Preview of new stocks in US stocks|Can ROKOSHO overcome the challenge of "increasing revenue without increasing profit" by going against the trend?

In terms of the human resources industry, choosing to go public in the United States at the current time does not seem to be the best choice. Based on data, with the privatization and delisting of once-thriving Chinese HR-related companies such as Zhaopin, 58.com, and 51job from the U.S. stock market, there are now very few Chinese concept companies related to human capital management listed in the U.S. The internet recruitment giant BOSS Zhipin is currently the only one. And now, ROKOKOAI is transferring to Nasdaq, which seems to be a case of "going against the current." On October 19th, the International Cooperation Department of the China Securities Regulatory Commission issued a notice of filing for the overseas issuance and listing of LOKOKOSI Technology Co., Ltd., which plans to issue no more than 3,530,500 shares of common stock and list on the Nasdaq Stock Exchange in the United States. It is worth noting that in June of this year, ROKOKOAI updated its prospectus again, increasing its IPO fundraising scale. It plans to issue 3.1 million shares of stock at a price of $6-7 per share, raising $20 million, and plans to list on Nasdaq with the stock code LGCL. The company publicly disclosed its prospectus with the U.S. Securities and Exchange Commission (SEC) in early March of this year, with the stock code LGCL, and plans to go public on Nasdaq. It was previously listed on the New Third Board in China in 2016 and delisted from the New Third Board in August 2018. As the saying goes, "Going against the current, if you don't advance, you retreat." Against the backdrop of Chinese concept companies in the human capital management industry choosing to go private and delist one after another, what plans does ROKOKOAI have in mind by choosing to go against the trend? Can it alleviate the hidden worries about the company's fundamentals? The "increase in revenue without increasing profitability" dilemma needs to be solved. ROKOKOAI was established in 2011 and is a digital and intelligent human resources management service provider dedicated to the full process of human capital management. In 2019, the company launched the online platform Columbus, which allows users of the company to recommend job opportunities to their acquaintances in their trusted private social networks. In 2022, the company further launched the PaaS platform StarCareer, which allows users of the company to recommend job opportunities, health-related products, and training services to their acquaintances in their trusted private social networks. As of December 31, 2022, there were approximately 4,312,200 active registered users on StarCareer and Columbus. In terms of industry position, as of June 30, 2022, calculated based on the number of active users in the human resources industry and total net revenue, ROKOKOAI is the largest technology-driven online agency-centered human capital management service provider based on PaaS in China. Thanks to its established industry position, ROKOKOAI's revenue scale has steadily expanded in recent years, showing steady growth. According to the prospectus, the company's revenue in 2021 and 2022 was 652.2 million yuan and 766.6 million yuan, respectively, an increase of 17.5% year-on-year. Looking at the breakdown of business structure, ROKOKOAI's main business shows two trends - a significant decline in revenue from recruitment services, and continuous growth in outsourcing services and other services. In 2021 and 2022, the company's revenue from recruitment services was 497 million yuan and 413 million yuan, respectively, with the revenue proportion dropping from 76.3% in 2021 to 53.9% in 2022. Although the revenue from recruitment business has declined, the revenue and proportion of revenue from outsourcing services and other services have both increased. During the period, the revenue from outsourcing services was 114 million yuan and 302 million yuan, respectively, with the revenue proportion increasing from 17.4% in 2021 to 39.4% in 2022; the revenue from other services was 40.985 million yuan and 51.634 million yuan, respectively, with a slight increase in the revenue proportion to 6.7%. It can be seen that although the proportion of revenue from recruitment services has declined, ROKOKOAI's revenue has shown growth thanks to the significant increase in the proportion of revenue from outsourcing services and other services. However, despite the continuous expansion of revenue scale, ROKOKOAI still shows a state of "increasing revenue without increasing profitability." In 2021 and 2022, the company's net profit was 39.803 million yuan and 36.411 million yuan, respectively, a year-on-year decrease of 8.5%. The reason for this is related to the significant increase in the company's operating expenses. During the reporting period, in order to further promote the growth of new users and customers on its StarCareer and Columbus platforms, the company conducted a series of promotional activities, resulting in a year-on-year increase of 68.1% in sales expenses. With the decline in net profit, ROKOKOAI has generated negative cash flow from operating activities. As of December 31, 2022, the company's operating activities generated a negative cash flow of 15.1 million yuan. In addition, the company also mentioned in the prospectus the risk of future operating losses as it continues to develop and expand its business, especially through significant investments in research and development. With a significant decline in profits and negative cash flow, the intention behind ROKOKOAI's listing in the U.S. is evident. The industry's prospects are promising but not without survival pressure. In recent years, with the increase in the number of Chinese companies, there has also been an increase in demand for human capital management services (referred to as "HCM services"). In terms of revenue, the market size of professional HCM services in China increased from 89.4 billion yuan in 2017 to 160.4 billion yuan in 2021, with a compound annual growth rate of 15.7%. In the future, driven by technological progress and the impact of the pandemic, the digital transformation of enterprises will accelerate, and the market size of digital HCM will grow rapidly, which in turn will expand the overall market size of professional HCM services in China. By 2026, the revenue of the professional HCM market is expected to increase to 367 billion yuan, with a compound annual growth rate of 18.0% compared to 2021. Not only that, benefiting from the growth of the Chinese domestic market, the deepening strategic cooperation between international manufacturers and domestic IT service outsourcing companies, and the increasing outsourcing awareness of Chinese companies in the process of industrial structure upgrading, the professional IT outsourcing market is growing year by year. According to the data disclosed in the prospectusThe market scale of China's professional ITO market (i.e., "IT outsourcing") increased from 409 million RMB in 2017 to 635 billion RMB in 2021, with a compound annual growth rate of 11.7%. It is expected to further increase to 117 billion RMB in 2026, with a compound annual growth rate of 13.0% compared to 2021.(Image source: Roke Shi IPO prospectus) While the industry outlook looks promising, it does not necessarily mean that Roke Shi can secure a permanent position in the industry. The increasingly intense competition may become a roadblock for the company to seize market opportunities. Looking at the current competitive landscape in the human resources management industry, the market share of the top three companies, ProTech, Boss Zhi Pin, and Lie Pin, accounts for 70% of the entire online recruitment industry. In addition, there are also emerging competitors such as "Mai Mai" from the professional social networking field, "Kuai Zhao Gong" launched by Kwai Shou as a blue-collar recruitment platform, and "Gan Jie Zhi Zhao" with live-streaming recruitment as its core competitive advantage, closely following the top players. In this "between a rock and a hard place" competitive environment, it is not easy for Roke Shi to attract and retain a large number of users. The company admitted in its prospectus that its growth depends on its ability to attract and retain a large number of users. Users can decide to stop using the company's platform at any time, so failure to maintain existing customers or attract new users could have a significant and adverse impact on its business. Overall, with underlying concerns and intense competition, under the pressure from multiple sides, Roke Shi undoubtedly needs the support of funds and resources to achieve more positive growth. This may also be a significant reason why Roke Shi chooses to go public in the United States, seeking dual support from the capital market.