Key Takeaways:
Laser cutter maker xTool has filed for a Hong Kong IPO, boasting profitability and high margins thanks to its direct sales model that cuts out costly middlemen
After reporting strong growth in 2024, unit sales of the company's core laser cutters and engravers dropped in the first nine months of last year
When it comes to new IPOs, tech companies are always trying to sell themselves on their cutting-edge technology. But xTool Innovate Ltd., which filed to list on the Hong Kong Stock Exchange on New Year's Day, has a somewhat unique claim to that title, as one of the world's leading makers of laser cutters and engravers.
The company looks like a relatively strong candidate in this emerging field, saying it controls a near majority 47% of the global market for laser engravers and cutters. Its products use similar technology to 3D printers, but are a slightly different breed in their more limited use as cutting and engraving tools rather than makers of finished products.
One of xTool's biggest selling points is its A-list of backers, including internet giant Tencent and HongShan, formerly known as Sequoia China. Global heavyweight Morgan Stanley is also one of the IPO's two lead underwriters, indicating demand from international investors is likely to be strong. That probably owes at least partly to the fact that the company gets the majority of its revenue from outside China, with about 85% coming from the U.S. and Europe last year.
The biggest red flag for investors is a sudden sharp slowdown in the company's revenue growth last year, which is probably due to growing competition.
But for the most part, things look relatively good for xTool, which has the distinction of being both profitable and relatively cash rich, indicating it's not making its listing under pressure to raise new money. The company had 1.14 billion yuan ($163 million) in cash at the end of ...
