Preview of US stocks IPOs | C&K Group: Revenue is less than 70 million. Is the market willing to pay for vertical integration of pearl ecology?

Princess Diana once said, "If a woman can only own one piece of jewelry, it must be pearls." The popularity of pearl jewelry is on the rise due to factors such as film and television IPs, celebrity effects, and a trend towards younger pearl jewelry designs. According to data from Bezos Consulting, the global freshwater pearl market is expected to reach $120 billion in 2024, and is projected to increase to $191.5 billion by 2031 with a compound annual growth rate of 8.6%. The Chinese market, as a core engine, is expected to account for nearly one-third of global revenue in 2024. With the booming pearl market, players are entering the capital market at full speed. On June 2, BVI holding company C&K GROUP LIMITED, part of the Three Jia Jewelry Group from Hong Kong, submitted a prospectus to the U.S. Securities and Exchange Commission (SEC) to apply for an IPO on the Nasdaq stock exchange. The company plans to issue 1.5 million shares of stock at a price range of $4 to $5 per share, raising $7 million. Based on the midpoint of the proposed range, C&K Group's market value would reach $79 million. Pearl revenue declines by 21%, dragging down performance Publicly available information shows that C&K Group was established in 2016 and is headquartered in Hong Kong. It is a leading pearl jewelry design and sales company in the Asia-Pacific region. The company's core philosophy is "heritage of Oriental aesthetics, reshaping the value of pearls," and it has built a full industry chain layout from raw material procurement, original design to end sales, leveraging Hong Kong's strategic position as a global pearl trading center. The company's main markets are Hong Kong, the United States, Japan, Australia, and Europe. They offer over 1,000 styles of pearls and finished jewelry products. According to the prospectus, in 2024, the company's pearl product sales accounted for 18.7% of the bulk pearl market share in Hong Kong, with a 45% repeat purchase rate in high-end custom business. In terms of performance, C&K Group's revenue and net profit are both showing a downward trend. For the fiscal years 2023 to 2024 (referred to as the reporting period), the company's revenue was HK$75.50 million and HK$66.80 million, a 12% decrease year-on-year, while net profit was HK$15.2057 million and HK$14.0291 million, a 7.7% decrease year-on-year. Regarding the decline in revenue, the company stated that it is mainly due to a significant decline in the sale of bulk pearls, which decreased by HK$10.663 million year-on-year, a 24% drop. During the period, the proportion of revenue from bulk pearls decreased from 58.2% to 49.8%. However, sales of finished jewelry showed growth, with a year-on-year increase of HK$1.9609 million in 2024, representing 6%, and the revenue share increased from 41.8% to 50.2%. According to market trends, C&K Group's decline in revenue from bulk pearls aligns with the trend of cooling pearl consumption. Over the long term, it is generally believed in the industry that the market has bid farewell to the "crazy period," and pearl prices have returned to a more normal level, with pearl consumption gradually returning to rationality. How will the company break through with its bulk pearls for new growth? In terms of regions, Hong Kong and the U.S. are the company's major sales regions, contributing more than half of the revenue. During the period, sales revenue from Hong Kong accounted for 30.9% and 31.5%; sales revenue from the United States accounted for 27% and 21%, showing characteristics of "explosive growth in the North American market." Additionally, C&K Group operates a typical B2B business model, serving clients such as wholesalers, jewelry manufacturers, independent designers, and retail sellers from various locations globally. During the period, revenue generated through wholesale channels accounted for 82.1% and 95% of total revenue, while sales revenue generated through retail channels were 17.9% and 5.0%. It is worth noting that C&K Group significantly relies on large customers. In the 2024 fiscal year, the company's top three clients contributed approximately 73% of revenue, with contributions of HK$27.4684 million, HK$12.731 million, and HK$8.5149 million, accounting for 41%, 19%, and 13% of total revenue, respectively. During the same period, one major customer accounted for 94% of the company's total accounts receivable. Can the myth of "pearls bring wealth" continue? 2023 was a year of rapid growth for pearls, with pearl jewelry sales on the Douyin platform exceeding 10 billion yuan, a year-on-year increase of 173.43%, and sales on the Taobao platform reaching 6.9 billion yuan, a 40% increase year-on-year. The high growth in pearl sales is also due to the sharp increase in prices. On one hand, demand is high and supply is scarce, driving prices up. On the other hand, due to the nuclear pollution crisis, Japan, as the main producer of pearls, has seen a continuous decline in pearl production due to the impact of nuclear leaks. In 2022, Japan's pearl production was only 13.2 tons, a 40% decrease from 2019. Exposure from celebrities stimulates demand growth, while insufficient production capacity raises pearl prices, and live streaming meets consumer demand, creating the "wealth creation myth" of pearls. In the future, can the myth of "pearls bring wealth" continue? To answer this question, we must first understand the current transformation logic of the pearl market. In 2023, prices of ordinary categories of freshwater pearls rose by 30%-50%, with some popular styles seeing an increase of up to 80%. However, in 2024, the market returned to rationality after the pearl boom: prices of large-sized pearls like Eulala and Xizi grade stabilized, while prices of smaller pearls (<4mm) slightly decreased, and prices of mid-to-low-grade pearls generally decreased by 20%-30%. This differentiation confirms the transformation logic of the industry chain from scale expansion to value upgrading. Currently, the pearl market is highly dispersed, with no dominant top brands yet, but brand and high-end positioning are still the main directions. Additionally, the future development trend of the market cannot be separated from the diversification of product forms and combinations. The mainstream aesthetic for pearls remains round and full, but the social media popularity of baroque and other irregular pearls continues to grow. Pearl jewelry can also be combined with more metal materials, changing the single nature of pearl jewelry.Style.In order to adapt to the industry development, the C&K Group's fundraising purposes are naturally easy to understand. The company plans to use 50% of the funds for brand upgrading, establishing brand showrooms in New York and Paris, and signing contracts with international designers; 30% of the funds for supply chain strengthening, investing in pearl farms in Mie Prefecture, Japan, to secure high-quality Akoya pearl sources; 15% of the funds for digital construction: developing AR virtual try-on and blockchain traceability systems; and an additional 5% for supplementary operating funds.