After only a year and a half after landing on the NASDAQ OTC segment, Ripple (RLEA.US) has launched a charge to switch to the NASDAQ motherboard.
Recently, Chinese automotive rubber and plastic seal supplier Rubber Leaf Inc. (Rubber Leaf Inc.) submitted an initial public offering (IPO) application to the US Securities and Exchange Commission, planning to raise up to 12 million US dollars.
According to the Zhitong Finance App, the OTC market (OTC market) provides a financing platform for many companies, especially those that have not yet met the NASDAQ or NYSE listing standards. However, the low liquidity and trading volume of the OTC market often limit the further capital operation and expansion of these companies, so many OTC trading companies are seeking to transfer to the more reputable and liquid main board market to attract more investors' attention.
So what are the highlights of Rubri, which wants to impact the NASDAQ motherboard, are worth paying attention to?
Decline in revenue, fluctuating profits
The Zhitong Finance App notes that Rubri was founded in Ningbo in 2019 and is mainly engaged in import and export trade, production and sales of synthetic rubber, rubber compounds, car window seals, auto parts, etc.
The company's main products include automotive rubber and plastic seals tailored to specific models. These products have unique personalization features, making the direct selling model the dominant method. The company directly contacts automotive OEMs or their first-line suppliers to obtain supplier qualifications, determine product specifications and models, negotiate product prices, and finalize orders. For auto parts manufacturers that supply automotive OEMs, establishing and maintaining partnerships with mainstream automotive OEMs is critical to their survival and development. Currently, it has become an important supplier to many major automotive original equipment manufacturers or OEMs, including EasyJet New Energy Vehicle Co., Ltd. and Dongfeng Motor.
It is worth mentioning that since the second half of 2023, the company has also successively signed cooperation agreements with FAW-Volkswagen and Hezhong New Energy Vehicles. Among them, Hezhong New Energy Vehicle signed an order with the company for rubber car window seals. The initial production of this order is expected to be between 3,000 and 4,000 sets of rubber window seals, increasing by 2,000 sets per month, and the peak monthly output is 12,000 sets.
Although the customer base continues to grow, judging from performance, Rubri's revenue has continued to decline in recent years. In 2021, 2022, and 2023, the company's revenue was US$14.606 million (same below), RMB 10.648,200, and RMB 9.992 million, respectively. While revenue declined, the company's profit performance continued to fluctuate. The corresponding net profit was 3169,500 yuan, 757,400 yuan, and -1.3981 million yuan.
Looking at the breakdown, the company's sales 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, revenue from the indirect supply model was RMB 11.6201 million, RMB 5.3887 million, and RMB 8.7096 million, accounting for 79.59%, 50.61% and 87.18% of revenue, respectively. In the same period, revenue from the direct supply model was 2.984 million yuan, 5.2594 million yuan, and 1.286 million yuan respectively, accounting for 20.41%, 49.39%, and 12.82% of revenue, respectively. Regarding the decline in direct supply model revenue in 2023, the company explained that this was mainly due to the decline in the company's orders due to the fact that EasyJet, the main direct supply model customer of Rubri, suspended factory production in June 2023. As production resumes in late October 2023, the company expects to increase direct sales revenue from easyJet in the second quarter of 2024.
The Zhitong Finance App observed that the revenue and revenue share from the indirect supply model in 2021 and 2023 far exceeded the direct supply model, and these two years just happened to be two years of the company's profit loss. Further analysis found that the gross margin of the company's direct supply model was much higher than the gross margin level of the indirect supply model. During the reporting period, the gross margins of the direct supply model were 4%, 35% and 23%, respectively, while the gross margins of the indirect supply model continued to be negative, at -11%, -6% and -4%, respectively.
Deeply dependent on related parties
Amid unstable revenue performance, Rubri, whose business scale is not very large, relies on deep upstream and downstream linkages to consolidate its position in the industry.
However, since the company's business is mainly based on an indirect supply model, the related party Shanghai Xinsen Import & Export Co., Ltd. is the company's main major customer, accounting for 86% of the company's total revenue in 2023. In addition, as another major customer of the company, EasyJet accounted for 13% of revenue in 2023. Taken together, these two major customers brought the company nearly 99% of its revenue. Such heavy customer dependency puts the company at great risk. In the future, if the company cannot guarantee that it can maintain existing business relationships with major customers in the future, it will adversely affect the company's performance. It is worth noting that Shanghai Xinsen is an affiliate of the company, and the founder and CEO of the company holds 15% of the company's shares.
In addition to reliance on major downstream customers, Rubri's upstream suppliers are also at risk of high concentration. According to the Zhitong Finance App, the company has always purchased raw materials from the main supplier Shanghai Haozong. As of December 31, 2023, 95% of the total raw materials purchased by the company came from Shanghai Haozong. Meanwhile, Shanghai Haozong is also one of the company's related parties. One of the company's directors holds 30% of its shares.
It can be seen that currently Rubri relies on related parties for both downstream sales and upstream procurement. The risk point is whether related transactions can guarantee the fairness of pricing. More importantly, looking at the entire supply chain, it is also a question of whether Rubri has the ability to expand other clients to stand alone. Furthermore, apart from related party customers, the company's relationship with its other major customer, EasyJet, is not stable, which also puts the stability of the company's performance as a question mark.
In addition to this, the company's ability to operate continuously is also questionable. For the year ended December 31, 2023, the company's cash on hand was approximately 41,687 yuan, with a cumulative deficit of 3.2 million yuan. The net cash provided by operating activities was only 9,4676 yuan. Amidst risk factors, the company admits that since its inception, the company has suffered huge operating losses. If the company does not have sufficient capital to conduct business according to the current plan, the company's revenue performance and profitability will be greatly affected. This is probably one of the main reasons for the company's active turnaround.
In fact, in recent years, against the backdrop of rapid evolution of core technology in the automobile industry and reshaping of the supply chain pattern, China's auto parts industry has developed steadily. According to the Huajing Industry Research Institute, China's auto parts market grew 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. But how can Rubri, whose performance depends heavily on the development of related parties, share a share of the pie? In the long run, as market competition intensifies, it may not be easy for Rubri, which does not have a prominent advantage, to stand out. In the short term, it seems difficult for the company to rely on such fundamentals to switch to NASDAQ.