Cheetah Net Supply Chain Service Inc

Cheetah Net Supply Chain Service Inc. (NASDAQ: CTNT) is a supplier of parallel-import vehicles sourced in the United States to be sold in the People’s Republic of China (PRC) market. The Company and its subsidiaries are primarily engaged in the parallel-import vehicle dealership business. In the PRC, parallel-import vehicles refer to those purchased by dealers directly from overseas markets and imported for sale through channels other than brand manufacturer’s official distribution systems.

Recent Business and Financial Updates

• Recent Highlights:
  • Market Conditions and Revenue Impact: The Company has continued to face challenging market conditions in the People's Republic of China (PRC) that began affecting its financial performance in the latter half of 2023. These unfavourable conditions persisted into the first quarter of 2024, leading to a significant decline in revenue. The gross margin between U.S. retail prices of select luxury car models and their wholesale prices in the parallel-vehicle market remains highly compressed. During the first quarter of 2024, the Company sold 13 vehicles, a stark decrease from the 82 vehicles sold in the same period of 2023. This resulted in vehicle sales revenue of USD 1.4 million, down from USD 10.2 million in the first quarter of 2023, and a net loss of USD 0.6 million compared to a USD 0.1 million loss in the first quarter of 2023.
  • Acquisition of Edward Transit Express Group, Inc.: In February 2024, the Company completed the acquisition of Edward Transit Express Group, Inc. ("Edward"), a California-based common carrier specializing in ocean and air transportation services, for USD 0.3 million in cash and the issuance of 1,272,329 shares of its Class A common stock. Edward provides warehousing and logistics services to third-party parallel-import vehicle and other wholesalers. This acquisition is expected to enhance the Company’s financial services business, launched in October 2022. Following the acquisition, the Company generated USD 60,000 in warehousing and logistics revenue from non-vehicle-related wholesalers in the first quarter of 2024.
  • Strategic Expansion: The Company is diversifying beyond the parallel-import vehicle business to become an integrated provider of international trade services and financing for small- and medium-sized traders. The Edward acquisition and subsequent warehousing and logistics operations are integral to this strategy.
• Financial Results for the Quarter Ended March 31, 2024:
  • Revenue and Cost of Revenue: Revenue from parallel-import vehicle sales in the first quarter of 2024 decreased by USD 8.8 million, or 86%, from USD 10.2 million in the first quarter of 2023 to USD 1.4 million. This decline followed the Company’s intentional pause in vehicle procurement in the fourth quarter of 2023 due to price volatility in the PRC market and a shift in the Company’s procurement pricing strategy. Consequently, the cost of revenue from parallel-import vehicle sales decreased by USD 7.6 million, or 84.1%, from USD 9.1 million in the first quarter of 2023 to USD 1.4 million in 2024. The cost of revenue represented 88.9% of parallel-import vehicle revenue in the first quarter of 2024, compared to 100.6% in 2023.
  • Logistics and Warehousing Revenue: The Company reported total revenue of approximately USD 80,000 from logistics and warehousing services in the first quarter of 2024, with USD 64,000 derived from non-vehicle-related services. Ocean freight expenses related to this segment amounted to approximately USD 43,000. The Company began recording logistics and warehousing revenue and expenses from February 2, 2024, following the closing of the Edward acquisition.
  • Operating Expenses: Selling expenses decreased by 71.6% to approximately USD 80,000, or 5.2% of total revenue, a USD 0.2 million decline from the first quarter of 2023. This reduction is primarily due to the decreased number of vehicles sold. The loss from operations was USD 0.8 million in the first quarter of 2024, compared to an income of USD 0.3 million in the first quarter of 2023.
  • Other Expenses: Total other expenses, mainly consisting of interest expenses, decreased significantly by 85.6% to approximately USD 60,000 for the first quarter of 2024 from USD 0.4 million in the comparable period of 2023. This decline was primarily due to a significant reduction in inventory and sales activity.
  • Net Loss: The Company reported a net loss of USD 0.6 million for the quarter ended March 31, 2024, compared with a net loss of USD 0.1 million for the quarter ended March 31, 2023.
• Liquidity and Cash Flow:
  • Financial Position: As of March 31, 2024, the Company reported cash of USD 0.9 million and working capital of approximately USD 6.3 million, comprising USD 7.8 million in current assets and USD 1.5 million in current liabilities. The liabilities included USD 0.8 million in loans payable and the current portion of long-term debt. The Company’s strong working capital position is bolstered by its borrowing capacity under existing credit facilities. Additionally, the Company has historically received support from loans provided by its principal stockholder and anticipates that such support will continue to be available if needed.

Technical Observation (on the daily chart):

The Relative Strength Index (RSI) over a 14-day period stands upward trending with value of 44.05, with expectations of a consolidation. Additionally, the stock's current positioning is below both the 21-period SMA and 50-period SMA, which may serve as dynamic short to medium-term resistance levels.

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc. 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is May 29, 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the New York Stock Exchange (NYSE), NASDAQ Capital Markets (NASDAQ), and or REFINITIV. Typically, all sources (NYSE, NASDAQ, or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.