Interpretation of New Stocks in the US Market | Core Business Growth Slows Down, Can the Industrial Tailwind of Robotic Arms Save Liyifu?

With global leading robot manufacturers such as Figure, Agility, Zhiyuan, Yushu, and Leju starting to ship their products, 2024 has been established as the "commercialization year" for humanoid robots. According to statistics compiled by CITIC Securities, the global shipment of humanoid robots is expected to exceed 2,000 units in 2024, with projections reaching 10,000 to 20,000 units by 2025.

Based on this industry trend, the robotics sector has gained popularity in the capital market. According to the Wind Robotics Index, this sector has seen a maximum increase of over 80% since September, giving rise to major stocks such as Aofei Technology-U (688165.SH) and Keli Sensor (603662.SH).

A closer examination reveals that the market is not only speculating on humanoid robots; related branches such as quadruped robotic dogs and industrial robotic arms are also receiving significant market attention. In this market sentiment, the robotic arm manufacturer Jinliwu from Quanzhou, Fujian, has accelerated its journey to go public in the United States.

According to Zhitong Finance APP, Jinliwu submitted its public version of the prospectus to the SEC for the first time on May 21 and has updated the prospectus for the fifth time on December 10, indicating its swift actions.

The latest prospectus shows that Jinliwu is applying for a listing on NASDAQ under the code "INLF," planning to issue 2 million shares of common stock at an offering price of $4-6 per share, aiming to raise up to $12 million. If the overallotment option is not exercised, the issuance of 2 million shares will account for 14.03% of the company's total shares, implying an IPO valuation of $57.02 million to $85.53 million for Jinliwu.

From a performance perspective, Jinliwu's revenues for 2022 and 2023 were $6.6523 million and $12.6109 million, respectively, with a growth rate of 89.6%. The corresponding net profits during this period were $537,600 and $1.3525 million, with a growth rate of 151.6%. In the first half of 2024, Jinliwu's revenue grew by 39.67% to $6.7357 million, but net profit declined by 28.33% to $390,000.

The market cannot help but wonder why Jinliwu's net profit declined year-on-year in the first half of 2024. Can it leverage the heat of the robotics sector for a wave of speculation? The company's prospectus may provide some answers.

Rapid Growth Benefiting from Industry Development

Robotic arms (also known as "Cartesian robots") are one of the most common types of robots used in industrial applications, often utilized in injection molding machines and computer numerical control (CNC) machines. Robotic arms fall under the category of industrial robots and are mainly divided into three categories: three-axis robotic arms, five-axis robotic arms, and multi-head robotic arms.

The development of the robotic arm industry is strongly supported by national policies. As early as 2016, to implement "Made in China 2025" and guide the healthy and sustainable development of China's robotics industry, the Ministry of Industry and Information Technology, the National Development and Reform Commission, and the Ministry of Finance jointly issued the "Robot Industry Development Plan (2016-2020)," which required the formation of a relatively complete robotic industry system by 2020, with an annual production of 100,000 industrial robots in China With the support of policies and the demand for cost reduction and efficiency improvement in the manufacturing industry, China's robotic arm market has ushered in rapid development. According to data from Frost & Sullivan, from 2017 to 2022, the sales volume of robotic arms in China increased from approximately 35,700 units to 93,800 units, with a compound annual growth rate of 21.3%; during the same period, the sales revenue of robotic arms in China grew from approximately USD 220 million to USD 490 million, with a compound annual growth rate of 17.6%.

It is worth noting that between 2020 and 2021, due to the difficulties in recruitment caused by public health events, the penetration of automated production in the market accelerated, especially in the manufacturing sector, which further stimulated the market demand for robotic arms. As a result, the Chinese robotic arm market maintained a high growth trend during these two years, and this trend is expected to continue.

According to Frost & Sullivan's forecast, with the introduction of government support policies and the continuous growth of demand from downstream industries (such as the automotive, electronics, and medical industries), the sales volume of robotic arms in China is expected to maintain rapid growth, reaching approximately 230,300 units by 2027, with a compound annual growth rate of 19.7% from 2022 to 2027; at the same time, the domestic sales revenue of robotic arms is expected to reach approximately USD 1.061 billion by 2027, with a compound annual growth rate of about 16.5% from 2022 to 2027.

Inlif is one of the beneficiaries of the rapid development of the robotic arm industry. According to public information, Inlif's domestic operating entity is Yiwat Robot Equipment Manufacturing Co., Ltd., which was established on September 28, 2016. This means that Inlif has been deeply engaged in the robotic arm market for over 8 years, focusing on the research, development, manufacturing, and sales of robotic arms specifically for injection molding machines. While providing installation and maintenance services for robotic arms, it also sells robotic arm accessories and raw materials. Among these, the installation and maintenance services for robotic arms are Inlif's core business, accounting for as much as 77.83% of its revenue in 2023.

According to the prospectus, in 2022, 2023, and the first half of 2024, Inlif's products were sold to 101, 117, and 96 customers, respectively. With the increase in the number of customers, Inlif's performance has also achieved sustained rapid growth, with revenue in 2023 increasing by 89.6% to USD 12.6109 million, and revenue in the first half of 2024 increasing by 39.67% to USD 6.7357 million.

However, Inlif's net profit in the first half of 2024 declined by 28.33% to USD 390,000, mainly due to a decrease in gross profit margin from 31.27% to 25.45%, coupled with a significant increase in total operating expenses by 65.85%. The growth rate of expenses exceeded that of revenue, leading to dual pressure that hindered profit release, resulting in an awkward situation of increasing revenue without increasing profit.

Core Business Slowdown Warning Risk?

In fact, although Inlif benefits from the continuous rapid development of the robotic arm industry, it faces numerous potential operational challenges, and the increase in revenue without profit in the first half of 2024 is just one of them It is not difficult to find from the prospectus that the gross margin of Yinfeng is on a downward trend. In 2022 and 2023, Yinfeng's gross margins were 34.48% and 32.98%, respectively. By the first half of 2024, Yinfeng's gross margin had dropped to 25.45%, a year-on-year decline of nearly 6 percentage points.

Looking in detail, the decline in gross margin in 2023 was mainly due to the decrease in gross margins from the two major businesses: robotic arm installation and maintenance services, and the sale of raw materials and scraps. Entering the first half of 2024, although the gross margin of robotic arm installation and maintenance services increased year-on-year, the gross margins of parts sales and raw materials and scraps sales significantly declined, especially with the gross margin of parts dropping by nearly 50%.

If we combine the performance of each business's revenue, we can see the underlying issues. Data shows that in the first half of 2024, the revenue growth rate of Yinfeng's robotic arm installation and maintenance services was only 6.82%, significantly "cooling down" from the 58.8% growth rate for the entire year of 2023. However, the revenue growth rates for parts sales and raw materials and scraps sales reached 146.4% and 96.21%, respectively, showing explosive growth.

It is evident that as the core business of robotic arm installation and maintenance services slows down, Yinfeng has achieved explosive growth in parts sales and raw materials and scraps sales through a "price-for-volume" strategy. While this allows the company's overall revenue to grow without stalling, it has led to a significant decline in gross margin during the period, affecting the company's profitability.

Based on the above judgment, whether the core business of robotic arm installation and maintenance services can return to rapid growth is particularly important. If the growth of this business continues to slow down or even decline, it may further impact Yinfeng's overall profitability.

From an industrial perspective, the entire robotic arm industry is currently in a phase of intensifying competition. Although the robotic arm market will continue to maintain double-digit rapid growth, it is quite fragmented, with approximately thousands of market participants, which means Yinfeng is in a very fierce competitive environment.

According to data from Frost & Sullivan, in terms of revenue, the top 10 manufacturers in China's robotic arm market held a market share of 28% in 2022. Although Yinfeng is one of the largest robotic arm manufacturers in Fujian Province, its revenue ranked 10th nationwide in 2022, with a market share of only 1.4%. This shows the significant competitive pressure Yinfeng faces.

In addition, the significant increase in customer concentration is also a thorny issue that Yinfeng needs to address. According to the prospectus, in mid-2022, Yinfeng had no customers accounting for more than 10% of its revenue. By 2023, one customer accounted for 22.68% of Yinfeng's total revenue, and by the first half of 2024, the revenue from two customers accounted for 34.83% and 12.05%, respectively, totaling 46.88% Clearly, the rapid growth of Infinova's performance in 2023 is related to the significant increase in demand from one of its clients. However, in the first half of 2024, the core business growth of Infinova has sharply slowed down due to a significant rise in customer concentration, indicating that Infinova may have encountered certain difficulties in acquiring new clients. After the substantial increase in customer concentration, if the demand from major clients declines or the company's new client acquisition falls short of expectations, Infinova's business operations may be significantly impacted.

Overall, the rapid development of the robotic arm market is still full of opportunities, but the ongoing intensification of competition has also brought new challenges. After the rapid growth in 2023, Infinova's core business growth in the first half of 2024 has clearly slowed down, and the company's overall profitability is under pressure. If Infinova cannot introduce more market-competitive products in the future, its rapid growth highlights may be difficult to replicate