In the context of the global "Industry 4.0", machine vision, as a technology with both accurate and efficient characteristics, has attracted extensive attention from countries around the world. With the increasing application of the Internet of Things in the industrial field, the continuous improvement of the computing power of embedded computer systems, and the continuous improvement of factory automation, global manufacturing enterprises are experiencing a process of transformation and upgrading, and the demand for machine vision products is increasing.
Driven by a new wave of global technology such as artificial intelligence and big data, the global machine vision industry has entered a period of rapid growth. Since 2016, the global machine vision market has expanded rapidly, from 58.96 billion yuan (RMB) in 2018 to 99.048 billion yuan in 2023, with a compound annual growth rate of 14.01%. By 2025, the global machine vision market will reach 127.605 billion yuan.
At the moment when the development of the industry has entered the "fast lane", some enterprises have gradually begun to move towards the capital market while achieving their own rapid growth. Zhitong Financial APP learned that Sowell (LHSW. US) has filed an initial public offering (IPO) application with the U.S. Securities and Exchange Commission (SEC) to raise up to $12 million.
According to the prospectus, in the past fiscal year 2022, fiscal year 2023 (the end date of the fiscal year is March 31) and the first six months of fiscal year 2024 (as of September 30, 2023), Sowell's revenue was US$949,300, US$13,070,600 and US$16,798,800 respectively, and the corresponding net profit was -US$391,100, US$1,610,100 and US$1,580,600 respectively, and the performance growth rate can be described as rapid.
With such a stellar performance, can Sowell succeed in impressing the Nasdaq and getting a ticket? Let's look at its fundamentals.
Electronic products have become the main source of revenue
Founded in 2007, Sowell mainly provides machine vision products and solutions, inventing and integrating various technologies and solutions to address key manufacturing and distribution challenges, according to Zhitong Financial APP. The company's solutions are based on nine foundational technologies that integrate physical products with software to capture and analyze visual information. Up to now, the company's machine vision products are divided into four categories according to application scenarios: industrial machine vision, artificial intelligence (face recognition and artificial intelligence behavior analysis), intelligent weak current (building intelligence and intelligent transportation) and electronic customs clearance.
From the subdivision of revenue categories, the company's revenue can be divided into three categories: electronic products, software, and engineering projects. Among them, electronic products are the company's main source of revenue, and they are also the main engine that drives the company's revenue to achieve leapfrog growth. During the reporting period, the business achieved revenue of US$478,200, US$10,617,800 and US$13,577,200 respectively, and the proportion of revenue also increased significantly, from 50% in fiscal 2022 to 81% in fiscal 2023, and also stabilized at 81% in the first half of fiscal 2024. In this regard, the company said that this growth is due to the gradual optimization of the prevention and control of the new crown epidemic and the recovery of the mainland economic market, the company has successfully achieved the rapid growth of electronic products and software flow customers through an expansive marketing and sales network business strategy.
At the same time, the company's revenue and revenue proportion from engineering project business also increased significantly. During the reporting period, the business achieved revenue of US$6,916, US$1,691,500 and US$3,221,500 respectively, and the proportion of revenue increased from 1% in fiscal 2022 to 13% in fiscal 2023, and further increased to 19% in the first half of fiscal 2024. During the period, the proportion of revenue from engineering projects fell sharply, from 56% in FY2022 to 5% in FY2023, and by the first half of FY2024, this value has dropped to 0.
Although the company's revenue increased significantly during the reporting period, the company's profitability was on a "slippery slide". According to the prospectus, during the reporting period, the company's gross profit margin was 50%, 26% and 24% respectively.
The scale of the industry continues to expand, and the upstream and downstream "dependence" is difficult to solve
In the view of Zhitong Financial APP, Sowell, whose gross profit margin has declined, can reap the continuous growth of performance, which is inseparable from the continuous outbreak of industry demand.
Machine vision is a dynamically evolving branch of artificial intelligence. In the Chinese market, the boom in logistics and warehousing and the emerging new energy industry has stimulated an increase in production demand from related companies, resulting in a significant surge in demand for visual inspection products. China's machine vision market (excluding automated integrated equipment) achieved a significant scale of 16.9 billion yuan in 2022, a year-on-year increase of 22.2% compared to 2021, significantly exceeding the global average CAGR of 9.4% over the same period.
It is estimated that by 2025, China's machine vision market will reach 34.9 billion yuan in 2025, of which the 2D vision market is expected to exceed 29.2 billion yuan, and the 3D vision market is expected to exceed 5.8 billion yuan.
With the rapid growth of industry demand, the market potential continues to be tapped, which also leads to the continuous intensification of market competition. It is reported that a large part of China's machine vision companies are concentrated in the Pearl River Delta and the Yangtze River Delta region, especially in Guangdong Province and Jiangsu Province. Relevant data shows that by the end of 2022, there were 2,837 machine vision companies in Guangdong Province, while Jiangsu Province had 736 such enterprises, which shows the competition in the industry.
In the face of such a fragmented industry situation, Sowell has strengthened its industry position by deeply binding upstream and downstream.
Zhitong Financial APP learned that in fiscal year 2022, the company's largest customer accounted for 41.6% of the company's total revenue. In fiscal year 2023 and the first half of fiscal year 2024, the company's three major customers together accounted for 48.3% and 53.7% of the company's total revenue, respectively. It should be noted that although the company said that the company has established long-term cooperative relations with some repeat customers, the company has not signed any long-term framework agreements with other customers except for the long-term framework agreement signed with Dongguan Kangzhihui Electronics Co., Ltd. At the same time, due to fierce competition in the industry, the company's bargaining power with customers is extremely limited.
In terms of suppliers, the company admits that it relies on a limited number of suppliers for its products. During the Reporting Period, the two major suppliers together accounted for 27.6%, 56.7% and 59.9% of the total service costs, respectively. It is worth mentioning that the company does not have a long-term binding commitment with any of its suppliers and operates on the basis of purchase orders. While the company believes that there are alternatives for key component suppliers of its products, this still increases the company's supply chain risk. There can be no assurance that they will continue to provide products or components. In the event of any supplier disruption, the Company may not be able to replace or increase capacity from other sources, or develop alternative or secondary sources, resulting in significant additional costs and significant delays.
On the whole, at a time when the machine vision market has attracted much attention, Sowell, who has been deeply involved in the industry for more than ten years, has seized the opportunity to achieve explosive growth in the business. However, as competition in the industry continues to intensify, how can Sowell, which has a relatively "mini" business scale, stand out? In the long run, it may not be easy for Sowell, which does not have outstanding advantages, to continue to maintain a stable growth in revenue and net profit under the risk of "upstream and downstream dependence".