Analysis of US IPOs | Short-term debt repayment of tens of millions of US dollars, going public in the US to become LuDa Group's "antidote"

The steel industry is one of the important industries supporting economic development. In recent years, relevant departments have also introduced a series of industrial policies to promote the rapid, healthy, and orderly development of the steel industry, focusing on reducing the outdated production capacity with low technological levels, overcapacity, high energy and material consumption, and high pollution.

Currently, the industry is also making efforts to address environmental protection and carbon reduction challenges, welcoming energy conservation and emission reduction initiatives. For example, improving production efficiency, increasing the reuse of scrap steel, and promoting carbon capture and storage (CCUS).

As a part of the vast steel industry, Lud Group (LUD.US), which specializes in the manufacturing of carbon steel and stainless steel flanges and pipe fittings, is attempting to make a breakthrough on the NASDAQ.

Declining profitability, significant short-term debt repayment pressure

According to the Zhitong Finance APP, Lud Group's history dates back to 2004, with its headquarters in Hong Kong. It has been in operation for 20 years, specializing in the manufacturing and sales of stainless steel and carbon steel flanges and spare parts.

The company's production base is located in Taian, Shandong, and its sales network mainly includes customers from China, South America, Australia, Europe, Asia (excluding China), and North America.

Currently, the company's main products, flanges, are used in the construction of industrial facilities, factories, and equipment, as well as in specific applications such as pressure vessels, marine and offshore applications. The products come in various sizes, shapes, and specifications to meet specific requirements of different industries, including various types such as weld neck flanges, slip-on flanges, threaded flanges, and blind flanges.

According to the latest financial data from the prospectus, in 2023, Lud Group achieved a revenue of USD 51.4 million, a 3.16% increase compared to USD 49.9 million in 2022; gross profits in 2022 and 2023 were USD 10.3 million and USD 10.9 million respectively, a 5.93% year-on-year increase in 2023; net profits were USD 3.07 million and USD 3.02 million respectively, a 1.13% year-on-year decrease in 2023.

The company's operating income can mainly be divided into two major parts: trade from Hong Kong, China, and manufacturing from mainland China. The manufacturing business accounts for the largest share of the company's business, reaching 85.1% and 89.4% of revenue in 2022 and 2023 respectively. The customer base for the Hong Kong trade business mainly consists of overseas customers, accounting for approximately 14.9% and 10.6% of total revenue in the fiscal years 2022 and 2023.

In terms of profitability, the company's gross profit margins in 2022 and 2023 were 20.63% and 21.18% respectively; net profit margins were 6.15% and 5.90% respectively.

According to previous reports, the company plans to issue approximately 2.5 million shares at a price of USD 3 to USD 4 per share, aiming to raise around USD 9 million. Based on the midpoint of the price range, the company's total market value will be approximately USD 79 million In response to the company's submission to NASDAQ, the China Securities Regulatory Commission (CSRC) has also requested Luda Group to provide supplementary explanations on issues such as the compliance of foreign investment, including: changes in the company's share capital and shareholders since its establishment, compliance of foreign investment, financial data, safety production, etc.

According to the information obtained by the Wise Finance APP, by the end of 2023, the company had approximately $11.91 million in outstanding bank loans, of which around $11.20 million of bank loans will be repaid within one year, and $0.8 million of bank loans will be repaid after one year. The annual actual interest rate of the bank loans ranges from 2.66% to 8.06%.

As of the end of 2023, the company had cash and cash equivalents of $4.1158 million. However, considering the scale of loans that need to be repaid within one year, Luda Group may still face significant debt repayment pressure in the short term.

Higher Requirements for Energy Conservation and Emission Reduction for the Company

In China, the steel industry typically accounts for about 5% of the country's Gross Domestic Product (GDP). However, it also contributes to approximately 15% of the country's total carbon emissions, making it one of the key industries focused on energy conservation and emission reduction.

Recently, the National Development and Reform Commission and four other departments issued the "Special Action Plan for Energy Conservation and Carbon Reduction in the Steel Industry," requiring a reduction of over 2% in comprehensive energy consumption per ton of steel by the end of 2025 compared to 2023. Additionally, through the implementation of energy conservation and carbon reduction transformations in the steel industry and the updating of energy-consuming equipment, it aims to achieve energy savings of about 20 million tons of standard coal and reduce carbon dioxide emissions by approximately 53 million tons.

At the same time, it once again emphasized the need to control crude steel production during this period and increase the proportion of short processes. Following the release of the "Action Plan," the market is particularly concerned about the implicit requirement for reducing crude steel production.

According to the information from the Wise Finance APP, the "Action Plan" clearly states that by 2025, the utilization of scrap steel should reach 300 million tons, and the proportion of electric furnace steel production in total crude steel production should strive to increase to 15%. However, specific quantitative requirements for crude steel production control in the next two years have not been specified. It is currently seen as quite challenging to achieve this goal.

In terms of achieving total emission reductions, it involves reducing unit energy consumption and controlling overall production, which implies a requirement for production control. From the perspective of carbon dioxide emission reduction, some organizations estimate that 1 ton of standard coal corresponds to 2.62-2.7 tons of carbon dioxide emissions, with a corresponding reduction in crude steel production of around 15-16 million tons.

Of note, since the decline in domestic steel demand in 2021, the increase in steel exports has significantly offset the decrease in domestic demand. If the export regulations in the "Action Plan" suppress steel exports, it will affect the overall supply and demand balance.

For steel companies, they still face various industry competitive pressures. On one hand, there is overcapacity in the steel profile industry, leading to increasingly fierce competition among enterprises in terms of cost reduction and efficiency improvement. On the other hand, companies are facing stock competition in seizing market share and expanding customer channels. Additionally, in response to the mission of energy conservation and emission reduction, companies need to develop more advanced steel profile production technologies to meet industry requirements For Luda Group, the steel parts market is facing several major challenges both domestically and internationally, posing risks to the industry's stability and growth. In terms of production, the company faces challenges posed by carbon emission policies; in terms of trade, the company also faces trade barriers, risks such as tariffs on high-carbon products, and anti-dumping measures. Whether the company can succeed in this challenge remains an unknown factor