US stock new stock outlook | Hong Kong event service provider BUUU Group: Industry booming, cash flow decreasing year by year

Hong Kong, as the preferred destination for international gatherings, has always been favored by various types of exhibitions. For example, the Tatler Gen.T Summit in September 2023, the WOW Summit in March 2023, as well as the Hong Kong Jewellery and Gem Fair, Asia Fruit Logistics Exhibition, Asia Aerospace Exhibition in 2023... These exhibition events not only highlight Hong Kong's resilience and adaptability in the exhibition industry, but also demonstrate its ability to host diverse and large-scale events. Against this backdrop, Hong Kong event services provider BUUU Group is also seizing the opportunity to make a move towards an IPO on the US stock market. Recently, BUUU Group submitted an initial public offering application to the US Securities and Exchange Commission, planning to raise up to 8 million dollars. The company plans to issue 1.5 million shares of stock in a price range of $4 to $6 per share, resulting in a market value of approximately $83 million based on the midpoint of the proposed range. The company plans to use the net proceeds from this offering as follows -- approximately 25% for enhancing brand awareness and strengthening marketing initiatives; approximately 25% for expanding service scope and broadening market influence; approximately 20% for integrating advanced technology into the company's activities; approximately 20% for expanding into the US and Southeast Asia; and the remaining approximately 10% balance for other general corporate purposes. However, it is important to note that behind BUUU Group's IPO in the US is the company's emerging "cash flow crisis." Revenue and net profit are both increasing, but cash flow is decreasing year by year. According to reports, BUUU Group was founded in 2017 and mainly provides conference, incentive travel, large conferences and exhibitions (MICE) solutions for various clients, including public institutions, marketing and public relations companies, real estate companies, and many well-known brands. Its core business includes event management and stage production. In recent years, benefiting from the vibrant development of exhibitions in Hong Kong, BUUU Group's revenue and net profit have shown rapid growth. According to the prospectus data, as of June 30, 2023 and the fiscal year ending June 30, 2024, the company achieved revenue of 3.539 million US dollars and 5.8122 million US dollars respectively, a year-on-year growth of 64.2%; and a net profit of 330,500 US dollars and 880,200 US dollars respectively, a year-on-year growth of 166.3%, with the core financial indicators maintaining a good growth momentum. From the revenue structure perspective, event management services are the company's largest business segment, with revenue of 2.5545 million US dollars and 4.6816 million US dollars respectively, accounting for 72.2% and 80.5% respectively in the fiscal years 2023 and 2024; stage production is the company's second largest business segment, with revenue of 984,500 US dollars and 1.1306 million US dollars respectively, accounting for 27.8% and 19.5% respectively in the fiscal years 2023 and 2024. However, despite BUUU Group's revenue and net profit showing good growth momentum, the company may still face a certain cash flow squeeze as indicated by its cash flow structure. According to data from the prospectus, in the fiscal year ending June 30, 2024, the net cash inflow generated from operating activities was 87,200 US dollars, a significant decrease from 143,000 US dollars in the fiscal year 2023. Meanwhile, the company's cash and cash equivalents at the end of the year also decreased from 515,000 US dollars in the fiscal year 2023 to 447,900 US dollars, showing a trend of "small and decreasing" cash size. BUUU Group explained in the prospectus that the difference between net profit and net cash inflow from operating activities is due to adjustments for non-cash items, totaling 116,500 US dollars, with cash used in operating assets and liabilities totaling 904,600 US dollars. These non-cash adjustments include depreciation of real estate, buildings, and equipment, leasing expenses for office premises and warehouses in Hong Kong, financing fees related to financing leases, and interest expenses on bank borrowings, among other factors. The cash used in operating assets and liabilities is mainly attributed to an increase of 655,700 US dollars in trade receivables, an increase of 130,400 US dollars in deposits and prepayments, an increase of 129,500 US dollars in income tax payable, and an increase of 330,500 US dollars in amounts payable to related parties. Overall, while BUUU Group's revenue and net profit are maintaining a rapid growth momentum, adjustments for non-cash items and increases in trade receivables, deposits, and prepayments continue to impact the company's cash flow, indirectly reflecting the challenges faced by small event service providers. The industry is showing a prosperous trend, and improving competitiveness remains key Due to its strategic location, advanced infrastructure, and strong connectivity, Hong Kong is globally recognized as the most important destination for exhibition events. In 2020, it was named "Asia's Best Conference City" by Smart Travel Asia, and in 2022, it was recognized as the "Most Anticipated Overseas Conference and Incentive Destination" by the China Travel Industry Awards. According to data from the Hong Kong Tourism Board (HKTB), in 2023, Hong Kong hosted 125 large-scale exhibitions, an increase of 30% from 2022. These events attracted over 1.3 million overseas visitors, highlighting Hong Kong's attractiveness as a top-tier exhibition destination. In the first half of 2024, HKTB reported hosting over 60 world-class exhibition events in key sectors such as aviation, education, construction, medicine, innovation technology, and financial services. With such growth momentum, the exhibition industry in Hong Kong is full of potential. According to GIH's data, the global exhibition market is expected to reach around $1.78 trillion by 2030, with a compound annual growth rate (CAGR) of 7.5%. As a leading hub, Hong Kong is expected to occupy a significant share in this growth by leveraging its strategic advantages, world-class facilities, and sustained investments in digital and transportation infrastructure. However, as a small event service provider, BUUU Group faces fierce competition. The exhibition industry in Hong Kong is highly competitive, with a variety of service providers, including event organizers, booth builders,...Insurance companies, freight agents, travel agencies, and hotels. The event organizers usually provide comprehensive solutions, including conference planning, exhibition management, and integrated services. The presence of leading international and regional players, combined with high market competition, has intensified the competitive pressure on the BUUU Group to some extent.In response to the competition pressure mentioned above, BUUU group stated in its IPO plan that the company is seeking to further expand its business through the capital market, in order to enhance its competitiveness in the event management and stage production fields. With the recovery and growth of the global events industry, the company is expected to leverage its professional services and innovative solutions to meet the growing demand for high-quality event experiences in the market. In summary, in terms of the industry's development prospects, BUUU group is in an industry where "opportunities and challenges coexist". In this context, the company, facing tight cash flow, clearly sees obtaining external funding as a wise choice to further enhance its core competitiveness. However, whether investors will buy into the company's "event service story" remains a big unknown.