In the rapidly changing technological age, the pace of electronic product updates will continue to accelerate in the future, yet there is a large gap in the domestic electronic waste recycling market.

According to data from the “White Paper on China's Waste Electrical and Electronic Product Recycling and Comprehensive Utilization Industry 2023”, the theoretical waste volume of the first batch of catalogue products in 2023 was 0.26 billion units. At the same time, the standardized recycling rate for electronic waste was only 37.2%. This means that the recycling of electronic waste in China still has a lot of room for development.

On November 26, Creative Global Technology Holdings Limited (hereinafter: Chuangzhi Global Technology), the substantial holding company of Chuangzhi Global Technology Co., Ltd., an electronic product recycler from Hong Kong, entered the US stock capital market for the first time. By the close of the first day, Chuangzhi Global Technology (CGTL.US) closed at $3.91 per share, down 2.25% from the IPO issue price of $4 per share. Currently, the market capitalization is $83.09 million.

Increased revenue did not increase profit

The Zhitong Finance App learned that Chuangzhi Global is an electronic product recycler from Hong Kong. The company was founded in 2016 and mainly operates through CGTHK, purchasing and reselling recycled consumer electronics devices (currently mainly smartphones, tablets, and laptops) from suppliers in the US, Japan, and other developed countries, and then sells these products to Southeast Asia and other regions.

If you compare it to “players” in the domestic market, its business is quite similar to that which focuses on the second-hand 3C recycling business, and love recycling. According to the Frost & Sullivan report, the company is part of the wholesale refurbishment service provider (refurbishment service provider) in the industry value chain, and the company will inspect, evaluate, grade, and repackage the purchased products. According to the prospectus, the consumer electronics equipment purchased by the company can be accurately classified into their respective grades and prices by passing tests and inspections on more than a dozen projects. Additionally, the company divided the tested equipment into five levels, from A (highest) to F (lowest), according to its conditions. After that, the company will also further adjust the valuation based on self-developed databases and self-developed algorithms.

In terms of performance, in the past fiscal year 2022, 2023 (the fiscal year ends on September 30 of each year) and the first six months of fiscal year 2024 (ending March 31, 2024), Chuangzhi Global Technology's revenue was 27.8592 million yuan (unit: US dollar, same below), 50.2789 million yuan, and 20.5335 million yuan, respectively. The corresponding net profit was 3.4068 million yuan, 3.1553 million yuan, and 1.5299 million yuan, respectively million yuan. Simply put, in the fiscal year 2022 to 2023, Chuangchuang Global Technology's revenue did not increase significantly, but profit.

As can be seen from the dismantling of its business structure, most of the company's revenue comes from the recycling consumer electronics wholesale business, which accounted for 99.8% and 99.9% of total revenue for fiscal year 2023 and fiscal year 2024, respectively. In other words, all of the company's performance and business so far has come from the recycling and resale of used 3C's, which is the company's biggest source of revenue now and in the future, and a symbol of the company's single business.

Furthermore, as of March 31, 2024, the company's net inventory was $8.468 million, compared to $5.75 million for the same period last year. As the company plans to continue to expand its product supply, it is expected to include more types of used consumer electronics devices in its inventory, which will make it more challenging to effectively manage inventory. If inventory is not successfully managed, the company will face higher risks of scrapping, declining inventory value, and significant inventory write-down or write-off.

It is worth noting that the company is also planning to expand its business globally, but in reality, the complexity and capital requirements of cross-market operations may exceed expectations. In particular, plans to build maintenance and refurbishment plants, whether capital investment is sufficient, and whether market demand is clear are all significant challenges.

Furthermore, it is also worth paying attention to whether the company's stock price can gain a foothold. The issue price of $4 is not high, but for a small-cap stock, initial trading may be accompanied by high volatility. If the growth story cannot be realized in the future, market capitalization may be under pressure.

Used Apple products account for 90% of sales, and there is no shortage of competitors in the market

As an important part of the circular economy, the development of used and idle goods has attracted much attention in recent years. On the one hand, second-hand and idle goods trading can give full play to the residual value of goods and is in line with the principle of “reduction, recycling, and reuse” in the circular economy; on the other hand, the potential for carbon reduction benefits brought by second-hand trading is huge, so even in the international market, the trading and circulation of idle 3C products has gradually formed a new industrial chain.

However, looking closely at Chuangzhi Global's listing documents, the single source of revenue seems to have extended from business development to product brands. Looking at a further breakdown, the company's business is mainly focused on mobile phones and tablets. For the six months ending March 31, 2024 and March 31, 2023, the company derived 82.4% and 92.5% of its revenue from mobile phone and tablet sales, respectively.

In the six months ending March 31, 2024 and March 31, 2023, about 99.8% and 99.9% of the company's revenue came from sales of used Apple products, including iPhones, iPads, MacBooks, Apple Watch, etc. Notably, the company's future growth and profitability will largely depend on its ability to maintain close and mutually beneficial relationships with existing customers and expand its customer base. This concentration exposes the company to higher risks associated with Apple products. If Apple's production or supply chain is interrupted, or if major product quality issues occur, Chuangzhi Global Technology's business and operating results will be adversely affected.

Looking at the 3C product market, shipment volume is closely related to the boom in the mobile phone market. Up to now, the global smartphone market has not handed over a single successful questionnaire. According to data released by Canalys, the global smart market fell 13% year on year in the first quarter of 2023, the fifth consecutive quarter of decline. The market research agency DIGITIMES Research predicts that global smartphone shipments will drop 6.4% year on year in the second quarter of this year.

In a market where the cold hasn't dissipated, used phones have drawn an upward curve. The domestic used mobile phone industry has clearly rebounded since this year, and the used mobile phone trade is becoming more and more popular. According to financial data released by iRecycle, its performance surpassed traditional off-season expectations of the second-hand industry. The year-on-year growth rate for the first quarter rebounded to more than 30%, total revenue reached 2.872 billion yuan, and non-GAAP operating profit was 44 million yuan.

However, according to data released by Retweet, top brands such as iPhone, Xiaomi, and Huawei have become the consumer's first choice and occupy the vast majority of the market. In total, leading brands account for 93.94% of the market share, and iPhones continue to be “lonely” in the second-hand market.

Furthermore, Apple itself upgraded and adjusted services such as the Apple Trade In exchange program and Apple Care this year. In response, Apple CEO Tim Cook said he hoped users would consider the fate of mobile phones more, turn phones from waste into treasure, and reuse resources. In view of this, Chuangzhi Global's living space and market share may be further squeezed in the face of market contraction, increased competition, and salary pumping.