We principally engage in the sales of refurbished de-commissioned IT devices to, among others, resellers of IT devices, and the provision of device and IT technical subscription services to SMEs in China, as a DLM (device lifecycle management) solution provider. In 2021, our revenue accounted for a market share of approximately 3.9%. According to CIC, we are the first company in China to have built a DLM business model covering both long-term and short-term subscription period and major phases in device lifecycle. Our revenue from DLM solutions during the Track Record Period was primarily generated from (i) device recycling business, contributing over 60% of our revenue with gross margin ranging from 0.1% to 6.5% during the Track Record Period, through which we purchase de-commissioned devices from enterprises and provide data removal services at the enterprises’ options. The device recycling business provides us with a stable source of de-commissioned devices, which will either be used for our device subscription business or be sold via our proprietary quotation platform or e-commerce platforms; and (ii) device and IT technical subscription services, contributing the rest of our revenue during the Track Record Period, through which we provide devices and IT technical support services to enterprises to satisfy their needs for diverse business scenarios. Device subscription business improved from gross loss of 17.4% in 2019 to gross margin of 23.2% in 2021 while gross margin of IT technical subscription business dropped from 81.6% in 2019 to 72.9% in 2021.
While our device management SaaS launched in 2018 only generated an insignificant amount of revenue during the Track Record Period, it helps enterprises manage their devices on a one-stop platform with a broad spectrum of functionalities and recommends appropriate services (device recycling as well as device and IT technical subscriptions) to satisfy their needs. As of December 31, 2019, 2020, 2021 and June 30, 2022, the number of registered corporate customers who were also our device subscription customers amounted to 801, 2,152, 4,638 and 6,611, respectively, accounting for 5.7%, 11.8%, 18.7% and 23.7%, respectively, of all of our registered corporate customers as of the same dates. See “Business – Our Business Model – Device Management SaaS – Bear Butler” for details.
Compared to traditional practices, device and IT technical subscription services help enterprises realize reduced operating costs by approximately 10% to 30% in a three-year period, according to CIC. In particular, DLM benefits enterprises in the following aspects: (i) avoiding substantial financial pressure due to the large one-time costs arising from device purchases; (ii) ensuring availability of device maintenance services without maintaining a large team of in-house IT staff, whose average salary has been rising; (iii) efficient equipment management and utilization, and (iv) convenient and secured way to dispose of decommissioned devices. According to CIC, with the continuous investments in IT equipment by enterprises and the deepening of flexibility in office, the DLM market in China is expected to experience growth at a faster rate in the years ahead, increasing to RMB138.2 billion in 2026 at a CAGR of 32.0% during the forecast period from 2021 to 2026. In addition, a large number of waste IT devices are not effectively recycled or disposed of in China. According to CIC, given the emergence of DLM solution providers as well as a growing environmental awareness among enterprises, the device recycling market in China is anticipated to experience an expansion in the years ahead and continue expanding at a faster pace. The market size of device recycling business in China has grown from RMB1.8 billion in 2017 to RMB6.8 billion in 2021 in terms of revenue at a CAGR of 39.2%, and is expected to reach approximately RMB26.1 billion in 2026 in terms of revenue at a CAGR of 31.0% from 2021 to 2026.
Founded in 2004, we started out with computer assembly services and sale of second-hand personal computers, which were conducted solely offline and served primarily individual customers. During the initial operation period, we established business relationship with computer suppliers, and accumulated years of experience and resources. Subsequently, we launched short-term and long-term computer rental programs in 2008 and 2013, respectively, focusing on desktop and laptop computers, and at the same time started providing IT technical services to enterprises. As long-term device subscription services can provide us with a stable and predictable stream of subscription income, it has been the focus of our device subscription business during the Track Record Period. We aspire to make DLM available to millions of individual users working in enterprises across China. Over the years, our business model has evolved from an offline single-product model serving primarily individual customers into a business model covering both long-term and short-term subscription periods and major phases in device lifecycle, serving primarily enterprises and individual users working therein. 2017 represented a milestone year of our device recycling business as we established a team dedicated to develop our network of upstream enterprise suppliers and downstream customers for de-commissioned devices, which are primarily enterprises engaged in the trading of de-commissioned IT devices. In 2018, we launched our device management SaaS.
Since our inception, we have instilled social values into our DLM business by promoting green economy and shared economy by facilitating enterprises to lower their operating costs and improving their IT device full-lifecycle utilization, for which we have gained excellent reputation and established a reputable corporate image. For example, we became a member of the National SME Public Service Demonstration Platform (國家中小企業公共服務示範平台) in 2019 and one of the Specialized and New “Little Giant” Enterprises (專精特新“小巨人”企 業) in 2021, both of which were high recognitions issued by MIIT. Capitalizing on our leading position and constant business growth, we continuously advocate for a vibrant ecosystem connecting suppliers, customers and sales platforms in China’s DLM industry. Being actively explored by us and other industry players, we believe DLM will continue to exert positive ESG influence on the working environment for China’s enterprises.
In recent years, the implementation of mass entrepreneurship and favorable policies by the Chinese government have increased the number of enterprises in China, especially SMEs, which are our target group of customers given their growing IT spending and increasing needs for DLM solutions, which can help enterprises (i) avoid significant capital expenditure in purchasing devices themselves, and (ii) dispose of de-commissioned devices in a secured and cost-efficient manner.
During the Track Record Period, we experienced significant growth in our business operations and an increase in demand for our DLM solutions. Our revenue increased from RMB500.3 million in 2019 to RMB1,022.2 million in 2020 and further to RMB1,330.4 million in 2021, representing a CAGR of 63.1%. Furthermore, our revenue increased by 59.1% to RMB854.0 million for the six months ended June 30, 2022 from RMB536.9 million for the same period in 2021. Our adjusted EBITDA(1), which is a non-IFRS measure, reached RMB36.9 million, RMB164.5 million and RMB224.0 million, respectively, for the years ended December 31, 2019, 2020 and 2021, representing a CAGR of 146.6%, and reached RMB127.5 million for the six months ended June 30, 2022, representing an increase of 15.4% compared to the same period in 2021. Our net loss for 2019, 2020, 2021 and the six months ended June 30, 2021 and 2022 amounted to RMB60.3 million, RMB177.1 million, RMB448.7 million, RMB268.1 million and RMB5.8 million, respectively. We achieved NDRR of 117.4%, 113.8% and 138.8% as to our device subscription services in 2019, 2020 and 2021, respectively; and 126.4% and 122.6% for the six months ended June 30, 2021 and 2022, respectively.
Source: LX Technology (02436) Prospectus (IPO Date : 2022/11/14) |