Want to run from the OTC market to the main board, but the sustainability of Ruiboli's performance growth is in doubt?

Just one and a half years after landing on the NASDAQ OTC board, RLEA. US) has launched a charge to move to the Nasdaq main board.

Rubber Leaf Inc., a Chinese supplier of automotive rubber and plastic weatherstrips, has filed an initial public offering (IPO) application with the U.S. Securities and Exchange Commission to raise up to $12 million.

According to Zhitong Financial APP, the over-the-counter market (OTC market) provides a financing platform for many companies, especially those that have not yet met the listing standards of the NASDAQ or NYSE. However, the low liquidity and trading volume of the OTC market often limit the further capital operation and expansion of these companies, so many companies trading in the OTC are seeking to transfer to the more reputable and liquid main board market to attract more investors.

So what are the highlights of Ruiboli who wants to hit the NASDAQ motherboard?

Revenues are declining and earnings are fluctuating

Zhitong Financial APP noted that Ruiboli was established in Ningbo in 2019, mainly engaged in the import and export trade, production and sales of synthetic rubber, rubber compounds, window seals, auto parts, etc.

The company's main products include automotive rubber and plastic seals tailored to specific models. These products boast unique personalization features that make the dropshipping model the dominant approach. The company engages directly with automotive OEMs or their first-tier suppliers to qualify suppliers, determine product specifications and models, negotiate product prices and finalize orders. For auto component manufacturers supplying to automotive OEMs, establishing and maintaining partnerships with mainstream automotive OEMs is key to their survival and growth. At present, it has become an important supplier to many major automotive OEMs or OEMs, including Ejet New Energy Automobile Co., Ltd. and Dongfeng Motor.

It is worth mentioning that since the second half of 2023, the company has also signed cooperation agreements with FAW-Volkswagen and Hezhong New Energy Vehicles. Among them, Hezhong New Energy Automobile and the company signed an order for rubber window seals for the whole vehicle, which is expected to have an initial output of between 3,000 and 4,000 sets of rubber window seals, an increase of 2,000 sets per month, and a peak output of 12,000 sets per month.

Although the customer base continues to grow, from the performance point of view, in recent years, the revenue of Ruibo Li has continued to decline. In 2021, 2022 and 2023, the company's operating income will be 14.6006 million US dollars (the same below), 10.6482 million yuan and 9.9902 million yuan respectively. The decline in revenue was accompanied by a fluctuating earnings performance. The corresponding net profit was -3.1695 million yuan, 757,400 yuan and -1.3981 million yuan.

In terms of breakdown, the company's sales and supply model is divided into two types: direct supply and indirect supply. In recent years, the company's revenue from the indirect supply model has been the company's main source of revenue. During the reporting period, the revenue from the indirect supply model was 11.6201 million yuan, 5.3887 million yuan and 8.7096 million yuan, accounting for 79.59%, 50.61% and 87.18% respectively. In the same period, the revenue from the direct supply model was 2.9804 million yuan, 5.2594 million yuan and 1.2806 million yuan respectively, accounting for 20.41%, 49.39% and 12.82% respectively. Regarding the decline in direct supply model revenue in 2023, the company explained that this is mainly due to the suspension of factory production since June 2023, which has led to a decrease in the company's orders. With the resumption of production from late October 2023, the company expects to increase direct sales revenue from easyjet in the second quarter of 2024.

Zhitong Financial APP observed that in 2021 and 2023, the revenue and revenue proportion from the indirect supply model far exceeded the direct supply model, and these two years happened to be the two years of the company's profit loss. Further analysis found that the gross profit margin of the company's direct supply model was much higher than that of the indirect supply model. During the Reporting Period, the gross profit margins of the direct supply mode were 4%, 35% and 23% respectively, while the gross profit margins of the indirect supply mode continued to be negative at -11%, -6% and -4% respectively.

Deeply dependent on related parties

In the unstable revenue performance, Ruibo Li, whose business scale is not too large, relies on the way of deep binding of upstream and downstream to consolidate its industry position.

As the company's business is mainly based on the indirect supply model, the related party Shanghai Xinsen Import and Export Co., Ltd. is the company's most important major customer, accounting for 86% of the company's total annual revenue in 2023. In addition, as the company's other largest customer, Ejet will account for 13% of its revenue in 2023. Combined, these two customers generate nearly 99% of the company's revenue. Such a high level of customer dependence exposes the Company to significant risks, and the Company's future inability to guarantee that it will be able to maintain its existing business relationships with key customers in the future will adversely affect the Company's results. It is worth noting that Shanghai Xinsen is a related party of the company, and the founder and CEO of the company holds 15% of the company's equity.

In addition to the dependence on downstream large customers, the upstream suppliers of Ruiboli also have a high risk of concentration. According to Zhitong Financial APP, the company has been purchasing raw materials from its main supplier, Shanghai Haozong. As of December 31, 2023, 95% of the company's total raw materials purchased came from Shanghai Haozong. Shanghai Haozong is also one of the related parties of the company, and a director of the company holds 30% of its equity.

It can be seen that at present, Ruibo Li relies on related parties for both downstream sales and upstream procurement, and the risk point lies in whether the related party transaction can ensure the fairness of the price. More importantly, from the perspective of the entire supply chain, it is also questionable whether Rainbow has the ability to expand other clients to take charge of itself. In addition, in addition to related party customers, the company's relationship with its other major customer, Ejet, is not stable, which also makes the company's performance stability a question mark.

In addition, the company's ability to continue operations is also in doubt. For the year ended December 31, 2023, the company had cash on hand of approximately RMB41,687, a cumulative deficit of up to RMB3.2 million, and net cash provided by operating activities of only RMB94,676. The company admits in risk factors that it has suffered significant operating losses since its inception. If the company does not have sufficient capital to operate according to the existing plan, the company's revenue performance and profitability will be significantly affected. This may be one of the main reasons for the company's active transfer.

In fact, in recent years, under the background of the rapid evolution of core technologies in the automotive industry and the reshaping of the supply chain pattern, the auto parts industry in mainland China has developed steadily. According to the Huajing Industry Research Institute, the market size of auto parts in mainland China increased from 3.7 trillion yuan to 5.4 trillion yuan from 2017 to 2022, and the market size is expected to reach 7.8 trillion yuan in 2027. In the long run, with the intensification of market competition, it may not be easy for Ruiboli, which does not have outstanding advantages, to stand out. In the short term, it seems that it will be difficult for the company to rely on such fundamentals to move to the Nasdaq.