Preview of US IPOs | Anlin Finance Printing: While Hong Kong clients are being "eaten up", financing in the US prioritizes debt repayment

After secretly submitting the application on March 19th, financial communication service provider POWELL MAX LIMITED from Hong Kong (hereinafter referred to as "Anlin Financial Printing") recently officially submitted a prospectus to the U.S. Securities and Exchange Commission (SEC), intending to apply for listing on the U.S. Nasdaq IPO with the stock code "PMAX".

At the same time, Anlin Financial Printing plans to issue 1.65 million shares of stock at a price of $4 to $6 per share, raising $9.9 million. However, from the company's "business experience," it is a local Hong Kong company that provides services to clients listed in Hong Kong, and should be very familiar with the Hong Kong stock market. What kind of "mystery" is hidden behind its move to the U.S.?

Backed by the Hong Kong stock market, the "document processing service provider" prioritizes financing for debt repayment

For companies listing in Hong Kong, translation and compliance may be the most indispensable hurdles to align with this mature international market. Naturally, there are companies targeting this point to provide services to these listed companies or companies preparing to go public, and Anlin Financial Printing is one such company.

According to the Zhitong Finance APP, Anlin Financial Printing was established in 2019, mainly providing financial communication services to corporate clients and their advisors in Hong Kong to support the compliance and trading needs of the capital market. The company mainly provides financial communication services, including a full range of financial printing, corporate reports, communication, and language support services from start to finish, including typesetting, proofreading, translation, design, printing, and electronic reports.

The audience served by Anlin Financial Printing undoubtedly includes domestic and foreign companies listed on the Hong Kong Stock Exchange and subject to the listing rules and requirements of the Hong Kong Securities and Futures Commission, as well as companies seeking to list on the Hong Kong Stock Exchange. It is understood that in 2022 and 2023, the company has provided services to 168 and 166 domestic and international companies listed on the Hong Kong Stock Exchange, and during the period, it has also provided services to 10 and 7 listing applicants seeking to list on the Hong Kong Stock Exchange.

The prospectus shows that in 2023, Anlin Financial Printing achieved total revenue of HKD 49.1218 million, a 30% increase from about HKD 37.7728 million in 2022. The company stated that the increase in total revenue was mainly due to the increase in revenue from corporate financial communication services and initial public offering financial printing services. Based on the simultaneous growth of revenue from these two "open source" businesses and cost control, Anlin Financial Printing directly turned from a loss in 2022 to a profit of HKD 7.0792 million in 2023.

Further breakdown reveals that the company's main "means of livelihood" are divided into two categories: corporate financial communication services and IPO financial printing services. Among them, in 2022-2023, the revenue from corporate financial communication services accounted for 90.9% and 79.7% of the total revenue, serving as the absolute mainstay.

In the unfavorable situation of the Hong Kong stock market in 2023, the revenue of Anlin Financial Printing's corporate financial communication services increased by approximately 14.3% to about HKD 39.1333 million in 2023. Anlin Financial Printing explained that the increase in revenue from corporate financial communication services was mainly due to an increase in the number of transactions participated by clients, leading to an increase in the financial communication materials processed.

However, public data shows that in 2023, there were 70 new listings on the Hong Kong stock market, with a total financing amount of approximately HKD 46.97 billion, excluding the two companies listed in an introductory form, the remaining 68 companies. Compared to HKD 104.57 billion in 2022, there was a decrease of HKD 58.275 billion, a decrease of 55.72%. Anlin Financial Printing's business in IPOs instead grew "against the trend".

However, relying on the Hong Kong stock market clients does not seem to mean that the company can rest easy. The company's fundraising purpose reveals a determination to venture into the US stock market. The main purpose of this fundraising is to conduct public market financing for the company's Class A common stock to benefit all shareholders and reduce the company's debt by repaying existing loans (including loans owed to controlling shareholders).

A careful review of the prospectus also reveals that Anlin Financial Printing's need for funds is relatively urgent. As of the end of 2023, the company's trade payables and contract liabilities, combined with bank borrowings, amounted to as high as HKD 33.6686 million, accounting for approximately 90.92% of current liabilities. However, the company's cash and cash equivalents at this stage are only HKD 3.66 million, indicating a severe shortage of cash reserves, making Anlin Financial Printing's risk resistance very fragile, which may also become an important reason for its single-minded pursuit of the US stock market.

Business Fluctuations with the Hong Kong Stock Market, Enhancing Competitiveness as the Core Solution

For Anlin Financial Printing, the ups and downs of the Hong Kong stock market also determine the company's future expectations and fate. Since the beginning of this year, the performance of the global capital market has been affected by negative factors such as the Russia-Ukraine conflict, tension in the Middle East, the delay in the Fed's interest rate cuts, and the imposition of tariffs on Chinese products by Europe and the United States, making the financing environment tighter and the market more volatile.

For Anlin Financial Printing, the challenges brought by the market are far more than this. The instability of the global financial market profoundly affects the domestic stock market, and the trend of the significant slowdown in Hong Kong IPO activities in 2023 continues into 2024.

According to Choice data, from January to June 2024, there were 30 new listings in Hong Kong, with 29 listed on the main board and 1 on the GEM (Growth Enterprise Market), raising a total of approximately HKD 13 billion, lower than the same period last year.

Image Source: Deloitte Report According to a Deloitte report, in the first half of 2024, the top 5 global IPO financing exchanges are respectively the New York Stock Exchange, NASDAQ, National Stock Exchange of India, Madrid Stock Exchange, and Shanghai Stock Exchange, with the Hong Kong Stock Exchange ranking ninth and the Shenzhen Stock Exchange ranking tenth. A significant portion of Anlin Financial Printing's business comes from services related to stock market finance and commercial transactions. Economic trends affecting the volume of these transactions may have a negative impact on the demand for its services.

On the other hand, Anlin Financial Printing's business may also be adversely affected by new technologies. Its Hong Kong stock clients or potential clients may independently create and submit regulatory documents and begin implementing their own technology to assist them in this process, which could negatively impact the company's business.

At the same time, Anlin Financial Printing does not have long-term contracts with most clients. Client retention rates, especially during periods of declining transaction volumes, are an important part of the company's strategic business plan: in 2022, the company's top five clients accounted for approximately 2.7%, 2.2%, 2.0%, 2.0%, and 2.0% of its total revenue. In 2023, the top five clients accounted for approximately 12.5%, 2.0%, 1.9%, 1.7%, and 1.3% of total revenue, indicating that the proportion of the largest clients in the company's total revenue in recent years is not low.

Furthermore, the financial communication services industry where Anlin Financial Printing operates is highly competitive, with relatively low entry barriers, and the industry remains highly fragmented in Hong Kong and internationally. Competition from existing competitors and new entrants will intensify. In addition, as the company expands its service scope, it may face competition from both new and existing competitors. Therefore, intense market competition may bring additional pricing pressure to the company's services, negatively impacting its operational performance, financial condition, and cash flow.

The good news is that after experiencing nearly three years of "hibernation," the Hong Kong stock market has undergone multiple rounds of rises and corrections in the first half of this year, showing an overall trend of fluctuating upward, with valuations somewhat restored. The slow recovery of the Hong Kong stock market may bring new business growth opportunities to Anlin Financial Printing. However, the issues of debt burden and "cultivating internal strength" may be the top priorities that the company needs to address