glycol products in mainland China will reach 25.16 million tons, increasing to 31.94 million tons by 2028. Furthermore, looking at the steel industry, mainland China's position as the world's largest steel producer remains stable. In the coming years, the macroeconomic situation in mainland China is expected to recover and improve, and the real estate industry is expected to receive more favorable policy support. The financing difficulties faced by developers are expected to ease, boosting investment demand expectations and maintaining the growth of domestic rebar sales. It is expected that by 2024, rebar sales in mainland China will reach 140 million tons, increasing to 150 million tons by 2028. However, it is important to note that while the overall industry maintains a stable growth trend, Commonwealth Holdings faces challenges due to industry characteristics, cyclicality, external environmental impacts, and other factors. On one hand, commodity prices fluctuate frequently and are easily affected by external factors such as supply and demand, global economic conditions, policies and regulations, monetary policies, and geopolitical factors. If the company does not effectively hedge price risks, inventory value may decrease due to price declines, leading to a decrease in collateral value, limited financing capacity, and reliance on short-term borrowing. In addition, commodity trading often involves prepayment for purchases (cash outflow) and downstream customers with long receivables periods (delayed cash inflow), exacerbating liquidity pressures. On the other hand, the industry has high concentration levels and intense competition. International giants (such as JNC and Toray) dominate the market with economies of scale and a full industry chain layout, while small and medium-sized traders are at a disadvantage in terms of resource acquisition and financing costs. In addition, the commodity industry also faces risks of substitution and technological disruption. For example, the new energy revolution (such as electric vehicles replacing fuel vehicles) impacts traditional energy demand; digital technologies (such as blockchain) may reconstruct traditional trade patterns, posing challenges to enterprises slow to react. In response to these challenges, Commonwealth Holdings openly stated in its prospectus that in the future, the company plans to collect industrial resources through digital management, operations, and intelligent warehousing layout to enhance enterprise value and create an integrated trading ecosystem. For example, in 2024, they plan to establish an online platform for the supply chain of chemical products ("CRMC platform") to achieve centralized online management of product acceptance, debt confirmation, certificate storage, bills, and contracts. In 2026, they plan to build intelligent warehouses to achieve interconnection between the chemical supply chain and the Internet of Things. In conclusion, the development strategy of "advancing strengths and avoiding weaknesses" and the action to relieve financial pressure through the US IPO demonstrate Commonwealth Holdings' determination to actively seek change. However, in the volatile commodity trading environment, whether the company can continue to maintain its growth trajectory remains to be seen.