The listing performance of Libang kitchenware (LBGJ.US) is most appropriately described as 'strong start, weak finish.'

On October 23, Libang kitchenware soared 16% on its first day of listing, reaching a high of 5.5 US dollars during the day, a strong increase of 37.5% over the issue price of 4 US dollars. At the close of the first day, the company closed at 4.1 US dollars, narrowing the increase to 2.5%, with a trading volume of 1.57654 million shares. On the 24th, Libang kitchenware once again staged the drama of opening high and closing low, with a closing decline of 4.15%, reporting 3.93 US dollars, falling below the issue price, with a total market value of 72.7836 million US dollars, approximately 0.518 billion RMB.

Customers mainly in high-end hotels need to test price reduction and market expansion

The prospectus shows that Libang kitchenware is engaged in the design, research and development, production, installation, and after-sales maintenance of commercial kitchen equipment. In terms of product layout, the company's current production includes over 80 varieties from 13 series of commercial kitchen accessories such as steaming, cooking, baking, frying, disinfecting, conditioning, refrigerating, as well as more than 300 varieties of stainless steel kitchen equipment, cooking and food preparation instruments, hotel supplies, kitchen appliance accessories, etc.

According to the company's official website, Libang kitchenware currently has nearly 200 employees and has established branches and branch offices in cities such as Shanghai, Hangzhou, Nanjing, and Suzhou. The company has an existing factory area of 25,000 square meters, with fixed assets in tens of millions, mainly focusing on the Yangtze River Delta region.

Currently, libang kitchenware's main customer base includes hotels, companies, public institutions, educational institutions, hospitals, etc. As of the fiscal year ending December 31, 2023, the company has a total of 72 customers, a significant decrease from 150 as of June 30. In terms of revenue distribution, schools and hotels are the company's main sources of customer revenue.

In terms of performance, from the fiscal year 2022 to the fiscal year 2023 (with the fiscal year ending on June 30 each year), libang kitchenware's revenue was 13.4791 million USD, 14.0045 million USD, respectively. The corresponding net profits were 84.81 USD, 0.6168 million USD, showing increased revenue but not increased profit. As for the operating performance for the six months ending on December 31, 2022, and December 31, 2023 (referred to as the reporting period), the company's revenue was 8.0639 million USD and 3.7298 million USD, down by 53.7% year-on-year; net profits were 0.825 million USD and -1.463 million USD, indicating a shift from profit to loss.

From a business perspective, libang kitchenware's business can be divided into project revenue and retail revenue, with project revenue accounting for over 90%. In the six months ending December 31, 2023, project sales were 3.429 million USD, a 55.2% year-on-year decrease. The substantial reduction in main business led to the company's revenue loss.

The company stated that the business decline was mainly due to: firstly, the slowdown of the Chinese economy, negative growth affecting project numbers; secondly, as the company expanded into high-end hotel kitchen projects, the project mix changed; thirdly, due to the company's decision to attract potential customers in Chongqing and other central and western regions of China, enhancing brand recognition by reducing project quotes.

In recent years, the domestic economic outlook has not been very positive, but the financial data of industry peers Hangzhou Robam Appliances (002508.SZ) and Zhejiang Supor (002032.SZ) have presented good results. The former had a slight decline in 2024, while the latter hit a new high in the first half of 2024. In contrast, the company experienced a significant decline in revenue in the first half of 2024 (i.e., the second half of the fiscal year 2023).

Even worse, the company reduced prices to attract new customers and explore markets. While this logic is initially understandable, the company's revenue plummeted after the price reduction. This indicates not just weak bargaining power but also difficulties in attracting new customers and a risk of losing existing customers.

In short, the revenue was halved, the profits turned losses around, resulting in pressure on the company's liquidity. During the reporting period, the cash flow generated from operating activities was negative, amounting to 0.436 million yuan and -0.172 million yuan respectively; the year-end cash and restricted cash sharply decreased to 0.479 million yuan and 0.309 million yuan respectively.

Gross margin has become a bright spot, with fluctuating operational capabilities.

Despite the company's performance pressure, the gross margin has become one of its few bright spots. From the 2022 fiscal year to the 2023 fiscal year, the company's gross margin increased from 36.0% to 41.1% in 2023. Based on a mere 3.7% year-on-year increase in revenue for the company's fiscal year 2023, the company has made noticeable progress in cost control.

Behind the growth of Libang Kitchenware's revenue, the company also made good progress in destocking in the 2023 fiscal year.

As one of the key indicators for measuring the performance of manufacturing enterprises, in the 2023 fiscal year, Libang Kitchenware's inventory turnover days decreased. The proportion of inventory balance to total current assets decreased from 17.32% in 2022 to 10.12%; the inventory turnover days also decreased from 128 days in the 2022 fiscal year to 80 days in 2023.

However, as of December 31, 2023, the company's inventory turnover worsened again, increasing to 205 days. The company stated that due to the large scale of hotel projects and high acceptance standards, the company's inventory compilation for production and delivery led to longer inventory turnover days.

Despite fluctuations in inventory turnover, it indicates that the company still has progress in operational capabilities.

In addition, according to the Wise News Finance APP, the company's accounts receivable reached 10.8398 million and 14.9192 million US dollars in the 2022 and 2023 fiscal years respectively, with a year-on-year increase of 37.63% in 2023, and accounts receivable as a percentage of revenue were 80.42% and 106.53% respectively, reaching the highest level in recent years in the 2023 fiscal year.

Behind the untimely collection of payments is the aftermath of the company's reliance on a small number of clients. For example, some clients contribute more than 10% of the revenue, while the accounts receivable balance from these clients represents 10% or more of the total accounts receivable of the company. In the six months before December 31, 2023, two clients accounted for 29.5% and 15.5% of the company's revenue (unaudited). As of December 31, 2023, one client represented 11.7% of the company's trade receivables (unaudited). Due to the reliance on key clients, changes in the company's relationship with them in the future may potentially harm the company's business operations and financial performance.

Looking ahead, as the hotel and dining industry develops, the market for commercial kitchen equipment is still expanding. According to Fior Markets, the global market size for commercial cooking equipment is expected to reach $140 billion by 2028, with a forecasted compound annual growth rate of 6.5% from 2021 to 2028.

From the perspective of overall market competition, the competitive factors in the current commercial kitchen equipment industry mainly focus on competition in comprehensive capabilities such as technology, research and development, quality, distribution channels, brand, supporting capabilities, and after-sales services. The market still faces intense competition. Libang Kitchenware timely entered the high-end hotel track, benefiting from the industry's growth early on without concerns about growth space. In addition, its listing on the US stock market provides impetus to expand market share, and the company's business development still has momentum.

In summary, from a fundamental perspective, Libang Kitchenware reduced prices to attract the market, leading to short-term performance pressure. However, during the period, the company's gross margin remains stable with improving operational capabilities. In the future, under the strong growth trend in the commercial kitchen equipment industry, if the company can leverage the power of the capital markets to expand its territory, there are still promising opportunities.