US Stock IPO Preview | 99.98% of Revenue Comes from a Single Business, Will SanYi Technology's IPO "Cool Down"?

One-click door opening, property fee payment, online repair and complaint submission... In some communities, property management is trying to digitize the management of the community. With access control, parking, financial matters, and other property management issues gradually moving to internet platforms, management efficiency has been improved, and residents of the community also enjoy the convenience brought by digitization. To experience these conveniences, all you need to do is install the corresponding property management app on your mobile phone.

The penetration of Internet technology into the traditional property industry has brought about changes that are both the general trend and the people's aspiration. The digitization of community management has become one of the important contents of building a digital city. In this context, it has spawned a large number of property management companies that are strategically upgrading to digitalization and smart property platforms that serve them, with San Yi Technology being one of them.

According to the financial news app, 3 E Network Technology Group Ltd (referred to as "San Yi Technology" hereinafter), a Chinese software company, recently updated its prospectus again, planning to raise $6 million by issuing 1.2 million shares at a price of $4-6 per share. It is worth noting that in this updated document, the company's fundraising scale has been significantly reduced, with the amount raised decreasing by 60% compared to previous expectations.

Generally speaking, a downward adjustment in the IPO issue price and fundraising amount is often seen by the market as a sign of a lukewarm response to the offering. So, after this updated prospectus, will San Yi Technology win the favor of Nasdaq?

Revenue Source Solely Relies on a Single Business

According to the prospectus, San Yi Technology was established in 2017, mainly serving small and medium-sized properties. By combining software and hardware to enhance their information operation and management capabilities, the company also expands value-added services based on the core business of property companies to enhance their revenue generation capabilities. In recent years, the company has gradually expanded its software solutions to various industries and departments, including food organizations, real estate, exhibitions and conferences, and clean energy utilities.

In terms of performance, the company's revenue has been continuously improving. As of the 2022 fiscal year ending on June 30, 2023 fiscal year, San Yi Technology achieved revenues of $1.2964 million and $1.6714 million respectively, with a year-on-year growth rate of 29%. In the first half of the 2024 fiscal year, this figure reached $2.972 million, surpassing the total revenue of the previous two years in just half a year, with a year-on-year growth rate of 998%. The company attributes the growth in revenue during the period to the gradual recovery of its operating market after the relaxation of epidemic control measures.

While revenue is improving, the company's profitability is also on the rise. From the 2022 fiscal year to the 2023 fiscal year, the company's gross profit margin increased from 67.3% to 76.1%. In addition, the gross profit margin for the first half of the 2024 fiscal year increased from 18.9% in the same period last year to 35.9%. In this context, the company's net profit has also achieved rapid growth In the fiscal years 2022, 2023, and the first half of 2024, the company's net profits were $439,400, $996,200, and $684,000 respectively.

The company mainly generates revenue by providing IT consulting and solutions. Specifically, the company's business includes four main segments: software development services, exhibition and conference services, hardware sales, and other services.

Among them, software development services mainly provide customers with customized software development services that meet acceptance requirements, usually charged at a fixed price. Currently, this business has become the company's core business, with its revenue contribution increasing from 86% in the fiscal year 2022 to 98.6% in 2023, and reaching 99.98% in the first half of the fiscal year 2024. It is evident that the software development business has become the main revenue driver for the company.

In contrast, the performance of the other business segments has been fluctuating. Against the backdrop of a sluggish real estate market, the hardware sales business providing facial recognition access control saw "zero revenue" in the fiscal year 2023; while the exhibition and conference services, due to the company's focus on software development services, experienced "zero revenue" in the first half of the fiscal year 2024. This indicates that the company's revenue sources appear somewhat singular.

Furthermore, it is worth noting that the company acknowledges that the customer base for its software development services often varies from year to year, as each purchase agreement is usually a one-time event with few repeat customers. Major clients within a year may not provide the same level of revenue to the company in subsequent years. Therefore, the company has been actively seeking opportunities to develop new clients and expand into new business areas. Failure to recruit new clients or expand relationships with existing clients may reduce the company's revenue and seriously harm its business.

Positive Outlook for the Software Industry, Market Competition Intensifying

The strong performance of SanYi Technology is inseparable from the rapid development of the industry.

Zhītōng Finance APP noted that in recent years, China's software and information technology services industry has been performing well, with rapid growth in revenue and efficiency. As the industry accelerates towards high-quality development, continues to optimize its structure, and new growth points emerge, it is becoming an important driving force for the development of the digital economy and the evolution of a smart society. In 2023, there were over 38,000 large-scale software and information technology service enterprises nationwide, with a cumulative software business revenue of 12.33 trillion yuan, a year-on-year increase of 13.4%.

It is worth mentioning that in 2023, all sub-markets of China's software industry showed growth, including software products, information technology services, information security products, and embedded system software revenue markets. Among them, information technology service revenue reached 8.1226 trillion yuan, a year-on-year increase of 14.7%, exceeding the overall industry growth rate by 1.3 percentage points, accounting for 65.9% of the industry's total revenue share At the same time, policy support is also driving the development of the smart community service market where SanYi Technology is deeply rooted.

Specifically, with the clear proposal in the 14th Five-Year Plan for National Economic and Social Development of the People's Republic of China in 2021 and the Vision 2035 Outline, the advancement of smart community construction is emphasized. This includes building convenient and beneficial smart service circles, relying on community digital platforms and numerous offline community service institutions to provide integrated online and offline community governance, life services, and public services. In 2022, the Ministry of Housing and Urban-Rural Development once again emphasized the promotion of intelligent services, introducing technologies such as the Internet of Things, cloud computing, big data, blockchain, and artificial intelligence to build a smart property management service platform, promoting the integrated development of online and offline services. The advancement of the smart property platform with the urban operation management service platform, the interconnection and integration of smart home terminals, and the provision of integrated management and services are also highlighted.

Driven by multiple policies, "smart property that provides one-stop services to owners" has become a major trend in the property management industry today. From WanWuYun to Green City Services, more and more property management companies are developing in the technology sector, strengthening intelligent construction, integrating with various business departments internally to achieve cost reduction and efficiency improvement, and externally providing systems for developers, property companies, government-enterprise clients, etc., to earn service revenue.

However, it is worth noting that the accelerated layout of industry leaders is squeezing the survival space of small companies like SanYi Technology, further suppressing the bargaining power of companies like SanYi Technology. In this context, SanYi Technology is actively expanding into other industries such as renewable energy public utilities to achieve continuous revenue growth. As a newcomer in the industry, the company's development within the industry still needs to be observed.

Overall, with the relaxation of epidemic control measures, SanYi Technology has achieved rapid growth in revenue and net profit. However, facing risks such as a single revenue structure, an unstable customer base, and intense industry competition, it is not surprising that SanYi Technology has once again attracted the attention of Nasdaq by reducing the amount of funds raised