US Stock IPO Outlook | Jindian Technology: Traditional toy companies seek to go public, is the "OEM" model not a long-term solution?

As the Labubu trend sweeps the globe, China's toy industry is experiencing a "tale of two extremes." On one side, the Chinese trendy toy industry, represented by Pop Mart, is strongly "going overseas," while on the other side, traditional toy companies are facing challenges such as thin profits, industrial transfer, and shrinking orders.

Recently, K-TECH SOLUTIONS COMPANY LIMITED, headquartered in Hong Kong, China, updated its prospectus with the U.S. Securities and Exchange Commission (SEC) and plans to list on NASDAQ under the stock code "KMRK." This IPO aims to issue 2 million Class A common shares, with an estimated issue price of $4, raising a total of approximately $8 million.

In the context of the ongoing upgrade of the toy processing industry, the market undoubtedly has higher requirements for toy manufacturers going public in the U.S. How will K-TECH Solutions respond to the transformation and maintain long-term growth?

Continuous Growth in Performance, Over 80% of Revenue from the U.S.

According to Zhitong Finance APP, K-TECH Solutions' history can be traced back to 2010, initially providing plastic toy OEM services for international brands such as Mattel and Hasbro, with cumulative deliveries exceeding 50 million products. Subsequently, the company mainly engaged in the design, development, testing, and sales of a diversified toy product portfolio, ranging from simple plastic toys to more complex electronic toys. Its solution services cover the entire development phase of toy products, from design, prototype testing, production management, quality control to after-sales service, focusing on developing infant and preschool educational toys and learning kits, with its main customers concentrated in the European and North American markets.

From a financial perspective, as of the fiscal year ending March 31, 2024, the company's revenue reached $17.123 million, a year-on-year increase of 2.9% compared to the 2023 fiscal year, driven mainly by the expansion of sales in the European market and the addition of five new customers. During the same period, the company's net profit surged from $247,000 to $928,000.

A closer look reveals that K-TECH Solutions achieved rapid profit growth in the 2024 fiscal year due to its excellent cost control, with a decrease in sales costs despite a slight increase in revenue, leading to a significant gross profit increase of 38.6%, and effective overall expense management, resulting in a decline in total operating expenses against the backdrop of revenue growth. In other words, "cost control and expense reduction" became the cornerstone of the company's performance leap in that fiscal year.

In the half-year ending September 2024, K-TECH Solutions' revenue was approximately $12.41 million, a year-on-year increase of about 21.5%, primarily due to increased sales in the U.S. and the U.K., which rose to $11.5475 million. During this period, the gross profit was approximately $1.61 million, and the net profit was about $586,000, showing a slight decline compared to the same period last year.

It is noteworthy that in the first half of the 2024 fiscal year, approximately 90.85% of K-TECH Solutions' revenue came from the U.S., and the revenue from its top three customers accounted for over 60%, indicating that its performance is heavily influenced by the North American and European markets.

At the same time, as a service-oriented enterprise capable of providing one-stop ODM/OEM solutions, the company's gross profit margin during the period fluctuated only around the 10% benchmark, which can be described as "thin profit." This is mainly because it outsourced the production process to the Guangdong-based supply chain company Fully Starise. The company's products are primarily manufactured and supplied by Fully Starise, accounting for about 85% of its cost of goods sold, but this also means that the company's profit margin is relatively fragile and more susceptible to market shocks.

The "Open Conspiracy" of Supply Chain Transfer

Despite impressive performance and a stable customer base, the clouds brought by the China-U.S. tariff battle in the first half of 2025 may still linger over Jindian Technology.

As of now, the United States is the largest market for China's toy exports. Data from 2024 shows that China's toy exports to the U.S. account for 15% of total exports, while 75% of toys imported by the U.S. come from China.

However, in April 2025, the U.S. imposed high tariffs on Chinese toys, with rates reaching as high as 145%, which dealt a significant blow to Chinese toy companies. At that time, the additional 34% tariff significantly increased the export costs for Chinese toy companies, forcing them to choose between raising prices or absorbing the costs themselves. In the short term, tariff risk fluctuations continue, and the 10% retained tariff still squeezes low-profit toy companies, making order recovery dependent on policy stability.

Public information shows that the impact of tariffs varies among different types of companies: labor-intensive traditional toy companies are hit the hardest because of their low product added value, where tariff costs may even exceed the value of the goods themselves. It is not difficult to see that U.S. tariff policies pose a severe challenge to traditional Chinese toy companies, especially as traditional OEM factories face an undeniable survival crisis.

For Jindian Technology, which derives most of its revenue from the European and American markets, the U.S. business is crucial, and companies with supply chains in China are actively seeking "transformation."

It is understood that the company plans to raise $8 million through an IPO, with about 60% of the net amount after expenses allocated for investment or acquisition of factories in Vietnam and other Southeast Asian regions, about 15% for expanding the product designer and engineering team, about 10% for obtaining licenses or collaborations, and the remaining approximately 15% for daily operational expenses. This seems to align with the recent trend of globalizing production capacity in toy companies and accelerating the layout towards Southeast Asia.

As toy companies transfer their supply chains to Southeast Asia, on one hand, they can undertake labor-intensive categories (such as plush toys and plastic accessories), utilizing tariff advantages to maintain stable delivery of existing customers and orders. On the other hand, this also forces the Chinese toy industry to accelerate differentiation and upgrading from low-end "Made in China" through globalization, technological upgrades, and brand transformation. Therefore, the IPO financing may be a proactive step for Jindian Technology to respond to changes in tariff policies, while also providing an opportunity for improvement.

For the future of China's toy industry, the culturally attributed trendy toy industry may be one of the "optimal solutions" for industrial transformation and upgrading. Taking Pop Mart as an example, Labubu's "cultural breaking + industrial chain reconstruction" has already provided a textbook for transformation for traditional Chinese toy companies that rely on Europe and the U.S. due to its global popularity For Yujin Electric Technology, the essence of the transformation of toy companies is to shift from "cost arbitrage" to "capability output," maintaining the manufacturing base through technological upgrades, then competing for value chain dominance with brands or IPs, and subsequently reconstructing growth poles through emerging markets, ultimately forming a "triangular stable structure" to withstand the risks brought by tariffs. However, before that, how to successfully enter the U.S. market may be the company's primary concern