US Stock IPO Outlook | Strong performance and hard to get overvalued. How can Dragon Online (JLHL.US) tell new stories about contractors?

In the context of the AI wave sweeping the world, all walks of life are moving towards a new stage of intelligent development at an unprecedented speed. This trend has not only reshaped the industrial landscape, but also spawned many new market opportunities. In this wave, a number of traditional enterprises have keenly captured the pulse of the times, actively participated in the wave of intelligent transformation, and successfully achieved a shift in growth momentum. This includes Dragon Online, which has already begun its journey to go public in the US.

The Zhitong Finance App learned that Dragon Online, an intelligent integrated solution provider, submitted an 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 US dollars, but the number of shares issued and the issue price range have not yet been announced. It is worth noting that in February of this year, Dragon Online was registered as an IPO by the China Securities Regulatory Commission.

Judging from the performance, Dragon Online performed well. According to the prospectus, Dragon Online's revenue for the 2024 fiscal year (12 months ending September 30) was approximately RMB 174 million, up 45.8% year on year. Net profit for the period was RMB 17.76 million, up 52.1% year on year.

Based on this, investors can't help but wonder if Dragon Online, which is keeping abreast of intelligent development trends, can get a high valuation on the NASDAQ with its impressive performance?

Intelligent project engineering solutions drive rapid growth in performance

The development history of Dragon Online can be traced back to 1997. At the beginning of its establishment, the company mainly acted as an engineering service provider to complete corresponding projects for customers. Until May 2012, Dragon Online began a strategic transformation and continued to advance towards the goal of being an intelligent integrated solution provider.

Today, Dragon Online can provide intelligent integrated solutions for large-scale utilities, commercial real estate and multi-residential properties in China, including security systems, fire protection systems, parking systems, toll systems, broadcasting systems, identification systems, data center computer room systems, emergency command systems, and urban management systems.

According to the prospectus, Dragon Online has so far completed the provision of intelligent integrated services and solutions for many iconic infrastructure projects. For example, it is responsible for the design, procurement, installation, integration and maintenance of security systems, access control systems and parking systems at an international airport in Beijing; it is also responsible for the installation, integration and maintenance of parking systems and visitor management systems at a well-known public university in Beijing; in addition, Dragon Online is also responsible for the operation and maintenance of intelligent integrated systems at more than 460 branches of a well-known commercial bank in southwest China.

From a business perspective, Dragon Online's services mainly include three aspects, namely intelligent project engineering solutions, intelligent project operation and maintenance, and sales of intelligent system equipment and materials. In the 2024 fiscal year, these three businesses accounted for 93%, 5.9%, and 1.1% of revenue, respectively. Obviously, intelligent project engineering solutions are the absolute majority of Dragon Online's revenue, and the other two businesses still account for a low share of revenue.

In FY2024, Dragon Online's revenue increased by 45.8% to RMB 174 million due to a significant increase in intelligent project engineering solutions. During the reporting period, although the average revenue of engineering solution contracts under execution fell from 1.406,000 in fiscal 2023 to 550,000 yuan, thanks to a sharp increase in the number of contracts from 75 to 293, this led to an increase of 53.1% to 161 million yuan in smart project engineering solutions.

Obviously, Dragon Online is no longer limited to high-value project projects. The company's efforts to undertake small to medium value projects are increasing, driving the company's revenue growth through an increase in the number of executed projects. Because of this, Dragon Online's gross margin dropped slightly from 15.8% to 15.3% in FY2024.

However, Julong Online's operating expenses were relatively well controlled during the reporting period. The company's R&D investment was zero, and sales and general administrative expenses increased by only 16.3%, far lower than the total revenue growth rate. This further released profits to a certain extent. Therefore, the net profit growth rate of Julong Online's 2024 fiscal year was higher than the revenue growth rate, reaching 52.1%, and the net interest rate increased 0.4 percentage points to 9.8%.

Industrial opportunities and potential challenges coexist

The reason behind the rapid growth in Dragon Online's performance is probably directly related to the continued growth of the industry in which it is located. In recent years, driven by national strategic policy support and innovation in emerging technologies, the scale of China's intelligent integrated solutions market has continued to expand, adding value from 1.27 trillion yuan in 2019 to 183 million yuan in 2023, with a compound annual growth rate of 9.5%.

According to Frost & Sullivan data, the market size of China's intelligent integrated solutions industry is expected to expand further in the future as demand for intelligent integrated solutions from downstream end customers continues to increase. According to it, the market size of China's intelligent integrated solutions industry will reach 3.76 trillion yuan in 2028, with a compound annual growth rate of 15.6%.

It can be seen from this that the development of China's intelligent integrated solutions industry will be further accelerated in the next two years, and Dragon Online will also benefit from this. But even so, there are not a few potential challenges facing Dragons Online.

First, China's smart integrated solutions market is highly fragmented and highly competitive. As of December 31, 2023, there are more than 10,000 suppliers in China's intelligent integrated solutions market. Currently, the industry is still in a period of double-digit growth. Market growth makes enterprises feel slightly less competitive, but once the market growth rate slows down, market competition may intensify, and there may even be a price war. How to establish competitive barriers is a question that every player needs to think about.

Second, judging from the business model, it is difficult for Dragon Online to be overvalued. Despite the title of intelligent integrated solution provider, the services provided by Julong Online to customers and the company's one-stop service, including consulting, design, procurement of materials, equipment and software, installation, integration, testing, maintenance and after-sales service are still the essence of contractors. After all, the vast majority of required equipment and software products are purchased from third parties, and intelligent system equipment and materials sold by themselves accounted for 1.1% of revenue in fiscal year 2024. The development of this business has yet to achieve significant results, so it is difficult for the company's valuation to drag down the contractor's trajectory .

Third, Dragon Online is highly indebted. A common problem with project contractors' balance sheets is high debt, and the logic behind this is that contractors have relatively low bargaining power and often have a long payback period, so companies can only do so by increasing debt if they want to accelerate the flow of capital and expand rapidly. Under such a business model, corporate debt often remained high for a long time.

According to the prospectus, as of September 30, 2024, Dragon Online's total assets were 173 million yuan, total liabilities were about 156 million yuan, and the balance ratio was as high as 90%. It is worth noting that out of the total assets of 173 million yuan, contract assets were 123 million yuan, an increase of more than 20% over the previous year. This may have laid a certain foundation for Julong Online's steady performance in the 2025 fiscal year. Of course, the final performance is directly related to the company's new projects this year, but at a time when the international situation is changing and unpredictable, uncertainty has also increased.

Overall, thanks to the continuous growth of the industry, Dragon Online has achieved impressive results through the accelerated expansion of the number of projects, and it is expected that it will still benefit from the growth of the industry in the future. However, there are not a few potential challenges facing Dragon Online. The intense competition in the market and high debt are all problems that need to be faced, and the contractor's business model may also make it difficult for them to be overvalued.