Preview of US Stock IPOs | Revenue Decline, From Profit to Loss, Lexico "Bearing Weight" to Nasdaq

In recent years, the climate has become increasingly uncertain. For example, heatwaves have been more frequent globally in the past thirty years. According to the China Meteorological Administration, China's summer average temperature has been the highest since 1961. Therefore, closed-loop climate control equipment has become increasingly important to ensure the normal and reliable operation of equipment.

With the increasingly widespread application of closed-loop climate control equipment, related companies in this field are gradually stepping into the spotlight.

On September 27th, Guangzhou, Guangdong-based Leizike Thermal Management Co., Ltd. (hereinafter referred to as "Leizike") submitted an IPO application to the U.S. Securities and Exchange Commission, planning to list on the NASDAQ in the United States. The company plans to issue 1.9 million shares at a price of $4 to $5 per share, raising $8 million. Based on the midpoint of the proposed price range, Leizike Thermal Management Company's market value will reach $59 million.

According to the Securities Times app, Leizike is a well-known company in the field of cabinet environmental control, focusing on ventilation, refrigeration, dehumidification, heat exchange, heating, lighting, and environmental control systems for industrial cabinets since 1990, accumulating rich experience and professional technology in this field.

The company mainly operates through three subsidiaries: Leizig, Moonger, and GZ Boring Ape. Among them, Leizig is a manufacturer of cabinet climate controllers, focusing on ventilation, refrigeration, dehumidification, heat exchange, heating, lighting, and environmental control systems for industrial cabinets; Moonger is engaged in software development and provides software and information technology services; while GZ Boring Ape focuses on software development.

However, it is worth noting that as Leizike rides the industry trend and steps into the spotlight, some fundamental "concerns" of the company have gradually surfaced, such as how to overcome the challenges of declining revenue and the transition from profit to loss, which have become unavoidable issues for Leizike at present.

Therefore, it may be worthwhile to explore the true investment value of Leizike from multiple perspectives such as company performance and industry potential.

From Profit to Loss, Fundamental "Red Flags"

Looking at the business landscape, Leizike currently has a wide range of products, with business extending domestically and internationally, making it a "small but beautiful" manufacturer of cabinet environmental control.

Specifically, the company's products include cabinet coolers, heat exchangers, cabinet ventilation products, cabinet heaters, cabinet lights and monitors, dehumidifiers, and other series of products. With a wide range of product categories, Leizike has also developed a broad customer base, providing services to many industrial customers such as beverage products, automotive products, electrical industry, and machine tool industry, and has a certain market share in industrial automation, automotive, beverage, power, new energy, and other fields.

In addition, Leizike's development layout is relatively broad, with subsidiaries or business contacts established in many domestic and foreign locations. For example, in 2009, Leizike established a subsidiary in Jakarta responsible for the South Asian market, and in 2013, it established a subsidiary in Los Angeles responsible for the North American market, continuously expanding its global market However, despite having a complete business structure and a wide customer base, in recent years, Leizike's performance has gradually revealed a growth bottleneck.

According to the prospectus data, in 2022 and 2023, Leizike achieved revenues of $6.3249 million and $5.0922 million respectively, a year-on-year decrease of 19.49%. It recorded net profits of $0.3899 million and -$1.6629 million respectively, showing weak profitability and a shift from profit to loss in 2023.

In addition to the core financial data of revenue and net profit flashing warning signs, the current liquidity pressure of Leizike is also significant.

As disclosed in the prospectus data, in 2023, the company's total assets were $7.9309 million, total liabilities were $5.8107 million, with total assets barely covering total liabilities, indicating significant short-term debt pressure. Furthermore, during the same period in 2023, the cash outflow from operating activities of the company was $0.8811 million, with cash and cash equivalents at the end of the period amounting to $1.5424 million, indicating a relatively tight cash flow situation.

Based on the above, the decline in revenue, the shift from profit to loss, and the rising liabilities undoubtedly indicate a red flag on the company's fundamentals.

Surging Industry Demand, Increasing Competition Pressure

In recent years, with the continuous improvement of environmental control requirements in various industries and the rapid development of emerging industries, the market demand for enclosed climate control equipment has been continuously increasing.

Of course, the market size and growth rate vary in different sub-sectors. In high-end manufacturing industries with extremely high environmental control requirements, such as semiconductor manufacturing and biomedicine, the market size of enclosed climate control equipment is large and growing rapidly. In traditional fields such as agriculture and horticulture, the market size is relatively small, but with technological advancements and expanding applications, a stable growth trend is also observed.

For example, in the climate control equipment market, the production of enclosed air conditioning and climate refrigeration in China is expected to increase from approximately 1.02 million units in 2022 to around 1.85 million units in 2029, with a compound annual growth rate of 8.83%.

In 2022, about 68.1% of the demand comes from the East, South, and North China regions. It is predicted that from 2023 to 2029, the market size of enclosed air conditioning in the East, South, and North China regions will grow at compound annual growth rates of approximately 9.8%, 10.1%, and 9.3% respectively.

Furthermore, Leizike pointed out that the growth in wind power systems and electric vehicle sales will drive long-term demand for cabinet climate control and cooling system equipment. With the increase in capacity over the years, operators of wind power plants and car manufacturers will need to increase their cabinet climate control and cooling system equipment. They will also need to maintain current cabinet climate control systems and replace cooling equipment to keep facilities running at optimal temperatures and prevent overheating.

For the fiscal years ending on December 31, 2022, and December 31, 2023, Leizike received approximately $1.39 million (22.1% of total revenue) and $0.44 million (8.71% of total revenue) respectively from wind energy-related customers. From electric vehicle manufacturers, they received around $1.13 million (17.9% of total revenue) and $1.01 million (19.77% of total revenue) respectively However, it is worth noting that due to the low concentration in the current closed climate control equipment industry, Lezico also faces intense competitive pressure.

On one hand, the market competition in the closed climate control equipment industry is fierce, with a large number of enterprises but low industry concentration. Most enterprises are small in scale, suffer from severe product homogeneity, and lack core competitiveness. In this situation, there is intense price competition among enterprises, which squeezes profit margins.

On the other hand, some internationally renowned climate control equipment brands have strong advantages in technology, brand influence, and market channels, putting significant competitive pressure on domestic enterprises. Compared to internationally renowned thermal management companies, Lezico's brand awareness is relatively low, with limited influence in the international market.

In summary, whether from the company's fundamentals or brand influence perspective, Lezico's "soft power" and "hard power" both need improvement. The current decline in company revenue, the shift from profit to loss in net income, and the need to enhance competitiveness may to some extent damage the company's investment value and reduce investors' interest in the company