MingZhu Reports Slowed Growth in 2019 Ahead of U.S. IPO

As the pace of China's economy growth slows and competition in the transportation sector intensifies, this truck fleet operator sees weaker financial results.

Anna Vodopyanova
    Dec 19, 2019 8:00 AM  PT
MingZhu Reports Slowed Growth in 2019 Ahead of U.S. IPO
author: Anna Vodopyanova   

MingZhu Logistics Holdings Ltd., seeking a U.S. public offering, has provided updated financials in its latest filing, revealing slowed growth and lower income.

The Chinese truck fleet operator first applied in October to raise up to $11.5 million in an initial public offering on the Nasdaq Capital Market. On Wednesday, it provided its latest financial data in an amended prospectus filed with the U.S. Securities and Exchange Commission.

The company reported its revenue in the nine months through September 2019 increased 6% year-over-year to $20.7 million. To compare that with the previous pace of growth, MingZhu's revenue in 2018, at $27.6 million, was 34% higher than in 2017.

Net income in the period from January to September was $1.03 million compared with $2.04 million a year ago, MingZhu stated. In 2018, its earnings were $2.9 million, a 131% growth from 2017 results.

The trucking service provider, based in Shenzhen, has a 17-year operating history in China's transportation sector. With a fleet of 139 tractors and 90 trailers, which it owns, MingZhu said it has grown to be the second largest trucking company in Guangdong Province. It has two regional terminals, in Guangdong and Xinjiang, and boasts to transport across a broad geographic coverage in its prospectus.

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(Source: MingZhu Official Website)

Among the factors affecting MingZhu's performance is the reliance on its top five major clients. The percentage of sales the company has generated through those top five, however, has been decreasing. In the nine months through September, that percentage was 62.3% compared with 64.8% in the same period last year. In 2018, its major customers accounted for 63.9% of MingZhu's sales compared with 71.4% in 2017, according to the filing.

The company also said it relies on outside factors including the cost of fuel and regulations, with Beijing having encouraged the development of the logistics industry. MingZhu's sales are also affected by seasonality. It said it sees highest demand in June, November and December.

In addition to the above, the shipment sector in China is highly competitive, with some major delivery companies backed by giants such as Alibaba Group Holding Ltd. (NYSE: BABA). Among MingZhu's rivals are U.S.-listed BEST Inc. (NYSE: BEST) and ZTO Express (Cayman) Inc. (NYSE: ZTO), as well as Deppon Logistics Co., STO Express Co. Ltd. and SF Express Co. Ltd., which is also based in Shenzhen.

MingZhu's latest results came as China has experienced its slowest pace of growth in 30 years. In the third quarter this year, the country's economy expanded 6%, according to official data. To compare that with previous figures, in 2018, China's economy grew at 6.6%, down from 6.9% in 2017.

In his analysis of MingZhu's expected IPO, Don Jones, CW columnist and founder of VentureDeal, a technology venture capital database, wrote last month, "The market opportunity for over-the-road freight operations in China is uncertain given the domestic economy's challenging growth environment and continued trade frictions with the U.S. weighing on manufacturers."

MingZhu cited independent market analytics firm Frost & Sullivan, saying the revenue of trucking services in China, road revenue of trucking services in Guangdong region and the volume of road freight in Xinjiang are expected to grow at a compound annual growth rate (CAGR) of 2.5%, 2.9% and 6.3%, respectively.

MingZhu has applied to trade its shares in New York under the ticker symbol "YGMZ." It said it intends to use the capital to acquire new equipment and invest in a new fleet management system and personnel. The company also seeks to invest in working capital, general corporate purposes and potential strategic acquisitions.

Securing the offering is ViewTrade Securities Inc.

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