Investment Highlights Rarely Seen on Recent IPO Stocks on NASDAQ:
1. Annual Revenue near $200 million
2. Year/year growth near 100%
3. Four consecutive profitable years in a red-hot AI sector where most companies are unprofitable. Lucas' achievements are rarely seen among the recently listed companies on NASDAQ.
Lucas Was Funded by Industry "Smart Money" as Well as Leading Venture Capital Firm Prior to IPO
Current Lucas's shareholder base includes esteemed industry leaders such as 51Job, one of the largest HR firms in China, Haier Group, the largest home appliance maker in China, BeagleData. an AI unicorn, and GSR United Capital, a leading venture capital firm.
51Job which is 30% owned by Recruit Holding of Japan, is the second largest shareholder of Lucas which demonstrates its endorsement of Lucas' business model and roadmaps. For other strategic investors, the involvement of domestic AI unicorn BeagleData serves as a notable validation of the Company's AI technology. Haier Group's investment brings forth a range of enhancements to the company's corporate governance and extends multidimensional industry resource supports to Lucas. From a financial investment perspective, funding from GSR United Capital which has stringent investment criteria demonstrates Lucas met the scrutiny of the financial return requirement of one of the leading VCs on the market.
By the end of 2022, Lucas emerged as the largest AI technology-driven online agent-centric human capital management service Platform as a Service (PaaS) provider in China, with over 430,000 active registered users, as reported by market research firm Frost and Sullivan.
Lucas is a light-asset company with core competencies in technologies and big datasets. Lucas has over 16 U.S. and China granted patents in core artificial Intelligence (with 6 patents in the GPT-related technology), Data Analytics and Blockchain technologies, with another 10 patents pending, and over 70 registered software copyrights. As a matter of fact, Lucas is the only AI-related company obtained registration approval for overseas listing from China Securities Regulatory Commission since the registration requirement became effective on March 31, 2023.
Lucas has consistently achieved remarkable growth for the past four years. As of June 30, 2023, its total revenue had surged by 170.9% compared to the same period in 2022, reaching RMB820.1 million (US113.1 million). The revenue for the first half of 2023 alone already exceeded the full-year revenue for 2022. Moreover, the Company's net profits for the years spanning from 2020 to 2022 stood at RMB 4.63 million, RMB 39.8 million, and RMB 44.4 million (excluding IPO-related expenses), respectively. Concurrently, there has been a steady increase in profit margin over these years with its rising from 2.0% in 2020 to 5.8% in 2022.
Three Key Growth Strategies that Will Facilitate Lucas In Sustaining Its Remarkable Operations Performance
1. Inorganic Growth Via Merger and Acquisitions Outside China
According to Lucas' prospectus, it intends to use M&A to augment its growth, with near-term focus on the ASEAN countries such as Vietnam, Thailand, Indonesia and Malaysia where they are the fastest growth regions in the world. In comparison to other typical Chinese companies, Lucas has a competitive advantage in ensuring successful execution of overseas mergers and acquisitions: Proven track-record by its management including the founder and CEO Mr. Howard Lee who obtained his business and financial training at Stanford and technical training at UCLA, is a Chartered Financial Analyst (CFA) holding 16 patents in the U.S. and China. He has experience in executing over 30 M&A transactions and investments in both the U.S. and Asia with overall values exceeding $80 billion when he worked as a senior executive at such Fortune 500 companies as Alcatel, SUN Microsystems and Western Digital where he was vice president of corporate development. In addition, many of its management and board members have decades of work experience internationally.
2. Product Portfolio Expansion With Focus on Training
As outlined in its prospectus, Lucas intends to expand the product offering in training. Lucas has recruited Dr. Michael Carter, a world-renowned expert in education and training to guide its initiatives in the training business. Dr. Carter used to be advisors to Hewlett Foundation, Bill & Melinda Gates Foundation and Steve Jobs when he was head of Apple's training division. His academic roles include professorships at Stanford University and Dartmouth College. Dr. Carter's wealth of experience in education and training shall well position Lucas to develop an effective training strategy.
Taking advantage of having Haier Group as a shareholder whose subsidiary COSMOPlat has one of the leading industry internet platforms on the market, Lucas may develop training products in the Industry Internet area which is one of fastest growing sectors in the U.S. and Asia.
Leveraging its leadership in AI technology foundation with an extensive database of experienced candidates and client network in the AI industry, Lucas aims to develop training products related to the red-hot artificial intelligence sector where the demand for on-the-job and practical AI training programs is high.
3. Continue to Invest Heavily in R&D, Particularly in GPT and AIGC
Lucas is considered the technological leader in the industry and was awarded "Technologically Advanced Small and Medium-sized Enterprises" by the Ministry of Industry and Information Technology of China in 2022.
Notably, Lucas embarked on GPT technology initiatives three years ago, securing 6 invention patents related to GPT in both the U.S. and China, which have been successfully incorporated into its operations resulting in likely to double the revenue in 2023.
In order to sustain its technological leadership, particularly in GPT and AIGC areas, Lucas plans to establish an R&D center in the U.S., led by Dr. Wong, the head of AI and GPT research development. Dr. Wong has multi-decade of academic and industry experience in the field of AI. His involvement shall further solidify Lucas' leadership in AI technology for improvements on the efficiency of operations leading to continuing achieving revenue and profit growths above the industry average.
As China's economy is rebounding, coupled with the Lucas' strong track record in executing successful overseas M&A, the integration of Haier Group's resources in the industrial internet sector, the fusion of Lucas' resources within the AI field to develop unique AI training programs, as well as further development in Lucas' existing 6 granted patents in GPT and AIGC technology which has enjoyed an early mover advantage in the industry, Lucas stands to achieve sustained hyper-growth in both top and bottom lines for years to come.
Valuation
With an IPO market cap at around $318 million, Lucas is significantly undervalued compared with industry peers. Kanzhun Ltd. (NASDAQ: BZ), a Chinese stock in the human resources sector, currently boasts a market capitalization nearing $6 billion, with a price-to-sales ratio (PS) of around 9x. Considering the projected revenue growth rate for the first half of 2023 and subsequent full-year results, Lucas with even higher growth rate commands a PS ratio of merely 1.5x, implying a capital gain potential at 6x. The potential capital gain is even more dramatic when compared with peers in the AI industry where the average PS ratio is 16x, making Lucas as one of the most exciting investment ideas in the AI sector.
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