Preview of US stock new stock issuance| Outstanding performance is also difficult to achieve high valuation, how can Dragon Online (JLHL.US) tell a good new story for contractors?

In the context of the global AI wave sweeping the world, various industries are moving towards a new stage of intelligent development at an unprecedented speed. This trend is not only reshaping the industry landscape but also giving birth to many new market opportunities. In this wave, some traditional companies have keenly seized the pulse of the times and actively participated in the wave of intelligent transformation, successfully achieving a shift in growth momentum, including Long Dragon Online, which has initiated the journey to list on the US market. It has been learned that the intelligent integration solution provider, Long Dragon Online, submitted its initial public offering (IPO) application to the SEC on March 28, 2025. The company plans to list on the NASDAQ under the code "JLHL" and raise up to $6 million in funds, but the number of shares to be issued and the price range have not yet been disclosed. It is worth noting that in February of this year, Long Dragon Online had already obtained IPO filing approval from the China Securities Regulatory Commission. In terms of performance, Long Dragon Online has shown impressive results. According to the prospectus, Long Dragon Online's revenue in the 2024 fiscal year (12 months ending September 30) was approximately 174 million RMB, a year-on-year increase of 45.8%, with a net profit of 17.076 million RMB, a year-on-year increase of 52.1%. Based on this, investors can't help but wonder whether Long Dragon Online, which is actively riding the trend of intelligent development and has impressive performance, can achieve a high valuation on the NASDAQ? Intelligent project engineering solutions drive high-speed growth in performance Long Dragon Online's development history can be traced back to 1997, when the company was established primarily as an engineering service provider to complete projects for clients. It wasn't until May 2012 that Long Dragon Online began a strategic transformation towards becoming an intelligent integration solution provider. Today, Long Dragon Online is able to provide intelligent integration solutions for large-scale operations in utilities, commercial real estate, and multi-residential properties in China. This includes security systems, fire protection systems, parking systems, toll systems, broadcast systems, identification systems, data center room systems, emergency command systems, and city management systems. According to the prospectus, Long Dragon Online has completed the provision of intelligent integration services and solutions for numerous iconic infrastructure projects, such as being responsible for the design, procurement, installation, integration, and maintenance of security systems, access control systems, and parking systems for an international airport in Beijing; as well as the installation, integration, and maintenance of a parking system and visitor management system for a well-known public university in Beijing; Long Dragon Online is also responsible for the operation and maintenance of intelligent integrated systems for more than 460 branches of a well-known commercial bank in the southwest region of China. In terms of business, Long Dragon Online's services mainly include three aspects: intelligent project engineering solutions, intelligent project operation and maintenance, and sales of intelligent system equipment and materials. In the 2024 fiscal year, the revenue shares of these three businesses were 93%, 5.9%, and 1.1% respectively. Obviously, intelligent project engineering solutions are the absolute main source of revenue for Long Dragon Online, while the revenue shares of the other two businesses are relatively low. The 45.8% revenue growth of Long Dragon Online in the 2024 fiscal year to 174 million RMB was largely due to the substantial growth of intelligent project engineering solutions. During the reporting period, although the average revenue of ongoing engineering solution contracts decreased from 1.406 million in the 2023 fiscal year to 550,000 RMB, the increase in the number of contracts from 75 to 293 led to a 53.1% increase in revenue from intelligent project engineering solutions to 161 million RMB. Clearly, Long Dragon Online is no longer limited to large-value projects, and the company's efforts to undertake small and medium value projects are increasing, driving revenue growth by increasing the number of projects. This is why Long Dragon Online's gross profit margin decreased slightly from 15.8% to 15.3% in the 2024 fiscal year. However, Long Dragon Online's control of operating expenses during the reporting period was relatively good, with zero investment in research and development and an increase in sales and general administrative expenses by only 16.3%, which is far lower than the total revenue growth rate. This further unleashed profits, so Long Dragon Online's net profit growth rate in the 2024 fiscal year exceeded the revenue growth rate, reaching 52.1%, 0.4 percentage points higher than the net profit margin at 9.8%. Industry opportunities and potential challenges coexist Behind the rapid growth of Long Dragon Online's performance, perhaps it is directly related to the continuous growth of the industry in which it operates. In recent years, supported by national strategic policies and driven by innovation in emerging technologies, the market size of China's intelligent integration solution industry has continued to expand, from 1.27 trillion in 2019 to 1.83 trillion in 2023, with a compound annual growth rate of 9.5%. According to Frost & Sullivan data, with the continuous application of emerging technologies and the increasing demand for intelligent integration solutions from downstream end customers, the market size of China's intelligent integration solution industry is expected to further expand. It is estimated that by 2028, the market size of China's intelligent integration solution industry will reach 3.76 trillion RMB, with a compound annual growth rate of 15.6%. From this, it can be seen that the development of China's intelligent integration solution industry in the next two years will further accelerate, and Long Dragon Online will benefit from it. However, even so, Long Dragon Online faces several potential challenges. One is that China's intelligent integration solution market is highly fragmented and fiercely competitive. As of December 31, 2023, there were over 10,000 suppliers in the intelligent integration solution market in China, and the industry is still in a double-digit growth period. The market increment makes companies feel the competition level slightly weaker, but once the market growth slows down, market competition may intensify, and price wars may even occur. This raises the question of how each player can establish competitive barriers. Secondly, from a business model perspective, Long Dragon Online may find it difficult to achieve high valuation. Despite bearing the title of an intelligent integration solution provider, the services provided by Long Dragon Online to customers have not changed qualitatively from when the company was an engineering service provider. Offering consulting, design, procurement of materials, equipment and software, installation, integration, testing, maintenance, and after-sales services all remain the essence of a contractor, as the vast majority of the required equipment and software products are purchased from third parties. The revenue share of the intelligent system equipment and materials sold by the company in the 2024 fiscal year was only 1.1%, and the development of this business has not yet reached its potential.Achieving significant results, therefore it is difficult for the company's valuation to drag down the contractor's track.Thirdly, Jolin Online has a high level of debt. A common problem in the balance sheets of project contractors is high debt, and Jolin Online is no exception. The logic behind this is that contractors have relatively low bargaining power, often resulting in a longer accounts receivable cycle. Therefore, in order to accelerate the flow of funds for rapid expansion, companies can only increase debt. In this business model, the long-term debt of the company often remains high. According to the prospectus, as of September 30, 2024, Jolin Online had total assets of 173 million RMB and total liabilities of approximately 156 million RMB, with an asset-liability ratio as high as 90%. It is worth noting that out of the total assets of 173 million RMB, contract assets account for 123 million RMB, a year-on-year increase of over 20%, which may provide a solid foundation for Jolin Online's performance in the 2025 fiscal year. Of course, the final performance also depends on the company's new projects this year, but in the current unpredictable international situation, uncertainty has also increased. Overall, benefiting from the industry's continued growth, Jolin Online has achieved impressive performance through the accelerated expansion of project numbers, and is still expected to benefit from the industry's growth in the future. However, Jolin Online also faces numerous potential challenges, such as intense market competition and high debt, which are issues that need to be addressed. It may also be difficult for the contractor's business model to achieve a high valuation for the company.