Recently, a Hong Kong-based enterprise software solutions and services provider, Shenzhen Hifuture Information Technology (WCT.US), successfully debuted on the NASDAQ market. The company had a long journey to its IPO, as early as September 2023, it had confidentially submitted its prospectus to the SEC (U.S. Securities and Exchange Commission), and it took over a year to successfully go public.

In this IPO, Shenzhen Hifuture Information Technology plans to sell 2 million shares at $4 per share, including 1.1 million new shares and 0.9 million old shares, raising a total of $8 million. The company's stock price has been rising for multiple days after listing, closing at $8.98 on November 11th, up 124% from the issuance price a month ago.

The prospectus shows that the pre-IPO investors of Shenzhen Hifuture Information Technology include Ocean Serene (holding 4.5% of the total issued shares), Paramount Fortune (holding 3.5%), and Prestige Leader (holding 3%).

From a performance perspective, the company achieved double-digit growth in revenue and net income in the 2023 fiscal year, making it a "small but beautiful" local SaaS service provider in Hong Kong. However, it is worth noting that the U.S. stock market has no shortage of Chinese concept stocks in the SaaS track. Currently, Shenzhen Hifuture Information Technology's price-to-earnings ratio (TTM) has reached 203.67, far exceeding the valuation of similar stocks.

What are the key points of Shenzhen Hifuture Information Technology's fundamentals? This needs to be explored from its prospectus.

Subscription service growth is strong, with overall performance shining.

According to public information, Shenzhen Hifuture Information Technology from Hong Kong is a high-end supplier specializing in enterprise software solutions and services. The company's core business includes designing and implementing custom software solutions, building and operating cloud-based SaaS platforms, and customizing and developing white label software. With its strong technical capabilities and industry experience, Shenzhen Hifuture Information Technology is committed to providing efficient, secure, and customizable software service solutions to global customers.

From the perspective of revenue structure, the company's business can be divided into three sectors: first, sales of customized software solutions tailored to customer needs, which has gained wide market recognition for its high flexibility and targeted approach; second, development and licensing of white label software, supporting partners with branded, customizable software products to quickly enter the market and expand business scale; and third, subscription services based on the SaaS platform, providing customers with convenient software usage and ensuring a stable source of revenue.

Financial data shows that as of December 31, 2023, the company's revenue for the 2023 fiscal year was approximately $2.49 million, a year-on-year increase of 49% from $1.67 million in the same period last year; net income was $0.9376 million, a 20% year-on-year increase from $0.7806 million in the same period last year. The company mentioned that this growth was mainly driven by a 115.5% increase in revenue from custom software solutions, a 363.4% increase in subscription service revenue, offset by a 50.1% decrease in revenue from white label software sales.

In the 2022 and 2023 fiscal years, revenue from custom software solutions accounted for approximately 50.3% and 72.8% of total revenue respectively, with customer orders increasing from 18 in 2022 to 46 in 2023 for the full year; revenue share from white label software decreased from 45.9% in 2022 to 15.4%, while subscription service revenue share increased from 3.8% to 11.8%. The average contract amount for the latter grew from about $2756 in the same period last year to $8999.

In the 2023 fiscal year, revenue costs including intangible asset amortization, subcontracting costs, IT personnel costs, and server rentals totaled $0.5476 million, a 55.2% year-on-year increase slightly exceeding the revenue growth rate, primarily due to increased amortization of intangible assets related to the purchase and maintenance costs of ERP systems from third parties.

For the 2022 and 2023 fiscal years, the gross margin was 78.9% and 78.0% of revenue, respectively. As of December 31, 2023, the net cash generated from operating activities was $0.7972 million.

Due to its relatively small business scale, the company's performance largely depends on a few major clients. In the 2022 fiscal year, two clients accounted for 45.9% and 12.2% of the total revenue, while three clients accounted for 69.9%, 14.6%, and 11.3% of the total accounts receivable; in the 2023 fiscal year, one client still accounted for 11.8% of the total accounts receivable.

The prospectus indicates that the main customers of Shenzhen Hifuture Information Technology's custom software business are small and medium-sized enterprises from various vertical service sectors, such as retailers, e-commerce companies, dining establishments, food and beverage businesses, marketing institutions, real estate agencies, educational institutions, insurance companies, or logistics organizations.

As of the date of the prospectus release, the company has delivered 64 websites and web-based application projects, and 61 mobile application development projects, with functions including billing, business management, virtual office, instant messaging, teleconferencing and VoIP, reservations and ticketing, e-commerce, and business intelligence.

Focusing on small and medium-sized enterprise customers, the SaaS cloud platform seizes market share at a low price.

Looking at the company's fundamentals, cloud services may become one of Shenzhen Hifuture Information Technology's biggest highlights. In the 2023 fiscal year, the revenue share of the company's cloud subscription services rapidly increased from 3.8% to 11.8%, becoming the fastest-growing revenue segment.

According to the prospectus disclosure, Shenzhen Hifuture Information Technology launched its proprietary cloud-based SaaS ERP software platform, Mr. CLOUD, in 2020, aiming to provide small and medium-sized enterprise customers with an easy-to-use, reasonably priced, comprehensive, and user-friendly ERP software solution. Mr. CLOUD features multi-module, multi-tenant, and scalable characteristics, supporting operations on web, iOS, and Android platforms.

Smart Finance News APP learned that compared to leading companies in the industry such as Oracle, MR. CLOUD has a significant price advantage. For example, Oracle's cloud ERP platform costs about 1 million Hong Kong dollars, SAP SE's SAP ERP costs about 3 million to 4 million Hong Kong dollars, while Shenzhen Hifuture Information Technology's ERP product is priced at less than 0.1 million Hong Kong dollars and offers a 14-day trial period.

MR. CLOUD integrates ten major modules including human resource management, project management, email marketing automation, financial accounting management, quote and invoice management, inventory management, group messaging, customer relationship management (CRM), sales management, and document management. The company's current research and development efforts are mainly focused on expanding and improving the Mr. CLOUD platform, which is expected to contribute more performance increment in the future.

In recent years, although the growth rate of China's enterprise-level SaaS industry has slowed down, the overall market size is still steadily increasing. According to statistics from the China Information and Communications Institute, China's SaaS market size reached 58.1 billion yuan in 2023, with a growth rate of about 23.1%.

With the adoption of technologies like machine learning and artificial intelligence, technological changes are providing new growth opportunities for many participants in the SaaS market. At the same time, the industry also faces many challenges such as high customer acquisition costs, lack of universal evaluation standards, data security, and privacy issues.

The growth ceiling is limited, posing hidden concerns for future development.

As a SaaS and PaaS service provider mainly serving small and medium-sized enterprises, Shenzhen Hifuture Information Technology's business is not only driven by the rapid development of e-commerce and online payments but also benefits from the demand for automation, digitization transformation of small and medium-sized enterprises, and the paperless demand brought by sustainable development policies.

With the continuous recovery of the Hong Kong economy, Shenzhen Hifuture Information Technology's performance is on the rise. Data shows that in the first half of 2024, the total number of newly established local companies in Hong Kong was 0.0667 million; as of the end of June, the total number of Hong Kong local companies registered under the "Companies Ordinance" reached 1.4409 million, setting a new historical record.

With its unique geographical advantage, open market environment, and superior business policies, Hong Kong will continue to attract a large number of enterprises and international funds. However, limited to Hong Kong alone, Shenzhen Hifuture Information Technology's future growth ceiling is not considered high and may become a concern for market investors.

The company stated in the prospectus that it plans to expand its business in Singapore and Australia through strategic acquisitions and partnerships in the future and eventually expand its business and customer base to the United States. However, there is currently no substantive discussion about any potential targets.

On the other hand, the company is expanding its IT business related to online marketing, including search engine optimization (SEO), email marketing, social media marketing, and content marketing. For this purpose, the company has developed features such as mobile membership, shopping websites, and POS payments.

It can be seen that due to the rapid development of cloud service business, Shenzhen Hifuture Information Technology has achieved outstanding performance. However, limited by its small business scale, the company will still face considerable uncertainty in the future. At the same time, the current financing enthusiasm in the SaaS track where the company is located is not as high as before, weakening the company's potential valuation growth space.