Although the Zip Track is a very niche track, there is no shortage of “new stories” appearing.

On April 2, Fuxing China from Jinjiang, Fujian publicly disclosed its prospectus to the US SEC to be listed on the NASDAQ under the stock code “FFFZ”. The company plans to issue 2 million shares of common stock at a price of 4-5 US dollars and is expected to raise 9 million US dollars. Based on the median value of the proposed issue price range, the market value of Fuxing Group will reach 82 million US dollars.

Established in 1993, the company is a large modern integrated enterprise group mainly in the zipper industry, involved in bleaching, hardware electroplating, and yarn dyeing and weaving. It has a diverse customer base of more than 1,600 customers in China, including many well-known brands such as Anta, Seven Wolves, Li Ning, 361°, Samsonite, and Arctic China. In 2007, the company was listed on Singapore motherboards under the code “AWK”.

So, what is curious: after many years of listing, Fuxing China is still going to the US to get gold. What is the reason behind it? Judging from the development trend of the industry, what is the company's potential for future growth? Can you attract investors' interest with strength?

Net profit fell 95%, and cash flow is tight and there is an urgent need to “supplement blood”

Established over 30 years ago, Fuxing China can clearly be considered a well-known “old brand” zipper company.

According to the Euromonitor report (2023 edition), Fuxing China is the fourth largest zipper manufacturer in mainland China in terms of 2021 sales.

In 1993, Fuxing China began operations in China mainly through its wholly-owned subsidiary Fuxing Zipper. After recognizing the potential growth potential of zipper manufacturing and production in the Chinese market, Fuxing Zipper was established in December 1993 in Jinjiang City, Fujian Province, China. It is a wholly foreign-owned enterprise, mainly engaged in the production and sale of nylon continuous zippers and other related products.

In 1995, the company founded the “3F” brand, and in the same year, Fuxing Apparel was established, mainly engaged in the production and sale of zipper heads. Subsequently, Fuxing China also completed acquisitions of Fulong Zippers, Fuxing Electroplating, and Jianxin Weaving in mainland China, forming a complete business layout from zipper production to processing and sales.

However, even after years of development and huge scale of business, Fuxing China's performance seems to be unstable.

According to the prospectus data, for the six months ended September 30, 2022 and September 30, 2023, Fuxing China achieved total revenue of 65.7 million US dollars and 54.1 million US dollars, respectively, a year-on-year decrease of 17.65%; realized net profit was 4.4 million US dollars and 200,000 US dollars respectively, down as much as 95% year on year.

Looking at the split business structure, Fuxing China's revenue decline for the six months ended September 30, 2023 was mainly due to the combined decline in revenue from the company's zipper business, trading business and processing services — during the period, the company's revenue from zipper chain sales decreased by about US$9.4 million, revenue from zipper processing services decreased by about US$1.4 million, and revenue from trade decreased by about US$1.1 million in textile raw materials.

However, in addition to being “dragged down” by the decline in revenue scale, the decline in net profit is probably also unrelated to the decline in gross profit and the increase in marketing expenses.

According to the prospectus data, for the six months ended September 30, 2022 and September 30, 2023, Fuxing China recorded gross profit of 4.4 million US dollars and 3.9 million US dollars respectively, a year-on-year decrease of 11%, which is basically in line with the decline in revenue of the zipper division and the zipper processing division.

In addition, sales and distribution expenses, general and administrative expenses of Fuxing China showed a sharp rise during the reporting period. Among them, sales and distribution expenses increased from 800,000 US dollars on September 30, 2022 to 900,000 US dollars in 2023, up 20.8% year on year; general and administrative expenses increased from 2.1 million US dollars on September 30, 2022 to 3.5 million US dollars in 2023, an increase of 67.6% year on year.

Notably, along with the sharp decline in net profit, Fuxing China's cash flow also showed a clear downward trend: in the six months ended September 30, 2023, the company's net cash generated from operating activities was US$38.61 million, a sharp decrease from US$221.35 million in the same period in 2022. Cash and cash equivalents at the end of the period also fell from US$246.99 million on September 30, 2022 to US$18.962 million in the same period in 2023.

Based on the above data, it seems easy to understand the “intention” of Fuxing China, which is already listed in Singapore, to go public in the US.

Is the recovery of the clothing and luggage industry spurring the recovery of zipper companies?

The zipper industry is closely related to the clothing and luggage industry, and the remarkable recovery in the clothing and luggage industry has obviously brought new development impetus to related zipper manufacturers.

According to the Euromonitor Report (2023 edition), the global apparel market has experienced fluctuations, with a compound annual growth rate (“CAGR”) of -0.7% over the past five years (2018 to 2022). From this, it is easy to see the challenges faced by the apparel industry, including the shackles of multiple factors such as economic recession, trade frictions, and the COVID-19 pandemic. However, as the impact of the pandemic gradually subsides and the global economy picks up, the global apparel market has also begun to show a clear recovery trend, and will grow at a compound annual growth rate of 4.9% over the next five years (2023-2027).

Meanwhile, the luggage market is expected to continue recovering in 2023. According to Euromonitor's forecast, the market will grow at a CAGR of 6.3% retail sales over the next five years (2023-2027). As countries announce the end of the pandemic, travel patterns are returning to their previous state. According to the Euromonitor report (2023 edition), the luggage category is expected to grow faster than the luggage category, with a CAGR of 7.0% over the next five years.

Under the joint catalysts of the two major markets, the zipper industry naturally showed a clear recovery trend.

According to Euromonitor, the zipper market in mainland China grew at a CAGR of 3.7% from 2018 to 2022. In 2020, due to the impact of the epidemic, the zipper market contracted by 9.3% year on year. In 2021, domestic garment manufacturers will be able to accept orders sent to manufacturers in other countries. Affected by this, China's zipper market recovered rapidly, and sales soared 25.1% year over year. In 2022, due to the ongoing domestic epidemic prevention and control policies, although the zipper market also had a certain negative impact, driven by strong demand in the Southeast Asian market, China's zipper exports reached a record high.

Today, with the continuous recovery of the garment industry and luggage industry, the zipper market in mainland China is expected to grow at a compound annual growth rate of 2.7% from 2023 to 2027, and reach a value of US$8.163.3 billion in 2026. Furthermore, as overall demand increases, product features become more innovative and specialized, and the market is more concentrated on leading brands, the value of zippers made in China is expected to rise.

However, it should be noted that in addition to the recovery of the zipper industry, there is also a risk of intense competition in the industry.

According to statistics from the ****pper Association, there are about 2,000 zipper manufacturers in mainland China. Looking forward to the future, small and medium-sized zipper enterprises are expected to face greater operational difficulties due to the continuous improvement of quality standards, more intense competition for worker recruitment, and stricter environmental regulations. As a result, China's zipper industry is expected to become more concentrated.

At the same time, there is no shortage of well-known foreign brands seizing market share in the domestic high-end zipper market. In 2022, the high-end segment of the Chinese zipper market was worth US$3.5 billion, accounting for nearly half of the market share. Number one is YKK, a Japanese multinational company and a global leader in the zipper industry. The largest zipper manufacturers (brands) in China are SAB, SBS, and Fuxing Group (3F). Most of the leading companies mentioned above have certain scale advantages and product advantages, which will inevitably put some pressure on Fuxing Group's efforts to develop the market.

In summary, although Fuxing Group, which has poor fundamental performance and increased competition in the industry, has some potential for growth, its overall appeal may still need to be improved.