ZJK Crafts Small However Sturdy IPO With Its Focus On Nuts-And-Bolts – ZJK Industrial (NASDAQ:ZJK)

Key Takeaways:

• ZJK’s shares rose as a lot as 36% of their first week of commerce on the Nasdaq, regardless of its comparatively small IPO with solely 2% of its shares bought
• The maker of fasteners and different elements plans to make use of a few of its IPO proceeds to arrange a brand new foundry, probably in Vietnam

By Edith Terry

Perhaps it was simply fortunate timing, coming the identical week as a large rally for Chinese language shares fueled by a “bazooka-style” financial stimulus package deal from Beijing. Then once more, ZJK Industrial Co. Ltd. ZJK has rather a lot going for it, regardless of its bland title and less-than-sexy standing as a maker of business fasteners.

Regardless of the purpose, ZJK’s shares received a pleasant pop within the days after the corporate’s Sept. 30 itemizing, rising as a lot as 36% from their $5 IPO worth to hit a peak of $6.80 this Monday. However the inventory couldn’t keep away from getting sucked right into a selloff that has gripped Chinese language shares this week, and gave again all of the beneficial properties to shut at $4.75 on Wednesday, 5% under the itemizing worth. The providing was comparatively small, elevating $4.26 million in web proceeds by the sale of 1.25 million shares.

The corporate admits in its prospectus that it faces an uphill battle because of its small scale and excessive capital prices of constructing new foundries. As an alternative, its greatest attraction might lie within the star energy of its consumer record that options the likes of electrical automobile large BYD, chip famous person Nvidia, international drone chief DJI and iPhone maker Foxconn, amongst others.

All these large names want high-quality industrial fasteners, a flowery title for the screws, nuts and bolts which can be ZJK’s mainstay. The Chinese language generally name such fasteners the “rice of business,” referring to the ever present want for this small however essential element in manufacturing. ZJK’s financials are removed from shabby, though they’re modest in comparison with business chief Suzhou Cheersson Precision (002976.SZ), which earned a web revenue of 52 million yuan ($7.4 million) on 1.58 billion yuan in income final 12 months.

ZJK is likely one of the smaller firms in China’s extremely fragmented panorama of fastener makers. With manufacturing chops going again to 2011, it has a good development story. Its income grew by 17.2% in 2023 to $29 million from $24.8 million in 2022. Two firms, PSM-ZJK and Bulten Fastners, each associated events, accounted for 52% and 24% of its revenues final 12 months.

Its gross revenue margin stood at a good 37.9% in 2023, up by 1.5% proportion factors from the earlier 12 months, whereas its 2023 web earnings rose 5.7% final 12 months to $7.7 million from $7.3 million in 2022. In 2023, it produced some 4.4 billion precision metallic elements, up from 3.7 billion in 2022.

The corporate isn’t significantly money wealthy, with $3.9 million on the finish of 2023, which suggests the newest IPO will greater than double its money reserves. The corporate bought a comparatively small 2% of its shares within the itemizing, so it’s fairly potential it’d increase extra within the months forward by a secondary itemizing.

At their present ranges, ZJK’s shares look fairly extremely valued with a price-to-sales (P/S) ratio of 10 and a price-to-earnings (P/E) ratio of 39. That’s effectively forward of Suzhou Cheersson’s P/S ratio of simply 1.8, although Cheerson has a equally excessive P/E of about 54, displaying that ZJK is getting some robust respect within the funding neighborhood regardless of its small measurement.

Vast Product Vary

ZJK’s merchandise vary from recognizable customary screws utilized in do-it-yourself configurations, to extra specialised merchandise like precision screws and nuts utilized in telephones, cameras, client digital merchandise and high-strength nuts and bolts utilized in new vitality automobiles.

Whereas not all of those markets are rising quick, and lots of require customized manufacturing, demand for ZJK’s high-tech fasteners seems to be strong. Whereas automobile-use industrial fasteners account for less than 3% to five% of the whole worth of a typical automobile, they account for 35% to 40% of complete auto half gross sales, in line with the prospectus.

5G base stations are one other supply of demand for the corporate’s high-tech fasteners, with ZJK’s residence China market main in that space. The nation had 3.4 million such base stations by the tip of 2023, main the world. The corporate additionally makes a “special-shaped ultra-thin gasket mildew” for drones, one other fast-growing space.

Most of ZJK’s income at present comes from China, which isn’t stunning as a result of nation’s standing because the world’s dominant producer. Final 12 months, $25 million out of its $29 million in gross sales got here from its residence market, with one other $2 million from Taiwan. However in a nod to the continuing international motion to diversify from an excessive amount of reliance on China, ZJK additionally arrange a subsidiary in April in Vietnam, probably for native manufacturing, and plans to arrange a gross sales workplace within the U.S. early subsequent 12 months.

Such diversification might change into essential as fasteners find yourself within the international commerce battleground now taking form. China is the world’s largest exporter of fasteners, with $11.1 billion in exports in 2022, primarily to the U.S. Based on Chinafastenerinfo.web, no fewer than eight anti-dumping or subsidy challenges have been mounted in opposition to Chinese language fastener imports from such various areas because the EU, the U.S., Canada, Mexico, India, Argentina, South Africa and Ukraine.

The rising resistance to reliance on Chinese language fasteners can also be mirrored within the numbers. One other business supply, Fastener World, says that within the first seven months of 2023, Chinese language fastener exports have been down by about 6% from the identical interval of 2022, to 2.56 million tons, whereas the typical unit worth of these exports was down by 5% to 7.5%, at $2.2 to $3 per kilogram. A transfer to Vietnam might assist ZJK diversify from its reliance on China-based manufacturing, although it might nonetheless discover a cool reception to such merchandise as a result of firm’s Chinese language roots.

ZJK might additionally face some headwinds because it seems to be to broaden overseas because of comparatively excessive prices for an organization of its measurement. It stated new foundries usually prices $5 million, including it’ll use 50% of its IPO proceeds for manufacturing unit growth. Which means the corporate “would require exterior sources of financing to fund its steady development,” in line with the prospectus, therefore our earlier prediction {that a} secondary providing could be in retailer. It might additionally increase new funds by personal placements or loans.

The corporate is comparatively debt-free, with solely $1.1 million in long-term debt, financial institution borrowings, working and finance lease commitments and associated social gathering loans, in line with the prospectus.

This text is from an unpaid exterior contributor. It doesn’t characterize Benzinga’s reporting and has not been edited for content material or accuracy.