US IPO outlook | Revenue declined, profit changed to loss, and Lei Zike “weighed” on NASDAQ

The climate has become increasingly uncertain in recent years. For example, over the past three decades, heatwaves have become more frequent around the world. According to the China Meteorological Administration, the average summer temperature in China is the highest since a record was set in 1961. Therefore, in order to ensure the proper and reliable operation of the equipment, enclosed climate control equipment is becoming increasingly important.

As closed climate control equipment is being used more and more widely, related companies involved in it have also begun to gradually move to the front of the stage.

On September 27, Razike Thermal Management Co., Ltd. (hereinafter referred to as “Razike”) from Guangzhou, Guangdong submitted an IPO application to the US Securities and Exchange Commission to be listed on the US NASDAQ. The company plans to issue 1.9 million shares at a price of 4 to 5 US dollars per share and raise 8 million US dollars. Calculated at the midpoint of the proposed price range, the market value of Leizi Thermal Management will reach US$59 million.

According to the Zhitong Finance App, Lazik is a well-known enterprise in the field of cabinet environmental control. Since 1990, it has focused on ventilation, cooling, dehumidification, heat exchange, heating, lighting and environmental control systems for industrial cabinets, and has accumulated rich experience and expertise in this field.

The company mainly operates through three subsidiaries: Leizig, Moonger, and GZ Boring Ape. Among them, Leizig, as a cabinet climate controller manufacturer, focuses on ventilation, cooling, dehumidification, heat exchange, heating, lighting, and environmental control systems for industrial cabinets; Moonger is engaged in software development and provision of software and information technology services; while GZ Boring Ape focuses on software development.

However, it is worth noting that as Lei Zike takes advantage of the trend of the industry, some of the company's fundamental “hidden worries” have also gradually surfaced, such as how to break through growth problems such as the decline in the company's revenue and the shift from profit to loss, which has become an unavoidable problem for Lezick now.

Therefore, we might as well explore the real investment value of Lei Zike from various perspectives, such as the company's operating performance and industry potential.

Performance changed from profit to loss, fundamentals “red light”

Judging from the business layout, Lezick currently has a wide variety of products, and its business network extends at home and abroad, making it a “small but beautiful” manufacturer of cabinet environmental control.

Specifically, the company's products cover various series of products such as cabinet coolers, heat exchangers, cabinet ventilation products, cabinet heaters, cabinet lights and monitors, and dehumidifiers. Under its rich product range, Razik has also developed a broad customer base, that is, it can serve many industrial customers such as beverage products, automotive products, electrical industry and machine tool industry, and has a certain market share in the fields of industrial automation, automobiles, beverages, electricity, and new energy.

In addition to this, Rezick also has a relatively broad development layout, and has set up branches or business ties in many places at home and abroad. For example, in 2009, the Rezek (Indonesia) branch was established in Jakarta to be responsible for the South Asian market, and in 2013, the Razik (US) branch was established in Los Angeles to be responsible for the North American market, etc., to continuously expand the global market.

However, even though the business context is complete and the customer base is extensive, Lei Zike's performance in recent years has gradually revealed growth bottlenecks.

According to prospectus data, in 2022 and 2023, Razik achieved revenue of US$6.324,900 and US$5.0922 million, a year-on-year decrease of 19.49%; realized net profit was 389,900 and -1.6629 million US dollars, respectively. While profitability was weak, it also changed from profit to loss in 2023.

In addition to the two core financial data “red lights” of revenue and net profit, Lei Zike's current asset liquidity pressure should not be underestimated.

According to the prospectus data, in 2023, the company's total assets were 7.9309 million US dollars, and total liabilities were 581.07 million US dollars. The total assets can cover the total amount of liabilities, and the pressure to repay short-term debts cannot be ignored. Furthermore, in the same period of 2023, the company's cash outflow from operating activities was US$881,100, and cash and cash equivalents at the end of the period was US$1,54.24 million. The overall cash flow was tight.

Based on what can be seen from the above, declining revenue, shifting net profit from profit to loss, and rising debt performance have undoubtedly revealed the current situation where the company's fundamentals are “red lights.”

Industry demand is surging, and competitive pressure is increasing day by day

In recent years, with the continuous improvement of environmental control requirements in various industries and the rapid development of emerging industries, the market demand for enclosed climate control equipment has continued to grow.

Of course, there are differences in market size and growth rate between segments. In some high-end manufacturing industries with extremely high environmental control requirements, such as semiconductor manufacturing, biomedicine, etc., the market size of closed climate control equipment is large and growing rapidly; in some traditional agriculture, gardening and other fields, the market size is relatively small, but with the continuous advancement of technology and the expansion of the scope of application, it is also showing a steady growth trend.

For example, in the climate control equipment market, China's climate cooling production is expected to grow from about 1.02 million units in 2022 to about 1.85 million units in 2029, with a CAGR of 8.83%.

Among them, about 68.1% of demand in 2022 came from East China, South China, and North China. According to forecasts, the closed air conditioning market size in East China, South China, and North China is expected to grow at CAGR of about 9.8%, 10.1% and 9.3%, respectively, from 2023 to 2029.

Furthermore, Rezick pointed out that the increase in sales of wind power systems and electric vehicles will drive demand for cabinet climate control and cooling system equipment in the long term. As production capacity increases over the years, wind farm and automotive plant operators will need to increase their housing climate control and cooling system equipment. They also need to maintain current cabinet climate control systems and replace cooling equipment to keep the facility running at optimal temperatures and avoid overheating.

For the fiscal year ending December 31, 2022 and December 31, 2023, Razik received approximately US$1.39 million (22.1% of total revenue) and US$440,000 (8.71% of total revenue) from wind energy-related customers, respectively. We received approximately US$1.13 million (17.9% of total revenue) and approximately US$1.01 million (19.77% of total revenue) from customers related to electric vehicle manufacturing plants, respectively.

However, it should be noted that due to the current low concentration of the enclosed climate control equipment industry, Razik is also facing fierce competitive pressure.

On the one hand, the closed climate control equipment industry is fiercely competitive, with a large number of enterprises, but the concentration of the industry is low. Most enterprises are small, the phenomenon of product homogenization is serious, and they lack core competitiveness. Under such circumstances, price competition among enterprises is fierce, which in turn squeezes corporate profit margins.

On the other hand, some well-known international climate control equipment brands have strong advantages in technology, brand influence, and market channels, putting great competitive pressure on domestic enterprises. However, compared with internationally renowned thermal management companies, Razike Thermal Management's brand awareness is relatively low, and its influence in the international market is limited.

In summary, whether judging from the company's fundamentals or brand influence, Lei Zike's “soft power” and “hard power” need to be improved, and the current performance of the company's declining revenue, changing net profit from profit and loss, and the need to improve competitiveness may damage the company's investment value to a certain extent and reduce investors' interest in investing in the company.