After initially submitting the public version of the prospectus (F-1 document) to the SEC on April 1, Xinxu Copper updated the prospectus on August 12 to continue driving its journey towards a US listing.

According to the prospectus, Xinxu Copper has applied to be listed on NASDAQ with the code 'XXC' and aims to raise $15 million in funds in this IPO, but the scale and price of the share issuance have not been disclosed yet.

However, in terms of performance, Xinxu Copper's results are disappointing. The data shows that Xinxu Copper's revenue for the 2023 fiscal year (12 months ending June 30) was $0.171 billion, a year-on-year increase of 59%. However, the net profit for the period changed from profit to loss, with a loss of $0.2731 million recorded, while the profit for the 2022 fiscal year was $1.113 million.

In the first half of the 2024 fiscal year (6 months ending December 31, 2023), Xinxu Copper's performance further declined, with revenue in the period decreasing by 54.28% to $49.2583 million, and a net loss of $0.3013 million, while the net profit for the first half of the 2023 fiscal year was $0.5198 million.

Why is Xinxu Copper's performance continuously declining, and will this affect the company's IPO valuation? The truth can be explored through the prospectus.

The low proportion of proprietary brands, with more than 80% accounted for by resale product revenue.

Xinxu Copper Industry is mainly engaged in the research and development, manufacturing, processing, sales, and distribution of copper and copper alloy products. Its products mainly include T2 purple copper rods, T2 tin-plated copper rods, T2 copper rods and bars, electrolytic copper, etc. Xinxu produces finished and semi-finished copper products from copper cathodes and waste copper wires using metal casting, extrusion, and drawing processes.

Xinxu Copper Industry's products are widely used in electronic and electrical components, telecommunications, autos, air conditioners, ships, metallurgy, electromechanical, transportation, construction and housing, distribution, solar energy, and other industries.

According to the prospectus, Xinxu Copper Industry has an operating area of approximately 43,330 square meters in Wuhu City, Anhui Province, China, employing around 200 employees. As of August 9th, Xinxu Copper Industry has five operational manufacturing workshops covering an area of about 21,860 square meters, with six production lines and an annual production capacity of about 0.02 million tons.

In terms of customers, Xinxu Copper Industry expands its customer base through direct sales. As of August 9th this year, it has around 257 customers covering 15 provinces and municipalities in China, including Beijing, Shanghai, Anhui, Zhejiang, Jiangsu, and Guangdong.

In terms of revenue structure, Xinxu Copper Industry's revenue mainly comes from three sources: sales of its own 'Xinxu' branded copper products, resale of copper raw materials (mainly electrolytic copper), and service fees charged for processing customized copper products for customers. In the 2023 fiscal year, revenue from the company's own brand accounted for 14.09% of total revenue, while revenue from the resale of copper raw materials accounted for 85.9%. It is evident that Xinxu Copper Industry's current revenue structure is still mainly focused on resale, with a relatively small proportion from its own branded products.

In the 2023 fiscal year, Xinxu Copper Industry's revenue increased by 59% to $0.171 billion mainly due to historically low market prices for electrolytic copper during the reporting period. This led to a significant increase of 83.59% in revenue from the resale of copper materials, driving the overall revenue growth of the company. However, sales revenue from the company's own branded products decreased by 15.3% during the period. This was mainly due to Xinxu reducing the supply of certain high-margin products to customers and discontinuing business with customers with poor credit ratings, focusing instead on developing and selling copper bars and copper distribution components widely used in electric vehicle battery packs.

Despite the significant increase in revenue in the 2023 fiscal year, Xinxu Copper Industry's net income turned from profit to loss. This is mainly because the low gross profit level of electrolytic copper, despite the significant increase in sales volume, dragged down the company's overall profitability. Additionally, the rise in copper prices resulted in increased raw material costs for the company. Under the combined effect of these two factors, Xinxu Copper Industry's gross margin for the 2023 fiscal year decreased from 3% to 1.2%, a significant year-on-year decrease of 37%. Coupled with the increase in operating expenses and interest expenses, it further suppressed Xinxu Copper Industry's profit capability.

Entering the first half of the 2024 fiscal year, Xin Xu Copper's own brand products as well as resold electrolytic copper products have seen a significant decline in income due to insufficient market demand, dragging down the total revenue for the period. In addition, the decline in gross margin and a substantial increase of 62.75% in total operating expenses have led to increased losses for the company.

From the balance sheet perspective, Xin Xu Copper is at a relatively high level of debt. According to the prospectus, as of December 31, 2023, Xin Xu Copper's total assets were 24.1569 million US dollars, total liabilities were 21.4744 million US dollars, with an asset-liability ratio of 88.89%.

Intense market competition presents challenges, with a high concentration of customers posing risks.

From the industry perspective, looking at the long term, benefiting from the rapid development of the electrical utilities industry, new energy sectors (such as photovoltaics, wind power), widespread adoption of 5G technology, rapid growth in the electric autos market, and the drive from the construction and transportation sectors among others, China's copper demand is expected to grow steadily.

However, from a competitive landscape perspective, the copper processing industry is fiercely competitive. According to data from the Chinese corporate database Qi Cha Mao, currently, copper processing enterprises in China are mainly concentrated in the East and South China regions, with the highest number of enterprises in Zhejiang Province. As of September 2022, Zhejiang had a total of 1010 copper processing-related enterprises, with Jiangsu ranking second at 876 companies.

Furthermore, the market competition landscape of the industry shows a diversified characteristic with numerous enterprises within the industry, including large state-owned enterprises, private enterprises, and foreign enterprises, each possessing different competitive advantages in areas such as copper mining, smelting, and processing. Representative enterprises such as Jiangxi Copper, Zhejiang Hailiang, Ningbo Boway Alloy Material, Ningbo Jintian Copper(Group) have relatively comprehensive product layouts, while most other enterprises specialize in specific products.

It is worth noting that China's entire copper processing industry is showing a differentiated situation, with a relatively tight supply of high-end copper products, especially those with special properties or used in cutting-edge technologies, often requiring imports to meet demand. Some low-end copper products are facing issues of overcapacity, intense market competition, and squeezed profit margins. Therefore, the key to establishing a competitive advantage for copper processing enterprises lies in technological advancement and product sophistication.

From the current product types and revenue structure of Xinxu Copper, its main source of revenue is the resale of electrolytic copper, which has relatively low value content and faces fierce market competition, thus its gross margin level is relatively low and it is difficult to withstand fluctuations in raw material prices. This also leads to significant fluctuations in Xinxu Copper's profit.

In addition, Xinxu Copper has highly concentrated customers. According to the prospectus, in the 6 months ending on December 31, 2023, the top three customers of Xinxu Copper accounted for 51.12%, 13.82%, and 13.24% of the revenue respectively, totaling as high as 78.18%. Over-reliance on top customers will lead to relatively low bargaining power for Xinxu Copper, and if customer demand weakens, it will also impact Xinxu Copper's business operation.

Therefore, if Xinxu Copper wants to achieve a high valuation in the capital markets, its technology and products need to transition to high-end and upgrade, increase the number of customers, reduce customer concentration, and lower potential business risks.