Preview of US stocks IPOs: Slowing revenue growth + liquidity pressure, Dongyuan Logistics is unable to hide "immediate concerns"

On February 14th, Eastern International Ltd., the controlling shareholder of Hangzhou Tiancheng Zhilian Logistics Supply Chain Management Co., Ltd. from Hangzhou, Zhejiang Province (hereinafter referred to as Eastern Logistics), updated its prospectus with the U.S. Securities and Exchange Commission (SEC). The stock code is ELOG, and the company plans to go public on the NASDAQ through an IPO. The company had previously submitted a confidential filing with the SEC on March 22, 2024, and later publicly disclosed the prospectus on September 3, 2024. The prospectus indicates that the company plans to raise $7.2 million with an issue price between $4-5 per share, expecting a market value of $54.08 million. The company is planning to list on the NASDAQ with the stock code "ELOG". Currently, the cross-border logistics industry remains relatively fragmented, and with capital influx, more and more companies are trying to strengthen their business capabilities and expand their service radius through investments, acquisitions, and listing financing. Eastern Logistics is also committed to this goal. Decline in revenue growth Profit stabilizes and increases The prospectus shows that Eastern Logistics mainly provides professional logistics services for domestic and cross-border enterprise clients, including project cargo and general logistics services. Since 2019, the company has been providing cross-border logistics services, focusing mainly on inland transport and rail transport between mainland China and Southeast Asian countries for bulk commodities, electronic products, tires, new energy equipment, etc. In 2022, the company completed the transportation of 707 40-foot containers, 914 20-foot containers from Laos to China, and 244 open-top containers for rubber, iron ore, barley, and cassava starch. The company also provides services for washing machines transported from China to Europe via the China-Europe Railway Express. Additionally, the company owns 20 trucks and has established partnerships with over 2,000 truck drivers, providing domestic long-haul transport services. Since its establishment, Eastern Logistics has steadily increased its number of high-quality clients, showing a stable growth trend in its main business. The company aims to establish long-term partnerships with listed companies, multinational corporations, and well-known brands, including Goldwind, CSSC Haizhuang Windpower Co., Ltd., Shanghai Guohua, Jiangxi Electric Power Group, Guizhou Electric Power Group, Hydropower Fourth Bureau, Trina Solar, JD Logistics, Wuhu Ande Zhilian, Aisen (China), Goodbaby, Marco, China Post, and Longrich, among others. As the number of clients gradually increases, the company's revenue shows a growth trend. In the fiscal years 2023 and 2024 (hereinafter referred to as the reporting period), Tiancheng Zhilian's revenue was $24.16 million and $40.44 million respectively, representing a year-on-year growth of 67.4%. However, in the first half of the 2025 fiscal year, Eastern Logistics' revenue growth rate significantly declined, with a year-on-year increase of only 5.5%, where the revenue from core transportation services increased by only 2.5%. The increase in revenue from transportation services was mainly due to an increase in general logistics revenue, while project logistics revenue saw a decrease year-on-year. The revenue from warehousing sublet services increased significantly by 38.7%, mainly due to the increased demand for general logistics services necessitating corresponding warehousing services. In addition to revenue growth, it is evident that Tiancheng Zhilian's profits have declined slightly. The gross profit margins during the period were 14.4% and 12.4%, representing a year-on-year decrease of 2 percentage points, with corresponding net profits of 1.19 million yuan and 1.08 million yuan, a year-on-year decrease of 8.9%. There was a phenomenon of increased revenue but not increased profits. The decrease in gross profit margins was mainly due to the gross profit margin of warehousing sublet services dropping from 31.4% to 15.3%, dragging down the overall gross profit margin level. In the first half of the 2025 fiscal year, the gross profit margin of Eastern Logistics' transportation services increased by nearly 4 percentage points, driving the company's gross profit margin from 11.1% to 14.2% in the reporting period, resulting in a significant increase in gross profit of 35.7%. However, factors such as exchange gains, interest expenses, government subsidies, etc., had a significant impact on Eastern Logistics' profit margin, resulting in a modest increase in net profit of only 3.8% during the period. Although there was a halt in profit decline compared to the 2024 fiscal year, challenges related to exchange gains, interest expenses, government subsidies, among other factors, still persist. The billion-dollar market of project logistics industry highlights high growth potential Challenges of high customer concentration and high accounts receivable are hard to conceal Driven by the overall development of the logistics industry in China, the project logistics sector, as a specialized field, is also showing rapid growth trends. Some professional logistics companies or integrated logistics companies in China have entered the project logistics business. The rapid growth of the construction industry, including the energy sector, industrial production lines, infrastructure, special security, traditional chemicals, and alternative energy sectors, particularly the Chinese wind energy and CECEP Solar Energy sectors, have played a positive role in promoting the steady development of the project logistics industry. With changing market demands, especially in the energy, infrastructure, and chemical industries, there is a significant demand for heavy freight transportation by professional project logistics enterprises. Therefore, in recent years, the proportion of project logistics volume in the overall logistics volume has been continuously increasing. In 2023, the market size of the project logistics in China was 36.49 billion yuan, a year-on-year growth of 4.10%. Undoubtedly, the ongoing growth of the logistics industry and the accelerated development of the project logistics services in this niche sector will benefit Tiancheng Zhilian, but it is worth noting that, while benefiting from industry development opportunities, Eastern Logistics also faces numerous potential challenges. One of them is intense market competition. On one hand, Chinese project logistics companies are generally decentralized and small in size, with significant room for growth. On the other hand, the Chinese economy has always been a strong engine of global economic recovery. The "Belt and Road Initiative" has also brought more business opportunities to cross-border project logistics companies. Companies like S.F. Holding, YTO International, JD.com, and others have already ventured into related businesses, and with the progress of the "Belt and Road" initiative, there will be more express delivery companies following the "China Infrastructure" trend."Made in China" going global, not only helps Chinese enterprises expand into international markets, but also cultivates and strengthens their own core competitiveness.Data shows that as of the end of 2023, the number of express delivery service companies in China is close to 140,000. By October 2023, the number of cross-border logistics companies in China has reached 156,700, a significant increase from around 146,700 in 2022. This means that competition will continue to intensify. Secondly, Dongyuan Logistics has a relatively high customer concentration. According to the prospectus, in the 2023 fiscal year, revenue from two major top customers accounted for 23% and 15% respectively, totaling 38%. By the 2024 fiscal year, the two major customers accounted for 35% and 23% of the company's total revenue, totaling a high of 58%, further increasing customer concentration. Over-reliance on major customers can lead to significant revenue fluctuations, and losing them could have a major impact on the company's business operations. Thirdly, customer concentration leads to high accounts receivable. According to the prospectus, as of September 30, 2024, Tiancheng Zhilian had accounts receivable notes of $1.982 million and total accounts receivable of $14 million, totaling nearly $16 million in accounts receivable notes and accounts receivable, while the company's total assets in the same period were $24.217 million, accounting for 66% of total assets, and approximately 85% of current assets. With increasing reliance on customers, the company's accounts receivable continue to grow, even leading to negative net cash flow from operating activities, amounting to - $500,000 and - $630,000, respectively. In conclusion, while Dongyuan Logistics' revenue growth has slowed significantly, the release of profits is not smooth, leading to pressure on performance growth. Despite the high growth brought by the engineering logistics industry, the company still needs to address the high customer concentration and liquidity concerns caused by high accounts receivable.