After a secret submission on March 19th, Powell Max Limited (hereinafter referred to as "Anlin Financial Printing"), a financial communication service provider from Hong Kong, has officially submitted a prospectus to the US Securities and Exchange Commission (SEC) in recent times, applying for listing on the Nasdaq IPO in the USA with stock code "PMAX". Meanwhile, Anlin Financial Printing plans to issue 1.65 million shares of stock at a price of $4 to $6 per share, raising $9.9 million. From the company's "Business Experience," which provides Hong Kong-listed clients with services in the Hong Kong market, it should be familiar with the Hong Kong stock market, but what is hidden behind its move to the US?

Anlin Financial Printing primarily provides financial communication services to its business clients and consultants in Hong Kong, supporting the compliance and transactional requirements of the capital market. The company mainly provides financial communication services, including a complete set of financial printing, corporate reporting, communication, and language support services, including typesetting, proofreading, translation, design, printing, and electronic reporting.

"Document Processing Service Provider" backed by Hong Kong stock, but financing with debt priority

For companies listing in Hong Kong, translation and compliance may be the two biggest barriers when looking to align with this mature international market. Some companies will target these areas as key services to be provided to these listed or qualifying companies. Anlin Financial Printing is one such company.

Anlin Financial Printing was established in 2019 and mainly provides financial communication services to its business clients and consultants in Hong Kong to support the compliance and transactional requirements of the capital market. The company mainly provides financial communication services, including a complete set of financial printing, corporate reporting, communication, and language support services, including typesetting, proofreading, translation, design, printing, and electronic reporting.

The target audience served by Anlin Financial Printing is undoubtedly domestic and international companies on the Hong Kong Stock Exchange and meeting the requirements of Hong Kong listing rules and the Hong Kong Securities and Futures Commission, as well as companies seeking to list on the Hong Kong Stock Exchange. It is understood that in 2022 and 2023, the company provided services to 168 and 166 domestic and international companies listed on the Hong Kong Stock Exchange, and respectively provided services to 10 and 7 listing applicants seeking to list on the Hong Kong Stock Exchange.

According to the prospectus, Anlin Financial Printing achieved total revenue of HKD 49.1218 million in 2023, an increase of 30% compared to about HKD 37.7728 million in 2022. The company stated that the increase in total revenue was mainly due to an increase in financial communication service revenue and IPO financial printing service revenue. Based on the simultaneous growth of these two "source" business revenues and cost control, Anlin Financial Printing directly reversed its loss in 2022 and achieved a profit of HKD 7.0792 million in 2023.

Furthermore, Anlin Financial Printing's main sources of income are corporate financial communication services and IPO financial printing services. In 2022-2023, corporate financial communication service revenue accounted for 90.9% and 79.7% of total revenue, respectively, as the undisputed mainstay.

In 2023, despite the poor performance of the Hong Kong stock market, Anlin Financial Printing's revenue from corporate financial communication services increased by approximately 14.3% to HKD 39.1333 million. Anlin Financial Printing explained that the increase in revenue from corporate financial communication services was mainly due to an increase in the number of transactions its clients participated in and the materials it processed.

However, only two companies have listed in the form of introductions. Among the other 68 companies, Anlin Financial Printing's IPO business revenue increased in a counter-trend, reaching growth of 55.72%, despite an overall decline in fundraising to approximately HKD 46.97 billion, which is down by 58.275 billion from HKD 104.57 billion in 2022.

However, while relying on its Hong Kong client base seems to provide security, it does not guarantee that Anlin Financial Printing can rest easy. From the purpose of Anlin Financial Printing's fundraising, one can see the resolve to go public on the US stock exchange. The main purpose of Anlin Financial Printing's fundraising this time is to publicly finance the company's Class A common stock to benefit all shareholders and reduce the company's debt by repayment of existing loans (including loans from controlling shareholders).

Careful examination of the prospectus reveals that Anlin Financial Printing has a relatively urgent need for funds. As of the end of 2023, the company's accounts payable and contractual liabilities and bank borrowings totaled as high as HKD 33.6686 million, accounting for approximately 90.92% of current liabilities. However, with only HKD 3.66 million in cash and cash equivalents on hand, the cash shortage makes Anlin Financial Printing's risk capacity very fragile which might be an important reason for its determination to go public on the US stock exchange.

Business fluctuates with Hong Kong stock market conditions, improving competitiveness may be a core solution

For Anlin Financial Printing, the ups and downs of the Hong Kong stock market determine the company's expectations and fate. Since the beginning of this year, the performance of the global capital market has once again been affected by negative factors such as the Russia-Ukraine conflict, tensions in the Middle East, the postponement of the US Federal Reserve's interest rate cut, and the imposition of tariffs on Chinese products by Europe and America. The tightening of financing has also made the volatility of the overall market more pronounced.

For Anlin Financial Printing, the challenges brought by the market are far more than this. The instability of the global financial market profoundly affects the domestic stock market, and the trend of slowing down the Hong Kong IPO activities in 2023 continues to 2024.

According to Choice's data, in the first half of 2024, there were 30 newly listed companies in Hong Kong, of which 29 were listed on the main board and 1 on GEM (Growth Enterprise Market), with a total fundraising of approximately 1.3 billion Hong Kong dollars, lower than the same period last year.

According to a Deloitte report, the top 5 global IPO financiers in the first half of 2024 were NYSE, Nasdaq, National Stock Exchange of India, Madrid Stock Exchange, Shanghai Stock Exchange, with Hong Kong Exchange ranking ninth and Shenzhen Exchange ranking tenth. A large part of Anlin Financial Printing's business comes from services related to financial and commercial transactions in the stock market, and economic trends that affect trading volume may have a negative impact on demand for its services.

On the other hand, Anlin Financial Printing's business may also be adversely affected by new technology. Its Hong Kong clients or potential clients may also produce and submit regulatory documents on their own and start implementing technology to help them in the process, which may adversely affect the company's business.

At the same time, Anlin Financial Printing does not have long-term contracts with most customers. Customer retention rates, especially during periods of declining trading volume, are an important part of the company's strategic business plan. In 2022, the company's top five customers accounted for approximately 2.7%, 2.2%, 2.0%, 2.0%, and 2.0% of its total revenue, respectively. In 2023, the top five customers accounted for approximately 12.5%, 2.0%, 1.9%, 1.7%, and 1.3% of total revenue, respectively. It can be seen that the proportion of the company's largest customers in total revenue is not low in recent years.

Moreover, the financial communication service industry where Anlin Financial Printing is based is highly competitive with relatively low entry barriers, and the industry is still highly fragmented in Hong Kong and internationally. Competition from existing competitors and new entrants at this stage will intensify. In addition, as the company expands its service scope, it may face competition from new and old competitors. Therefore, fierce market competition may bring additional pricing pressure to the company's services, resulting in negative impacts on business performance, financial condition, and cash flow.

The good news is that after a period of 'hibernation' in the past three years, the Hong Kong stock market has experienced multiple rounds of ups and downs in the first half of this year, showing an overall trend of fluctuating upward, and valuations have been restored to some extent. The slow recovery of the Hong Kong stock market may bring new business increments to Anlin Financial Printing, but debt burden and 'internal cultivation' may be the company's top priority to solve.