US Stock IPO Preview | Performance explosion and a clear development blueprint, the major shareholder of ZuoDi International Holdings aims to cash out in the IPO

Another shareholder of a Chinese concept stock listed in the U.S. plans to cash out during the IPO.

According to Zhitong Finance APP, Dreamland Limited, the holding company of Zhuodi International Limited (hereinafter referred to as: Zhuodi International), submitted its prospectus to the SEC for the first time on April 11, applying to be listed on NASDAQ under the code "TDIC." The company submitted a confidential application to the SEC as early as October 18, 2024.

The prospectus shows that Zhuodi International is an event management service provider from Hong Kong, which has achieved significant growth in recent years. In the fiscal year 2024 (the 12 months ending March 31, 2024), its revenue was HKD 20.4407 million, a year-on-year increase of 465.42%. The company successfully turned a profit during this period, recording a net profit of HKD 7.0889 million, compared to a loss of HKD 482,800 in fiscal year 2023.

By the first half of fiscal year 2025 (the 6 months ending September 30, 2024), Zhuodi International's revenue was HKD 31.0144 million, a year-on-year increase of 721.99%, with half-year revenue far exceeding the total for fiscal year 2024. The net profit during this period was HKD 2.7115 million, a year-on-year increase of 99.97%.

The significant growth in performance is undoubtedly a highlight for Zhuodi International, but the shareholders' cash-out plan is a clear flaw. According to the prospectus, Zhuodi International will issue 2 million Class A ordinary shares at a price of $4 to $5 per share in this IPO. Among them, 1.34 million Class A ordinary shares will be sold by Zhuodi International, while the remaining 660,000 Class A ordinary shares will be sold by selling shareholders, and Zhuodi International will not receive any proceeds from the sale by the selling shareholders.

Clearly, this is the shareholders' intention to cash out during the IPO, and the shareholders selling these 660,000 Class A ordinary shares are also the controlling shareholders of Zhuodi International, who held 76.4% of Zhuodi International's Class A ordinary shares before the IPO.

From past examples of Chinese concept stocks going public, companies where shareholders directly cash out during the IPO have not performed well in terms of stock price after listing. The cash-out by Zhuodi International's controlling shareholders will undoubtedly directly impact the market's bullish sentiment. Can Zhuodi International, with its impressive performance, win the favor of Wall Street capital?

Unveiling the Behind-the-Scenes of Sustained Explosive Growth

As an event management service provider, Zhuodi International has over eight years of experience in full or partial event management. The company can hold various public or private events for clients, including trade exhibitions, conferences, concerts, exhibitions, charity galas, brand promotion events, and corporate internal events.

In addition to planning, promoting, organizing, and managing various types of events for clients, Zhuodi International is also involved in the design and/or sale of merchandise, such as products sold at concert venues and items purchased for clients as gifts. Furthermore, Zhuodi International provides event management services for brands, such as setting up and operating pop-up stores, as well as organizing store openings/product launches and press conferences for brands.

Over the past eight years of operation, Zhuodi International has completed more than 30 large-scale projects accommodating over 3,500 participants in Hong Kong, Macau, Taiwan, mainland China, and other Southeast Asian countries (including Malaysia and Thailand), as well as 60 medium and small projects accommodating 1,000 to 3,500 participants Zhuodi International has established partnerships directly or indirectly with more than 15 IP holders, 15 event organizers, and 30 brand owners/franchisers/distributors, some of which have become long-term clients of Zhuodi International.

The significant growth in Zhuodi International's performance is directly related to the noticeable recovery of the on-site event market after the pandemic impact was eliminated in 2023. Zhuodi International seized the opportunity to vigorously develop event management services, which also led to a substantial increase in merchandise sales, and there was also significant growth in design and other businesses, resulting in an explosive growth across all business lines.

According to the prospectus, in the fiscal year 2024, Zhuodi International's event management services grew by 252.89% to HKD 6.733 million, while merchandise sales revenue was HKD 11.4594 million, a year-on-year increase of 846.5%. Among this, revenue from event sales products was HKD 5.8427 million, and revenue from non-event sales products was HKD 5.6166 million. It is worth noting that there was no revenue from event sales products in the fiscal year 2022, indicating that event product sales are a new initiative for Zhuodi International to generate revenue by synergizing with existing business development, and it has achieved significant results, accounting for nearly 30% of total revenue. Additionally, Zhuodi International's revenue from design and other businesses in the fiscal year 2024 was HKD 2.2483 million, a year-on-year increase of 352.84%.

After the explosive growth across all business lines, Zhuodi International's total revenue for the fiscal year 2024 surged by 465.42% to HKD 20.4407 million, and the scale effect became evident, with its gross profit margin significantly increasing from 9.75% in the fiscal year 2023 to 44.4%. This led to a substantial improvement in Zhuodi International's profitability, resulting in a turnaround from loss to profit, recording a net profit of HKD 7.0889 million during the reporting period.

Entering the first half of the fiscal year 2025, the industry further recovered, and Zhuodi International signed more management exhibition contracts. The company also began to act as an organizer/co-organizer of events, significantly increasing revenue from new businesses, including ticket sales, sponsorships, and video production. Notably, ticket revenue and video generation revenue, which were previously nonexistent, directly became major sources of income for Zhuodi International, accounting for 23.22% and 28.86%, respectively. Meanwhile, the existing event management services and event sales products continued to grow significantly, driving total revenue growth of approximately 722% during the period.

However, the net profit growth rate in the first half of the fiscal year 2025 was only 99.97%, far below the revenue growth rate. This is because the expansion into multiple new businesses has somewhat lowered the gross profit margin level, decreasing from 45.85% to 34.85%, a drop of over 11 percentage points; and the significant increase in sales and marketing expenses, R&D expenses, as well as the increase in amortization and depreciation affected the release of Zhuodi International's net profit during the reporting period However, it is undeniable that Zhuodi International is still in a phase of rapid development.

Transitioning from a Pure Service Provider to High-Value Segments of the Industry Chain

From the analysis above, it is not difficult to see that the explosive growth of Zhuodi International's performance is the result of multiple factors working together. Firstly, the impact of the pandemic has led to a relatively low performance base for the fiscal year 2023; secondly, the industry has begun to recover significantly starting from the fiscal year 2024; thirdly, Zhuodi International has seized the opportunity of industry recovery to vigorously develop its existing business while expanding new growth curves in event sales products, tickets, sponsorships, video production, etc., through synergy, thus supporting the company's sustained high growth.

In its prospectus, Zhuodi International has also made clear plans for future development. It stated that the company will base its core business on event planning and extend upstream in the value chain, transforming from a pure service provider to a direct investor and organizer of experiential events. The logic behind this transformation is that the company can acquire IP licensing at a low cost before the authorized roles and their associated anime and film works become popular, which can significantly enhance the company's long-term profitability.

Moreover, by obtaining multi-regional IP licenses from IP holders, Zhuodi International can leverage third-party event planners and local execution teams with local market resources to enter previously untapped overseas markets. As of now, Zhuodi International has initiated preliminary discussions with some IP holders regarding potential multi-regional licensing.

Additionally, Zhuodi International stated that deeply understanding participants' interests, preferences, and consumption behaviors is crucial. However, the currently cooperating third-party ticketing platforms can only provide limited platform traffic data. To ensure the success of the planned events and maximize profits, Zhuodi International plans to build its own ticketing platform for promoting and selling tickets for self-planned events. This platform will not only enhance market share by expanding the breadth and depth of event management services but will also serve as an efficient marketing tool to deeply explore user value.

Thus, it can be seen that Zhuodi International's future development plan will transition from a pure service provider to higher-value segments of the industry chain. If this development plan can be steadily advanced, it will undoubtedly have a positive impact on the company's future development and valuation enhancement. However, the key reason lies in whether the business blueprint that Zhuodi International presents to the capital market can be truly implemented.

Furthermore, there are two potential risks that investors should pay close attention to. Firstly, the company's current customer concentration is too high. According to the prospectus, in the fiscal years 2023 and 2024, the revenue share of Zhuodi International's three major clients accounted for 89.6% and 88.8%, respectively, with the largest client accounting for 66.4% and 66.5%.

By the first half of the fiscal year 2025, the revenue share of Zhuodi International's three major clients (excluding individual event participants) was 58.5%, with the largest client accounting for 30.1%. Although this proportion has significantly decreased compared to the fiscal years 2023 and 2024, it remains at a relatively high level. The high customer concentration may pose a potential risk of significant fluctuations in the company's performance.

At the same time, whether the company can effectively control operating expenses and other related expenditures will be a key factor affecting Zhuodi International's profit release. In the first half of the fiscal year 2025, the speed of profit release for Zhuodi International was affected, which is directly related to the rapid expansion of the company's business segments. However, if the company's operational management efficiency does not improve accordingly, the company's profitability may be significantly compromised Overall, the current fundamentals of Zhuodi International align with the characteristics of being small yet beautiful, but the company's main value depends on whether its future development plans can be effectively implemented. Additionally, potential risks such as high customer concentration and the need to improve operational efficiency require special attention. The controlling shareholder's plan to cash out during the IPO has also raised some caution in the market regarding Zhuodi International's future development