US Stock IPO Preview | With declining revenue and net profit, high debt, how will Haoxin Holdings break through the "bottleneck period"?

In recent years, with the continuous improvement of residents' consumption levels, people's food consumption habits have also shifted from the previous full meal type to a more nutritious and fresh type. This also means that the public's demand for the quality of fresh food has significantly increased.

The surge in the public's demand for the quality of fresh food undoubtedly has driven the rapid development of the cold chain industry. Data from the China Federation of Logistics and Purchasing Cold Chain Committee shows that from 2014 to 2021, the scale of China's cold chain logistics market has increased from 150 billion yuan to 418.4 billion yuan, with a high compound annual growth rate of 15.78%.

However, despite the double-digit high growth trend in the cold chain industry, there are still some companies "struggling under pressure".

On September 20, Chinese freight company Haoxin Holdings (HXHX.US) lowered the proposed transaction size of its IPO. The company, headquartered in Ningbo, China, currently plans to issue 2 million shares of stock at a price of $4 to $6 per share, raising $10 million. The company had previously applied to issue 3 million shares of stock at the same price range. Based on the revised midpoint of the price range, Haoxin Holdings' fundraising will be reduced by 33% from the previous expectations, with a fully diluted market value of $70 million.

The company had publicly disclosed its prospectus for IPO on Nasdaq in the United States on February 10, 2023, and more than a year later, it announced a reduction in the IPO size. The change in fundraising size may indirectly indicate that Haoxin Holdings may have some lack of confidence in listing in the United States. A deep analysis of the company's fundamentals based on the prospectus may provide some answers.

Revenue and Net Profit Decline, Growth Encounters "Bottleneck Period"

According to the prospectus, Haoxin Holdings has been deeply involved in the industry for over twenty years and is a provider of temperature-controlled truck transportation and urban delivery services in China. The company started urban delivery services in 2003 and expanded its business to the cold chain logistics industry in 2016.

The goods transported by the company are mainly related to factory logistics, including electronic equipment, chemicals, fruits, food, and general merchandise. As of the date of this prospectus, Haoxin Holdings operates a fleet of 88 tractors, 94 trailers, and 46 box trucks, covering 30 out of 34 provinces and autonomous regions in China, accounting for 88.2% of the national network coverage.

Despite over twenty years of deep involvement in the cold chain logistics industry, it seems that Haoxin Holdings has encountered a growth "bottleneck period" when exploring its fundamentals.

As disclosed in the prospectus, in 2022 and 2023, Haoxin Holdings achieved total revenues of $28.948 million and $26.6646 million respectively, a year-on-year decrease of 7.9%. The company explained that the decrease in revenue was mainly due to the reduced domestic demand in the southern region of China where the company mainly operates urban delivery services.

Looking at the revenue structure, the company's revenue mainly comes from temperature-controlled truck services and urban delivery services. The decline in revenue from these two major business segments during the period may be a key factor dragging down the company's overall revenue—by the end of December 2023, the company's revenue from temperature-controlled truck transportation services decreased by 4.7% year-on-year to $23.5114 million, and revenue from urban delivery services decreased by 26.2% year-on-year to $3.1533 million At the same time, Haoxin Holdings' net profit is also in a continuous decline. According to the prospectus, the company achieved a net profit of $4.287 million and $3.9695 million in 2022 and 2023 respectively, a year-on-year decrease of 7.4%.

Affected by the decline in both revenue and net profit, the cash flow of Haoxin Holdings during the period also sharply decreased, becoming increasingly tight: as of the end of December 2022 and December 2023, the company's year-end cash and cash equivalents were $101,670 and $89,731 respectively, a year-on-year decrease of 11.74%. The overall cash flow scale is small and gradually declining, revealing signs of scarcity.

From the above, it can be seen that with core financial indicators such as revenue, net profit, and cash flow all declining, the growth pressure on Haoxin Holdings is evident. How to break through the current growth bottleneck has become an inevitable development challenge for Haoxin Holdings.

Opportunities and challenges coexist, solidifying competitiveness remains the key to "breaking the game"

China's cold chain transportation service industry is one of the largest industries in the world. Cold chain transportation is a form of road transportation and is crucial for connecting with other transportation modes such as railways, waterways, and civil aviation.

In recent years, land transportation infrastructure has been continuously improved. The ownership of refrigerated trucks has increased from 140,000 in 2017 to 431,000 in 2023. However, the market for Chinese refrigerated truck suppliers remains relatively fragmented.

Looking ahead, the market for temperature-controlled truck transportation services in China is expected to increase from RMB 547 million (approximately USD 78.1 billion) in 2024 to RMB 747 billion (approximately USD 106.7 billion) in 2027, accounting for 8.1% of the total output.

However, it is worth noting that due to intense industry competition and significant characteristics of decentralized layout, the cold chain logistics industry poses both opportunities and challenges for Haoxin Holdings.

According to the observation of the Zhitong Finance APP, with the continuous development of the cold chain logistics market, competition within the industry is becoming increasingly fierce. Large logistics companies, leveraging their advantages in capital, technology, and brand, have occupied a significant market share; while small enterprises face the dilemma of squeezed market share and limited room for survival. New entrants need to have strong market competitiveness to establish themselves in the competitive market.

In China, 41 out of the 100 largest cold chain logistics companies are concentrated in North China, East China, and the Yellow River division. Competition among cold chain logistics companies in these three regions is intense, especially in Shanghai. 21 companies in Shanghai are rated as the top 100 largest cold chain logistics companies. All companies tend to compete with each other in geographical regions, with most of their headquarters located in the eastern and central regions of China.

Furthermore, narrowing down the cold chain logistics industry to temperature-controlled transportation companies, China's temperature-controlled transportation industry is also highly fragmented, with only a few participants operating nationwide, while most operate regionally or locally. According to Frost & Sullivan, in 2023, there were approximately 4,078 temperature-controlled transportation companies in China, with the top 30 companies accounting for over 60% of total freight and generating over 70% of revenue Against this backdrop, deepening core competitiveness from multiple dimensions such as business scale, brand effect, and service quality has become a common challenge for current cold chain logistics companies.

Therefore, in the company's business strategy, Haoxin Holdings stated that in order to consolidate its market position and maintain market competitiveness, the company will take the following actions: purchasing new vehicles to expand the fleet size; selectively acquiring and forming strategic alliances to supplement existing business opportunities; and upgrading the fleet management information system.

However, as cold chain logistics is a high-investment, asset-heavy industry, it requires a large amount of capital and technological investment in infrastructure construction. Therefore, Haoxin Holdings also faces significant debt pressure.

Specifically, in the prospectus, Haoxin Holdings mentioned that the company's liquidity largely depends on short-term borrowings. As of December 31, 2023, the company had six outstanding short-term loans provided by five banks, totaling RMB 16.27 million, approximately USD 2.2916 million. In addition, the restricted cash at the same period was USD 3,444 and USD 3,545 respectively.

Furthermore, as of December 31, 2023, the company's total liabilities amounted to USD 12.4517 million, total assets amounted to USD 28.3259 million, and the debt-to-asset ratio was at a relatively high level, posing a high risk of debt default.

In summary, with operating "concerns" such as slowing revenue and net profit, approaching cash flow, and high debt levels looming, Haoxin Holdings' listing in the United States to seek an "infusion channel" externally has evidently become an expected move. However, the secondary market not only listens to "stories", but also considers fundamental factors and industry ceilings as key factors in assessing investment value. Therefore, how the company navigates through challenges with solid strength remains the main issue that Haoxin Holdings urgently needs to address