In the first half of 2024, a total of 94 companies from various countries and regions around the world were listed on the US stock market, with a total fundraising of $18.494 billion. The IPO fundraising scale of NYSE was $10.033 billion, while that of NASDAQ was $7.811 billion. Among them, 24 Chinese concept stocks were listed on the US stock market through IPO, with a total initial fundraising of about $2.236 billion, which exceeded the level of the same period last year in terms of the number of listed companies and the amount of funds raised. However, in the second half of the year, the performance of the first listed Chinese concept stock company was unable to continue the previous hot trend.

According to the Zhitoon Finance app, on July 2, Jun Chang Digital (EHGO.US) was listed on the US stock market, becoming the first Chinese concept stock company listed in the second half of this year. The issue price of Jun Chang is $4 per share, and 1.25 million shares were issued, raising a total of $5 million.

But the company clearly did not receive favorable attention from US stock investors. The first day of trading opened more than 14% lower and continued to fall throughout the day, ultimately closing down 18.5%. In the following 3 trading days, the company continued to fall, closing down 19.94%, 17.62%, and 15.81% respectively, until the fifth trading day after listing, when it finally showed an upward trend. However, by this time, the company's stock price had fallen to a minimum of $1.66, a decline of 58.5% from the issue price.

It is worth mentioning that within the first 5 trading days after listing, the trading volume of Jun Chang Digital has fallen from 0.8525 million shares on the first day to 0.0683 million shares on July 9th. If this trend continues, Jun Chang Digital may soon encounter liquidity problems.

Realizing listing by 'pulling in heads'

According to the Zhitoon Finance app, Jun Chang Digital's initial dream of listing on the US stock market can be traced back to December 27, 2021, when it secretly submitted documents to the SEC. It then formally submitted the F-1 file on April 27, 2023. The company then submitted filing materials to the China Securities Regulatory Commission in June 2023, and finally listed on July 2 this year. That is to say, it took Jun Chang Digital 2 and a half years from the secret submission of application documents to the final IPO listing.

After experiencing a two-and-a-half-year IPO period, its data disclosed in the confidential submission stage of the application documents to the SEC has obviously differed from the public submission data. From the prospectus, Jun Chang Digital has updated its financial report until the 2024 fiscal year.

From the business perspective, as an office equipment retailer, Jun Chang Digital mainly focuses on the sales and leasing of office supplies and after-sales maintenance.

At present, Jun Chang Digital is an authorized dealer of major global well-known brand office equipment such as HP, Epson, Xerox, Sharp, Toshiba, Konica, and Kyocera. After years of development, Jun Chang Digital has continuously expanded its product lines, which now include all other office supplies that may be needed, including office furniture, IT products, water dispensers, coffee machines, monitoring and access control systems, printing paper, etc. In addition, Jun Chang Digital also provides maintenance for its self-developed enterprise resource planning ('ERP') system.

These are the main sources of revenue for Jun Chang Digital. From the financial data, as of the sixth month of 2023 fiscal year and September 30, 2024, the company achieved revenue of $18.4253 million and $8.2833 million respectively, and achieved net income of $1.2699 million and $0.4818 million in the same period, meeting the Nasdaq's net income listing standard of $0.75 million.

Due to the fact that among the Chinese concept stock companies listed on the US IPO market in the first half of this year, most of them were small and medium-sized enterprises with market capitalization below $50 million. Therefore, it is not surprising that Jun Chang Digital can be listed. However, looking at its equity structure, it has a feeling of piecing together an IPO.

According to the Zhitoon Finance app, in the equity structure disclosed in Jun Chang Digital's prospectus, investors can clearly see that Jun Chang Digital is mainly listed on the US stock market in the form of a VIE structure. However, the number of WFOE companies' subsidiaries is as high as 24, and each of these 24 subsidiaries holds 55% of the shares, while the remaining 45% of these 24 subsidiaries is held by various natural person shareholders.

Can the story of 'synergistic development of software and hardware' make sense?

As we all know, the office industry is a relatively mature market, and industry demand is highly related to macroeconomic trends. In the long run, the growth rate of industry demand has declined as the domestic economy has slowed down in recent years, and the overall market structure has become highly competitive and fragmented.

According to statistics, as of 2022, the market size of China's office supplies industry was about RMB 2.21 trillion. The core advantage of centralized procurement of office supplies is to increase the demand for orders, thereby improving bargaining power, and achieving the goal of reducing procurement costs. Currently, centralized procurement is accelerating to become the mainstream procurement model for governments and enterprises.

As mentioned above, Jun Chang Digital's business mainly focuses on the distribution of digital products such as printers. Today, the demand for paperless and intelligent office will further impact Jun Chang Digital's traditional office equipment distribution business, so Jun Chang Digital's future development is still full of challenges.

From the perspective of revenue structure changes, in the 2022-2023 fiscal year, Jun Chang Digital's equipment sales revenue continued to decline from $18.2923 million to $15.1178 million, a year-on-year decrease of 17.4%; at the same time, the repair service and equipment leasing business revenue in Jun Chang Digital's 2023 fiscal year report decreased by 46.5% and 25.3% year-on-year, respectively.

In the context of the shrinking business in the hardware sector, the transformation towards software business has become one of the development focuses of Junzhang Digital.

According to the prospectus, the growth of this part is mainly due to Junzhang Digital's efforts to expand the service sector, develop new customers across the country, and achieve diversification. The company provides services to customers, such as government procurement cloud computing services, network information security services, etc.

This is also a multidimensional deployment made by Junzhang Digital in order to fully tap the potential market opportunities and create new growth points for the company. First, it continuously expands its product line, covering all aspects of office needs; second, it meets customer needs with diversified sales methods, extending equipment leasing and equipment leasing sales from the basis of equipment sales; third, it gradually expands from hardware equipment sales and leasing to software services. The self-developed ERP system and its market launch are the best proof. In addition, Junzhang Digital has also started to layout e-commerce and has completed the initial setup of e-commerce and national service outlets.

Clearly, Junzhang Digital is gradually focusing on software services, including ERP, based on sales and maintenance services for hardware. However, the proportion of software services is still relatively low. Moreover, at present, Junzhang Digital's layout has not yet seen significant results, and the domestic ERP market it is focusing on is also an extremely competitive industry, where international giants and domestic enterprises compete together, forming a diversified market pattern. Moreover, from the perspective of industry logic, ERP systems are often deeply bound with enterprises and have high replacement costs. Users often prefer to choose products from top enterprises, and their willingness to replace them in the future is low.

Against this background, it remains to be seen whether Junzhang Digital's flagship ERP system can compete with many top enterprises at home and abroad. Therefore, there is considerable uncertainty about whether the company's next step in the capital market story of "coordinated development of software and hardware" can hold water.