US Stock IPO Outlook | Michaelis: The "small but beautiful" custom consumer goods sector, yet suffering from "insufficient funds syndrome"

As we all know, against the backdrop of consumption upgrading, consumers are no longer satisfied with uniform products, and their demand for personalization is continuously increasing. They hope to customize products according to their unique needs and preferences in aspects such as appearance, color, material, function, and structure.

For related consumer products, this is an inevitable trend and an excellent development opportunity.

According to Frost & Sullivan, the growth of China's small-batch customized consumer goods in recent years is mainly attributed to the rise of fashion and designer brands driven by personalized demand, as well as investments from small and medium-sized enterprises. The market size of small-batch customized consumer goods has increased from 6.3 billion yuan in 2017 to 10.2 billion yuan in 2023, with a compound annual growth rate of 8.2%. Furthermore, the demand for personalized consumer goods is expected to accelerate in the future, with China's batch customized consumer goods projected to grow from 10.9 billion yuan to 16.1 billion yuan from 2024 to 2028, with a compound annual growth rate of 10.2%.

At this time, some manufacturers of customized consumer goods that have been deeply engaged in this sector are becoming increasingly active in the capital market.

On November 14, Chinese customized consumer goods manufacturer MaxsMaking submitted a prospectus to the U.S. Securities and Exchange Commission (SEC) on Thursday, intending to raise up to $9 million through an initial public offering (IPO). The company plans to issue 2 million shares at a price range of $4 to $5 per share. Based on the midpoint of the issuance range, MaxsMaking's market value will reach $77 million.

So, the curious question is, can MaxsMaking seize the trend of consumer goods customization? What is the investment value of the company?

Revenue Decline and High Debt May Suffer from "Insufficient Funds Syndrome"

According to Zhitong Finance APP, MaxsMaking is a manufacturer of customized consumer goods, mainly producing customized products such as bags, aprons, cushions, flags, chair covers, tablecloths, and suitcases. It has multiple subsidiaries, each focusing on different business areas, including digital production, software development, product design, brand management, online sales, and international trade, forming a relatively complete industrial chain layout.

For a manufacturer specializing in customized goods, the increase in small-batch customized orders is an important driver of business growth and profit acquisition. In other words, the company's sales revenue is directly affected by customers' decisions to adopt small-batch or large-batch customized procurement. Therefore, for MaxsMaking, attracting more small-batch customized clients and maintaining flexibility in production planning is crucial.

However, it should be noted that while small-batch customized products have certain flexibility and innovation, compared to large-scale production, the production scale of small-batch customization is smaller, making it difficult to achieve significant economies of scale. This is clearly reflected in MaxsMaking's fundamentals.

According to the prospectus, for the six months ending April 30, 2023, and April 30, 2024, the company achieved revenues of $15.38 million and $9.73 million, respectively, a year-on-year decline of 36.7%; net profits were $980,000 and $1.24 million, respectively, a year-on-year decline of 20.59%. This indicates that the company's recent revenue and net profit are showing a certain downward trend With the decline in growth potential and the lack of scale effects, the financial pressure on Maikeli seems to be becoming increasingly tight.

According to the data disclosed in the prospectus, as of April 30, 2024, Maikeli had approximately $3.64 million in outstanding short-term bank loans, mainly from four banks: Ningbo Bank, Zhejiang Min Tai Commercial Bank, and Zhejiang Yiwu Rural Commercial Bank. In addition, the company also obtained approximately $420,000 in outstanding loans from third-party individuals, although these loans carry no interest and have no repayment conditions.

At a time of high debt, the company's cash flow is also not abundant—by April 30, 2024, Maikeli had about $230,000 in cash, primarily sourced from the company's operations, bank loans, loans from related parties, and third-party loans. During the same period, the net cash used for operating activities was approximately $1.7 million, mainly due to a decrease in accounts receivable of about $1.7 million caused by reduced revenue; professional fees related to the IPO and deferred issuance costs decreased by about $650,000; and customer prepayments decreased by about $380,000 due to a decline in sales.

Currently, Maikeli is mainly improving liquidity and capital sources through operating cash flow, debt financing, and financial support from major shareholders or investors. If the company cannot raise additional funds when needed, or if it cannot expand its business or otherwise capitalize on business opportunities due to a lack of sufficient funds, the company's business, operating performance, financial condition, and cash flow will be adversely affected.

Customization Becomes an Industry Trend, Competitiveness Still Needs Improvement

In recent years, as Generation Z gradually becomes a major consumer force, some personalized and customized products have begun to show signs of a consumption boom.

According to a Frost & Sullivan report, most orders in China's customized consumer goods industry are received from large enterprises. As companies focus on building corporate culture, China's customized consumer goods market has been growing rapidly. From 2017 to 2023, the market size of China's customized consumer goods grew from 138.7 billion yuan to 217.3 billion yuan, with a compound annual growth rate of 7.8%. The industry is expected to maintain a high growth rate, with the market size projected to increase from 236.2 billion yuan to 343 billion yuan from 2024 to 2028, with a compound annual growth rate of 9.8%.

Taking the luggage segment as an example, with economic development and increasing travel demand, China's luggage industry has been growing significantly. Customized luggage, as an important category, has seen rapid growth in recent years. From 2017 to 2023, the market size of China's small-batch customized luggage industry grew from 542.9 million yuan to 1.1817 billion yuan, with a compound annual growth rate of 13.8%. It is expected that as the impact of the pandemic fades, overseas demand for small-batch customized luggage will increase, leading to further market growth. At the same time, with the upgrading of consumption concepts, customized products will be more favored in the market, and it is expected that from 2024 to 2028, the market size of China's small-batch customized luggage industry will grow from 1.3886 billion yuan to 2.5726 billion yuan The compound annual growth rate is 16.7%.

However, in contrast to the market landscape, the customized consumer goods sector where Maikeli is located is also highly competitive.

Specifically, the participants in the customized product industry are diverse, including large enterprises, medium-sized enterprises, as well as small enterprises and studios. Maikeli belongs to the "small but beautiful" category in the customized sector. Although the company can flexibly meet the unique needs of customers and provide distinctive products, its smaller scale may lead to deficiencies in production capacity, supply chain management, and brand promotion, while also facing competitive pressure from medium and large enterprises in terms of resources, technology, and funding.

In light of this, the fundamentally "weak" Maikeli will need to enhance its competitive strength from multiple dimensions to achieve economies of scale.

On one hand, the company needs to increase product added value and profit margins: Customized products typically have higher added value, and consumers are willing to pay a higher price for products that meet their personalized needs. Therefore, the small-batch customized consumer goods industry can achieve higher profit margins. Compared to standardized products produced on a large scale, the uniqueness and scarcity of customized products give them stronger bargaining power in the market.

On the other hand, the company may also need to promote innovation and technological upgrades: To achieve small-batch customization, enterprises need to continuously improve production technology and processes, enhancing production flexibility and efficiency. This drives investment in technological research and development and innovation, which not only improves the company's own production efficiency but also promotes technological upgrades and development in the industry.

In summary, as a "small but beautiful" player in the customized consumer goods sector, Maikeli's fundamentals are not robust, which may also be a drawback for its IPO. Additionally, with challenges such as rising industry costs and intensified competition, investors' confidence in its investment may also be discounted. Therefore, this also means that Maikeli still needs to demonstrate its true strength with more impressive data