The listing performance of LBGJ.US (LBGJ.US) couldn't be more aptly described by using the term “tiger head and snake tail”.

On October 23, on the first day of its listing, LIBANG Cookware surged 16%, hitting an intraday high of 5.5 US dollars, up 37.5% from the issue price of 4 US dollars. By the close of the first day, the company closed at $4.1, narrowing the increase by 2.5%, and the trading volume reached 1.57654 million shares. On the 24th, LIBANG Cookware once again staged a high and low drama. By the end of the day, it had a decline of 4.15% to 3.93 US dollars, falling below the issue price. The total market value was 72.7836 million US dollars, or about 0.518 billion yuan.

Customers mainly use high-end hotels to cut prices and expand the market still needs to be tested

According to the prospectus, LIBANG Cookware is engaged in the design, R&D, production, installation, and after-sales maintenance of commercial kitchen equipment. In terms of product layout, the company currently produces a series of commercial kitchen accessories, including more than 80 varieties in 13 series such as steaming, cooking, baking, frying, disinfection, cooking, and refrigeration, as well as more than 300 varieties of stainless steel kitchen equipment, cooking, food preparation instruments, hotel supplies, and kitchen appliances.

According to the company's official website, LIBANG Kitchen currently has nearly 200 employees and has set up branches and branches in Shanghai, Hangzhou, Nanjing, Suzhou and other cities. The company currently has a plant area of 25,000 square meters and fixed assets of 100 million yuan, mainly engaged in the Yangtze River Delta business.

Currently, LIBANG Cookware's customer base is mainly hotels, companies, public institutions, educational institutions, hospitals, etc. In the fiscal year ending December 31, 2023, the company had a total of 72 customers, a significant decrease from 150 on June 30. Judging from the share of revenue, schools and hotels are the company's main source of customer revenue.

In terms of performance, from fiscal year 2022 to fiscal year 2023 (the fiscal year ends on June 30 of each year), LIBANG Cookware's revenue was 13.4791 million yuan (unit: US dollar, same below) and 14.0045 million yuan respectively. The corresponding net profit was 84.81 US dollars and 0.6168 million yuan, respectively. There was no increase in revenue but no increase in profit. Looking at the operating results for the six months ended December 31, 2022 and December 31, 2023 (hereinafter referred to as the reporting period), the company's revenue was 8.0639 million yuan and 3.7298 million yuan respectively, down 53.7% year on year; net profit was 0.825 million yuan and -1.463 million yuan, respectively, which changed from profit to loss year on year.

In terms of business, during the period, LIBANG Cookware can be divided into two major parts: project revenue and retail revenue, of which project revenue accounted for more than 90%. For the six months ended December 31, 2023, project sales were 3.429 million yuan, a year-on-year decrease of 55.2%. The company lost revenue due to the downturn in its main business.

The company said the business declined. Mainly, first, China's economy is slowing down, and negative growth has affected the number of projects; second, as the company's multiple projects have expanded to high-end hotel kitchen projects, the project portfolio has changed; third, due to the company's decision to increase its appeal to potential customers in central and western China, such as Chongqing, increase brand awareness by reducing its project quotations.

The domestic economy has indeed not been strong in recent years, but the financial data of peers Bosses Electric (002508.SZ) and Supor (002032.SZ) handed over good answers. The former declined slightly in 2024, while the latter reached a record high in the first half of 2024. On the other hand, the company's revenue for the first half of 2024 (that is, June-December 2023) fell short.

What's worse is that the company's logic of lowering offers in order to attract new customers and open up the market is irreproachable. However, after the price reduction, the company's revenue dropped drastically. This is not only a problem of weak bargaining power. Not only is it difficult to attract new customers, but there is also a possibility that old customers will be lost.

In short, revenue was sluggish and profits reversed losses, putting pressure on the company's liquidity. During the reporting period, cash flow from the company's operating activities turned negative, at 0.436 million yuan and -0.172 million yuan, respectively; year-end cash and restricted cash declined sharply, to 0.479 million yuan and 0.309 million yuan, respectively.

Gross margin became a bright spot, and operational capacity fluctuated

Despite pressure on the company's performance, gross margin became one of its few highlights. From FY2022 to FY2023, the company's gross margin increased from 36.0% to 41.1% in 2023. Based on the fact that the company's revenue for FY2023 increased by only 3.7% year-on-year, the company still made significant progress in cost control.

Behind the increase in revenue of LIBANG Cookware, it was also accompanied by good progress in the company's inventory removal in fiscal year 2023.

As one of the key indicators for measuring the performance of manufacturing companies, LIBANG cookware's inventory turnover days was shortened in fiscal year 2023. Among them, the company's inventory balance as a share of total current assets fell from 17.32% in 2022 to 10.12%; the number of inventory turnover days was also shortened from 128 days in FY2022 to 80 days in 2023.

However, as of December 31, 2023, the company's inventory turnover deteriorated again, increasing to 205 days. The company said that due to the large scale of the hotel project and the high acceptance standards, the company prepared inventory for production and delivery, resulting in a relatively long inventory turnover period.

Despite fluctuating inventory turnover, it shows that the company is making progress in terms of transportation capacity.

Furthermore, according to the Zhitong Finance App, the company's accounts receivable reached 10.8398 million and 14.9192 million US dollars in fiscal year 2022 and 2023 respectively, up 37.63% year on year. The accounts receivable ratio was 80.42% and 106.53% respectively, and the fiscal year 2023 reached the highest level in history in recent years.

The reason behind the untimely receipt of payments is the sequelae of the company's dependence on a small number of customers. For example, some of the company's customers contribute more than 10% of the company's revenue, and the balance of accounts receivable accounts accounts for 10% or more of the company's total accounts receivable. Two customers accounted for 29.5% and 15.5% (unaudited) of the company's revenue for the first six months prior to December 31, 2023. As of December 31, 2023, one customer accounted for 11.7% of the company's trade receivables (unaudited). Due to dependence on some major customers, future changes in the company's relationships with major customers may damage the company's business operations and financial performance.

What can be expected is that with the development of the hotel and restaurant industry, the market for commercial kitchen equipment is still expanding. According to Fior Markets, the global commercial cooking equipment market is expected to reach 140 billion US dollars in 2028, with a projected CAGR of 6.5% from 2021 to 2028.

From the perspective of overall market competition, the current competitive factors in the commercial kitchen equipment industry are mainly reflected in competition for comprehensive capabilities such as technology, R&D, quality, channels, brands, supporting capabilities, and after-sales service, and the market is still facing fierce competition. LIBANG Cookware entered the high-end hotel circuit in a timely manner, and you can enjoy the first-mover dividends of industry growth, and there is no need to worry about room for growth. Furthermore, the US stock listing helped it expand its market share, and there is still momentum for the company's business development.

In summary, in terms of fundamentals, LIBANG cookware cut prices to seek the market, which in turn put pressure on short-term performance. However, during the period, the company's gross margin continued to rise steadily, and its operating capacity improved quite a bit. In the future, under the strong growth momentum of the commercial kitchenware industry, if the company can use the power of the capital market to expand its territory, there is still no shortage of highlights.