U.S. Stock IPO Outlook | Net Profit Surges Over 90%, Macau Brokerage Daoyuan Group Faces Challenges in Entering U.S. Market?

Recently, a financial technology product provider from Macau, Zenta Group Company (ZGM.US), publicly submitted an IPO prospectus to the U.S. Securities and Exchange Commission (SEC) in preparation for listing on NASDAQ.

Public information shows that the company plans to issue 1.5 million shares of common stock, accounting for 12.95% of the total shares after the issuance is completed, with an expected price range of $4 to $5, raising between $6 million and $7.5 million. Approximately 20% of the raised funds will be used to expand operations in Macau, Hong Kong, and Southeast Asia; about 40% will be used to develop financial technology business; around 10% will be allocated for brand development and team expansion; the remainder will be used to supplement working capital and other general corporate purposes.

According to Zhitong Finance APP, Zenta Group is a consulting service provider, primarily offering administrative, financial technology, investment brokerage, project brokerage, and project research services to numerous clients in Macau and mainland China. The company's listing registration entity is in the Cayman Islands, with its main operations conducted by its subsidiary in Macau.

As the macroeconomic environment improves, the financial sector often strengthens as well. Since February, Chinese concept stocks have shown strong performance, with the Chinese Concept Internet ETF (513220) index rising by 19.60% over 12 trading days. By choosing this listing window, Zenta Group is also expected to benefit from the market's positive sentiment and attract significant funding attention, but the company's true value still needs to be assessed based on its fundamentals.

Rapid Revenue Growth in Financial Technology Raises Concerns Over Dependence on Major Clients

From the financial data disclosed in the prospectus, Zenta Group has experienced rapid performance growth over the past two years, achieving revenues of $860,000 and $2.03 million for the fiscal years ending September 30, 2023, and 2024, respectively, representing a growth of 136%. Net profit also increased from $420,000 to $800,000, a growth rate of 90.5%.

In terms of business structure, Zenta Group's operations include industrial park consulting services and commercial investment consulting services. Since the second half of 2023, the financial technology business has rapidly grown to become the main contributor to performance.

In the fiscal year 2024, out of the total revenue of $2.03 million, the revenue from financial technology service fees (algorithms and big data) accounted for 67.6%, while investment brokerage accounted for 25.2%, and administrative services and blockchain revenue accounted for 3.3% and 2.9%, respectively.

Specifically, the financial technology business primarily provides clients with algorithms, big data models, blockchain systems, and related agency services. This segment's revenue mainly comes from Client A and Client B, recording revenues of $868,400 and $504,800, respectively, in the fiscal year 2024.

The revenue from administrative services mainly comes from the comprehensive management services provided by Zenta Group to clients, including document processing, updating company changes and registration information, and submitting income tax returns, with clients paying a fixed fee regularly during the contract period. As of September 30, 2024, and September 30, 2023, administrative service revenue accounted for approximately 3.3% and 7.8% of the total revenue for the respective fiscal years Daoyuan Group's current industrial park consulting services mainly focus on the early development stage. Leveraging its experience in providing consulting services to clients in the Greater Bay Area, it assists clients in preparing and submitting industrial park project applications related to government departments and represents clients in negotiations with relevant government departments or regulatory agencies. The commercial investment consulting services involve equity in technology companies, private equity management companies, and industrial park project companies.

According to Zhitong Finance APP, as of the year ending September 30, 2023, the company completed a total of 8 industrial park consulting service projects and 4 commercial investment consulting service projects. Due to pressure in the real estate market, by the year ending September 30, 2024, the company completed 4 commercial investment consulting service projects with no industrial park consulting projects.

In terms of expenses, the highest costs in the fiscal year 2024 were compensation and benefits and professional fees. Compensation and benefits expenses increased by 68.5% from USD 176,100 in fiscal year 2023 to USD 296,800, while the average number of employees increased from 5 to 9. Professional fees surged by 411.5% to USD 346,800, primarily due to an increase of USD 268,700 in audit fees for the consolidated financial statements.

Regarding liquidity, the company had negative operating cash flow in fiscal year 2024. As of September 30, 2024, the company's cash and cash equivalents amounted to USD 327,100, a decrease of USD 197,300 compared to the beginning of the year. Based on this calculation, the company's cash on hand can sustain operations for over a year.

It is noteworthy that in fiscal year 2024, accounts receivable from clients increased by USD 1,655,200, accounts payable increased by USD 153,400, and accrued expenses and other liabilities increased by USD 179,000. These receivables are related to the financial technology services and investment brokerage services provided during the year, with fees not yet received by the end of the year.

Additionally, Daoyuan Group faces a high customer concentration issue. In fiscal year 2023, major clients C and D contributed a total of 45% of the revenue, while in fiscal year 2024, major clients A and B contributed a total of 71% of the revenue, indicating a significant increase in reliance on major clients.

Macroeconomic Recovery Steadily Progressing, Financial Sector Expected to "Rise with the Tide"

As Daoyuan Group's performance grows, the financial industry's prosperity is also rapidly rebounding. According to financial data released by the central bank, by the end of December 2024, the broad money supply (M2) balance was 313.53 trillion yuan, a year-on-year increase of 7.3%; the narrow money supply (M1) balance was 67.1 trillion yuan, a year-on-year decrease of 1.4%. In 2024, RMB loans increased by 18.09 trillion yuan. By the end of 2024, the total social financing scale was 408.34 trillion yuan.

The total social financing scale maintained reasonable growth, supporting the rapid recovery of the real economy. In the second half of 2024, multiple policies in monetary, fiscal, and real estate sectors boosted market expectations, not only improving the prosperity of the capital market and maintaining high trading activity but also driving a recovery in the fundamentals of the brokerage sector.

Data from Ping An Securities shows that the decline in the brokerage sector's performance narrowed in the first three quarters, with a 14% quarter-on-quarter increase in net profit attributable to the parent company in Q3. In the first three quarters of 2024, 43 listed brokerages achieved revenue of 371.4 billion yuan (a year-on-year increase of 2.7%) and a net profit attributable to the parent company of 103.4 billion yuan (a year-on-year decrease of 5.9%); In the third quarter alone, revenue was 136.4 billion yuan (quarter-on-quarter growth of 5.6%, year-on-year growth of 21.0%), and net profit attributable to the parent company was 39.5 billion yuan (quarter-on-quarter growth of 14.1%, year-on-year growth of 40.8%), showing a clear upward trend.

Since hitting bottom in October 2024, social financing data has reversed the previous downward trend, rebounding for two consecutive months. This data not only exceeded market expectations but also released positive signals for economic recovery.

The improvement in M1 data and the continuous improvement in residents' medium and long-term loans further confirm the warming of economic activity. In December, M1 increased by 2.0055 trillion yuan, significantly exceeding the year-on-year increase of 1.5416 trillion yuan, marking the largest increase since June 2023; the year-on-year decline in M1 narrowed to -1.4%, rebounding for three consecutive months.

Under the current environment where the monetary policy tone has shifted to "moderately loose," the financial "de-leveraging" effect has weakened, and the regulatory authorities are emphasizing "guiding financial institutions to increase monetary credit investment," new credit and social financing in 2025 are expected to restore year-on-year growth, and the securities sector is likely to achieve a rebound from the bottom, with annual net profit expected to achieve positive growth.

As a financial service provider and financial technology service provider, Daoyuan Group is also expected to benefit from the overall recovery of the industry, with its financial technology business continuously contributing to performance growth. However, overall, the company has a relatively short disclosed operating history, and its performance and revenue structure are highly volatile, with a heavy reliance on large customers, which does not provide much advantage in market competition. How to build its core competitiveness will become a long-term issue for Daoyuan Group