Huachen Hopes Investors Pull Into Its Smart Parking Dreams

Key Takeaways:

• Huachen has filed for a $25 million IPO on the Nasdaq, despite reporting plunging profits on China’s imploding property market
• With new car registrations increasing in China’s largest cities, the Zhejiang-based automated parking garage builder thinks its setback won’t last for long

By Edith Terry

When Huachen AI Parking Management Technology Holding Co. Ltd. filed for a $25 million New York IPO last week, it blamed a combination of lingering pandemic fallout and the massive slowdown in China’s property sector for a temporary downturn last year. But it said its profit plunge was due to one-time factors and is trying to convince investors of the huge growth potential for its brand of smart parking garages.

Huachen’s core business took a major hit in early 2022, arguably China’s worst year of the pandemic, with the company undertaking no new parking garage projects and recording little or no revenue from its parking garage business in the first half of the year. But postponed projects resumed in the second half, allowing the company to post annual revenue of $21 million, up 147% from 2021. Of that, the big majority $16.9 million was from its cubic parking garages, a 3D approach that allows space to be used more efficiently by “stacking” cars vertically using elevators and robot sleds.

But just when business was picking up again, Huachen’s parking garage pipeline slowed again last year as the property market’s slowdown that began in 2021 caught up with the company. New construction starts fell by nearly 30% compared to 2022, according to the National Bureau of Statistics (NBS). That translated to a drop of more than half of Huachen’s revenue from parking garages, to $8 million, or 23% of total revenues in 2023 compared to 81% in 2022. The rest of its revenue comes from the sale of equipment used by other parking garage builders.

Huachen completed just 12 parking garage projects in 2023, though it was able to post a 64% revenue increase to $34.3 million on strong equipment sales. Despite that, Huachen’s gross margin fell sharply to 18% in 2023 from 41% the previous year, with the company blaming two loss-making projects that required reworking. Excluding the two projects, it said, its gross margin last year would have been 35.1%.

As its business ran into headwinds, the company’s profit tumbled by more than half to $2 million last year from $5.5 million in 2022.

“We do not expect the business shift to be permanent,” Huachen said of the big shift in its business mix last year. “With the continuous increase in the number of private vehicles in China, the shortage of parking spaces in first- and second-tier cities is expected to persist for the long term.”

The IPO’s sole bookrunner is E.F. Hutton, which has emerged recently as an underwriter for this type of smaller Chinese IPO. Huachen said it plans to sell shares for between $5 and $7 apiece. That would raise $25 million at the midpoint and give the company a market cap of $175 million and a lofty price to earnings (P/E) ratio of 96.

Huachen is burning through its limited cash relatively quickly, which may explain the timing of its IPO application. It started last year with $2.1 million and ended it with just under $500,000.

Growth industry

If the company’s prospects seem dubious against a backdrop of a weak property market and sluggish car sales, Huachen may still have some potential. China’s property market seems to be starting to stabilize, and the company’s brand of “smart” parking has become a growth industry in a country where major city streets are frequently congested and parking spaces are always in short supply.

China had 435 million motor vehicles on its roads at the end of last year, with about 24.6 million new car registrations for the year, up 5.73% over 2022, according to China’s Public Security Bureau. Nationwide, 94 cities had motor vehicle populations of over 1 million units, with 43 cities over 2 million and 25 cities over 3 million. By comparison, the U.S. had an estimated 292 million vehicles on its road last year.

China’s smart parking market was worth 20 billion yuan ($2.8 billion) in 2022 and grew 15% to reach 23 billion yuan last year, according to third-party market data in its prospectus. “Revenge travel” after the lifting of China’s tough Covid restriction at the end of 2022 led to a resurgence in domestic tourism starting last year, with an 80% increase in trips by motorists during this year’s five-day May Day holiday, according to data from the Ministry of Transport.

New energy vehicles (NEVs) are also boosting the smart parking trend, since the electronics and nearly instant stop-start performance make them easier to control remotely in such automated garages. In 2023, the total number of NEVs in China reached 20.4 million units, making up 6.1% of the entire automobile fleet, with new registrations up 39% year-on-year to 7.43 million.

Fully autonomous vehicles, still mostly at an experimental stage right now, will be an even better fit for smart parking in terms of electronics and robotics within parking garages such as Huachen’s, which use robot sleds to move vehicles in and out of garages.

Huachen is hardly the only company in the smart garage space. It estimates the number of industry participants at 2,177, and said the number has been growing 21% annually since 2015 on strong government policy support. The company believes it has a different niche from many of its rivals due to its focus on the actual building of smart parking garages, compared with some others like Shenzhen Jieshun Science and Technology (002609.SZ) and Jiangsu Wuyang Automation Control Technology (300420.SZ) that focus on developing the technology used in such spaces.

So why the Nasdaq? Despite its relatively small size and shakiness in China’s property and car sectors, Huachen may hope to reap a premium as a first-of-its-kind offering for U.S. investors wanting to bet on the industry’s growth potential. Since China’s securities regulator began approving more overseas listings by Chinese companies last year after a temporary freeze, many applications moving forward have come from mid- and small-caps like Huachen that are less vulnerable to data security concerns and regulatory crackdowns.

But the small number of companies to list recently haven’t exactly received a warm reception. Since its trading debut a week ago, digital learning company YXT.com’s YXT shares have fallen by 16%. Autonomous driving company WeRide was also set to debut on the Nasdaq last week, but now appears to have delayed its IPO indefinitely. China-listed peer Shenzhen Jieshun hasn’t been doing well lately either, with its shares now down over 75% since peaking in 2015. Similarly, Jiangsu Wuyang now trades at about one-third of its 2017 peak.

Both Jieshun and Wuyang are about five times Huachen’s size in terms of revenues. Both had similar profit downturns in 2022 but bounced back in 2023. That seems to show the industry has a future. But whether that future has a space for Huachen remains an open question.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.