Fuxing Group: After listing in Singapore, it will go to the United States for IPO, and the cash flow is tight and urgently needs to "replenish blood"

Although the zip track is a niche track, there are also some "new stories" emerging.

On April 2, Fuxing China from Jinjiang, Fujian Province, publicly disclosed its prospectus to the SEC in the United States, intending to be listed on the NASDAQ under the stock code "FFFZ". The Company plans to issue 2,000,000 shares of its common stock at a price of $4-$5 and is expected to raise $9,000,000. Based on the median of the proposed offering price range, Fuxing Group's market capitalization would reach $82 million.

Founded in 1993, the company is a modern large-scale comprehensive enterprise group mainly engaged in the zipper industry, involved in bleaching and dyeing, hardware electroplating, yarn dyeing and weaving, etc., with a diversified 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 the Main Board of Singapore under the symbol "AWK".

So, what is curious is: After many years of listing, Fuxing China is still going to the United States to make money, what is the reason behind it? From the perspective of the development trend of the industry, what is the company's subsequent growth potential? Can it attract investors' investment interest with its strength?

Net profit fell by 95%, and cash flow was tight and urgently needed to "replenish blood"

Founded more than 30 years ago, Fuxing China is obviously a well-known "old brand" zipper enterprise.

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

In 1993, Fuxing China began operations in China, mainly through its wholly-owned subsidiary, Fuxing Zipper. Recognizing the potential growth potential of zipper manufacturing and production in the Chinese market, Fuxing Zipper was established in Jinjiang City, Fujian Province, China in December 1993 as a wholly foreign-owned enterprise, mainly engaged in the production and sales 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 sales of zipper pulls. Subsequently, Fuxing China completed the acquisition of Fulong zipper, Fuxing electroplating and Jianxin weaving in Chinese mainland, forming a complete business territory from zipper production to processing and sales.

However, even after years of development and a large scale of business, Fuxing China's performance does not seem to be stable.

According to the prospectus data, for the six months ended September 30, 2022 and September 30, 2023, Fuxing China's total revenue was US$65.7 million and US$54.1 million respectively, a year-on-year decrease of 17.65%; The net profit was US$4.4 million and US$0.2 million respectively, a year-on-year decrease of 95%.

In terms of business structure, the decline in revenue for the six months ended September 30, 2023 was mainly due to the combined decline in the company's zipper business, trading business and processing services revenue - during the period, the company's revenue from the sale of zipper chains and sliders decreased by approximately US$9.4 million, revenue from zipper processing services decreased by approximately US$1.4 million, revenue from zipper processing services decreased by approximately US$1.4 million, and revenue from trading decreased by approximately US$1.1 million from textile raw materials.

The decline in net profit, in addition to the "drag" of the decline in revenue scale, may also be related 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 US$4.4 million and US$3.9 million, respectively, a year-on-year decrease of 11%, which is basically in line with the revenue decline of the zipper segment and the zipper processing segment.

In addition, during the reporting period, Fuxing China's selling and distribution expenses, general and administrative expenses showed a significant upward trend. Among them, sales and distribution expenses increased from US$0.8 million as at September 30, 2022 to US$0.9 million in 2023, representing a year-on-year increase of 20.8%%; General and administrative expenses increased by 67.6% year-on-year from US$2.1 million as at 30 September 2022 to US$3.5 million in 2023.

It is worth noting that along with the sharp decline in net profit, Fuxing China's cash flow also showed a significant downward trend: for the six months ended September 30, 2023, the company's net cash generated from operating activities was US$3.861 million, a significant decrease from US$13.522 million in the same period of 2022, and the ending cash and cash equivalents also decreased from US$24.699 million on September 30, 2022 to US$18.962 million in the same period of 2023.

Based on the above data, it seems that it is not difficult to understand the "intention" of Fuxing China, which has been listed in Singapore, to still list in the United States.

The recovery of the clothing and luggage industry has prompted the recovery of zipper enterprises?

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

According to the Euromonitor report (2023 edition), the global apparel market has experienced volatility, with a compound annual growth rate ("CAGR") of -0.7% over the past five years (2018 to 2022), which provides a glimpse of the challenges encountered by the apparel industry, including multiple factors such as economic recession, trade frictions and the pandemic. However, as the impact of the epidemic gradually subsides and the global economy recovers, 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% in the next five years (2023-2027).

At the same time, the luggage market is expected to continue to recover in 2023. Euromonitor predicts that the market will grow at a CAGR of 6.3% over the next five years (2023-2027) for retail sales. As countries declare 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 outpace the luggage category, with a projected CAGR of 7.0% over the next five years.

Catalyzed by the two major markets, the zipper industry has naturally shown an obvious recovery trend.

According to Euromonitor, the Chinese mainland zipper market grew at a compound annual growth rate of 3.7% from 2018 to 2022. In 2020, due to the impact of the epidemic, the zipper market shrank by 9.3% year-on-year. In 2021, domestic apparel manufacturers were able to accept orders sent to manufacturers in other countries. Affected by this, China's zipper market recovered rapidly, and sales soared by 25.1% year-on-year. In 2022, due to the impact of the continuous epidemic prevention and control policies in China, although the zipper market has also formed a certain negative impact, driven by the strong demand in the Southeast Asian market, China's zipper exports will hit a record high.

Now, with the continuous recovery of the apparel industry and luggage industry, the zipper market in Chinese mainland is expected to grow at a CAGR of 2.7% from 2023 to 2027, and reach a value of $8,163.3 million in 2026. In addition, as the overall demand increases, product functions become more innovative and specialized, and the market is more concentrated in 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 fierce competition in the industry.

According to the statistics of the China Zipper Association, there are about 2,000 zipper manufacturers in Chinese mainland. Looking ahead, small and medium-sized zipper companies are expected to face greater operational difficulties due to continuous improvement in quality standards, more competition in the recruitment of workers, 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 mid-to-high-end segment of China's zipper market was worth $3.5 billion, accounting for nearly half of the market share. At the top of the list 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 above-mentioned leading enterprises have certain scale advantages and product advantages, which will inevitably cause certain pressure on Fuxing Group to open up the market.

To sum up, although Fuxing Group, which has poor fundamental performance and intensified competition in the industry, has certain growth potential, its overall attractiveness may still need to be improved.