Preview of New Stocks in US Stock Market | Shanghai Zhenbiao: Can the Performance of 13 Employees Generating 60 Million US Dollars Help It Out of the Freight Consolidation Downturn?

For the freight transportation industry, the cyclical nature becomes more apparent as global capacity supply recovers while demand weakens. Freight transportation companies that have been profitable in the past two years now face the embarrassing situation of declining performance due to a significant downturn in the industry. At the point when the freight transportation market gradually returns to normal, many companies are looking towards the capital market to gain favor in terms of funding or influence. Recently, OUI Global, the holding company of Shanghai Zhenbiao Container Transport Co., Ltd., officially submitted its IPO to the U.S. Securities and Exchange Commission (SEC) with the planned stock code TKE and application for listing on NASDAQ. Disclosure shows that the company first submitted confidential documents to the SEC as early as March 3rd of this year. According to the prospectus, OUI Global plans to issue 2.5 million Class A common shares at a price of $4 to $6 per share, raising between $10 million and $15 million. The company's stock is divided into Class A and Class B, with each Class A share having one voting right and each Class B share having ten voting rights. With annual revenue exceeding 60 million US dollars, supported by 13 employees? Shanghai Zhenbiao was established in 2001 and is a logistics service provider specializing in container transportation, warehousing, and freight forwarding. It mainly provides container trucking services to customers. As of the end of 2022, the company has a fleet of 214 trucks and 239 trailers, serving the areas of Anhui, Fujian, Jiangsu, Shandong, Zhejiang, and Shanghai. Truck transportation services refer to the transportation between seaports and/or designated pick-up and/or delivery points specified by customers, mainly for container transportation. According to Frost Sullivan's report, Shanghai Zhenbiao had the largest number of self-owned vehicles in the East China region in 2021. Since 2018, Shanghai Zhenbiao has been a member of the Container Truck Transportation Branch of the Shanghai Transport Industry Association. In terms of revenue, Shanghai Zhenbiao's main source of income comes from container freight services. In the fiscal years 2021-2022, OUI Global's revenues were $65.89 million and $63.06 million respectively, with corresponding net income of $1.51 million and $1.09 million. The fluctuation in revenue and profits for the fiscal year 2022 is attributed to the reduction in business and operations caused by the lockdown in Shanghai last year due to the pandemic, with the total number of containers delivered decreasing from 163,000 in the 2021 fiscal year to about 157,900 in the 2022 fiscal year. It is worth noting that in the prospectus, Shanghai Zhenbiao has only 13 full-time employees, but this does not mean that its revenue of over 100 million RMB is created solely by these 13 people. Shanghai Zhenbiao's services are mainly provided by its own fleet, with drivers operated by driver outsourcing companies. In fact, in the freight transportation industry, there are often fluctuations in outsourced and dispatched employees. Therefore, when demand increases or there is an urgent need for additional transportation capacity, Shanghai Zhenbiao may also subcontract part of its services to subcontractors through subcontractors owned and operated by subcontractors. These subcontractors are responsible for maintaining and operating their own fleets and paying for their own fuel, insurance, permits, and other operational costs. In terms of costs, the company's sales costs are mainly freight costs, such as labor costs, subcontracted transportation costs, port costs, fuel costs, maintenance and repairs, depreciation expenses for trucks and equipment, insurance costs, and warehouse rental fees. However, when broken down, most major cost items decreased in the 2022 fiscal year, such as labor costs decreasing from $25.73 million in the same period last year to $22.34 million. This is partly due to the decrease in port costs caused by the decline in container transportation volume. Combining the previous operating data, it can be seen that the company's total number of transported containers decreased in the 2022 fiscal year, indicating a decrease in business volume, and overall operating costs decreased compared to before. However, due to the significant increase in international oil prices in the 2022 fiscal year and an increase in long-haul trucking services, fuel costs have increased. Currently, the company's customers mainly include large freight forwarders. In addition, the company also provides direct services to trade companies and construction companies. As of the end of 2022, the company had 693 customers, with sales to the top five customers increasing from 18.1% to 20.8% compared to the same period last year. With the industry's difficult prospects for a turnaround in business conditions, freight transportation companies are collectively rushing to go public. In addition to Shanghai Zhenbiao, in April of this year, another leading Chinese logistics company, Jia Yuda, successfully listed on NASDAQ. Jia Yuda is a comprehensive logistics service provider specializing in cross-border logistics services and supply chain solutions. It has independently developed logistics management systems, data analysis systems, and intelligent dispatch systems, providing efficient, convenient, and transparent logistics services to customers. If the scope is expanded further, it can be seen that in the second half of this year, Globalvend, an e-commerce logistics provider from Hong Kong, and Xinchengyi, a freight forwarding service provider also from Hong Kong, are planning to go public in the United States. Going back to March of this year, Hong Kong's Lihang International Freight Forwarding also submitted an application for listing with the U.S. SEC. On the one hand, this shows that with the easing of global capacity constraints and the sharp increase in freight rates in the past two years, freight transportation companies are eager to go public and seek financing with their past performance as support. On the other hand, it may also reflect many companies in the industry preparing for the future downward cycle. In fact, from an industry perspective, the global container shipping industry seems to be in a "ebb tide moment" in the face of weakening transportation demand and rising capacity supply. Even China's shipping giant OOIL (00316) sounded an earnings "warning" in its 2023 interim report. The interim report shows that OOIL achieved revenues of $4.541 billion and a net profit attributable to shareholders of $1.129 billion during H1 2023, a year-on-year decrease of 58.95% and an 80.07% drop respectively. Core financial data experienced a cliff-like decline. And recently, the container shipping rate index has once again hit a new low for the year. On September 28th, the CCFI index decreased by 2.3% compared to September 22nd, while the SCFI index decreased by 2.7% during the same period. Even after the National Day holiday, the data remains weak, with no sign of a turning point. Generally speaking, July.Usually, from September to October is the peak season for the shipping market. Among them, July and August have the best market performance, September is generally a small peak season, and October is the end of the peak season. However, since September this year, freight rates have been continuously declining, reflecting not only the lower-than-expected cargo volume before the National Day holiday but also the concerns of shipping companies about the post-holiday shortage of cargos.According to a research report from Guotai Junan Futures, the global container shipping market is expected to have an even greater surplus capacity in the next nine months than during the phase of rapid decline in freight rates in 2022. This situation is considered rare in history, with a high level of certainty. In the face of the prominent supply-demand imbalance, it will be extremely difficult for freight rates to reverse the downward trend. For Zhenbiao Container Shipping, the industry's overall trend is irreversible, and the decrease in its business volume in 2022 seems to indicate that its performance may not be as "brilliant" in the future downturn cycle as it has been before. In addition to preparing psychologically for this downward cycle in container shipping, "trading time for space" may be the best choice for investors in the container shipping sector.