Good News on Listing | Frost & Sullivan Assists Lichen China Limited in Successful US Listing (LICN.NASDAQ)

Lichen China Limited (hereinafter referred to as 'Lichen China') successfully went public on February 6, 2023. The company plans to issue 4.5 million common shares at an issue price of $4.00 per share, raising approximately $18 million in net proceeds.

During the process of listing in the US, Frost & Sullivan mainly undertook the following tasks: helping the issuer accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the issuer's competitive advantages, assisting the issuer, investment banks, and other intermediaries in completing the writing of relevant parts of the prospectus (such as overview, competitive advantages and strategy, industry overview, business, and other important sections), facilitating communication between the issuer and the Hong Kong Stock Exchange and investors, helping investors quickly understand the market ecosystem and competitive landscape, and assisting the issuer in completing feedback on various industry-related issues with NASDAQ.

The company is a leading provider of financial and tax solutions;

The company has cooperative institutions in over 12 provinces and cities across China;

The company has successfully integrated financial and tax solutions with education support services, creating a synergistic effect and providing higher-quality services;

The company has a strong innovation team to meet the ever-changing needs of customers in the market;

The company has an experienced and highly qualified executive management team.

According to the Frost & Sullivan report, in terms of total revenue for 2019, the company:

Ranked first in the China fiscal and tax solution service market;

Ranked tenth among China's finance and taxation education support service providers;

Ranked as one of the trusted Chinese management consulting institutions in 2018 by the Management Consulting Committee of the China Enterprise Confederation;

In 2017, it was rated as one of the recommended institutions for enterprise management consulting by the Ministry of Industry and Information Technology of China.

Financial and tax solution services refer to a series of services that deal with financial items or taxation (such as business solutions, planning, tax analysis, valuation, accounting and tax filing services, global payment services, etc.). The five main modules include (i) financial risk management, (ii) internal control management consulting, (iii) tax planning, (iv) establishing and utilizing accounting and financial data systems, and (v) cost management.

The market for fiscal and tax solution services increased from approximately RMB 35.3 billion in 2014 to approximately RMB 70.1 billion in 2019, with a compound annual growth rate of about 14.7%. It is predicted that the market will reach approximately RMB 130 billion by 2024, with a compound annual growth rate of about 13.7% between 2020 and 2024. Solution service experts accounted for approximately 52.9% of the market in 2019. This segment increased from approximately RMB 17.8 billion in 2014 to approximately RMB 37.1 billion in 2019, with a compound annual growth rate of about 15.8%.

Revenue from China's fiscal and tax solution services market by supplier

Forecast from 2014 to 2024

• Number of enterprises has increased

Since the economic reform at the end of the 1870s, China's macroeconomy has grown rapidly and stably. The scale and number of Chinese enterprises have increased rapidly during this period. The number of Chinese companies increased from about 1.06 million in 2014 to about 2.61 million in 2019, with a compound annual growth rate of about 19.7%. It is expected that this number will continue to increase at a compound annual growth rate of about 12.0% between 2020 and 2024, reaching about 4.68 million by 2024. The rapid development of small and medium-sized enterprises in China has driven a rapid increase in demand for high-quality fiscal and tax solutions services. This enables them to improve their knowledge of finance and taxation and strengthen internal control-related systems, which is particularly important for the sustainability of their business. The expanding potential customer base is likely to drive the market in the future.

• Policy changes

The Chinese government has recently issued a series of tax reform policies. Since May 2016, China has shifted the business tax to value-added tax (VAT). In 2018, the state tax and land tax were combined. As a result, enterprises have made considerable efforts to adapt to the tax policy reforms. Small and medium-sized enterprises generally have limited knowledge of Chinese taxation and accounting standards, and do not have sufficient resources to keep up with the development of relevant standards. Since the maximum fines for non-compliance with tax laws in China are generally high, the awareness of small and medium-sized enterprise management to comply with Chinese fiscal and tax laws and accounting standards is gradually increasing. The maximum penalty for enterprises that fail to pay or underpay taxes is fixed-term imprisonment of not less than three years but not more than seven years, along with a fine of not less than one year but not exceeding five times the amount of tax evasion. Therefore, more and more enterprises intend to hire financial and tax solution service experts and/or cooperate with them to improve their financial management and tax efficiency. Thus, the market demand for financial and tax solution services may further increase in the foreseeable future.

• Favorable government policies

In recent years, with the adjustment of economic structures, the transformation of traditional companies has become quite important in China. The government has promulgated a series of policies to promote the development of the fiscal and tax solution service market, especially services provided to small enterprises. In terms of the 'Accounting Standards for Small Enterprises' promulgated in 2011 and the 'Opinions of the State Council on Supporting the Healthy Development of Small and Micro Enterprises' issued in 2014, the government has set a standard to regulate accounting measurement and encourage small and micro enterprises to seek professional fiscal and tax solution consulting and services. In 2017, the State Council promulgated the 'Accounting Law of the People's Republic of China'. Accordingly, organizations and enterprises that have not established an accounting department should entrust professional third-party service providers with bookkeeping. Such policies can effectively promote and improve the stable development of the fiscal and tax solution service market.

Until 2019, the market had approximately 10,000 solution service experts. The market for solution service experts is highly fragmented, with the top 10 solution service experts accounting for only about 2.6% of the total market share based on revenue according to a Frost & Sullivan report. The Group's revenue in 2019 was RMB 1.704 billion, ranking first among all fiscal and tax solution service experts, accounting for 0.5% of the total revenue of all fiscal and tax solution service suppliers in China.

The fiscal and taxation education support service market includes the education market and related support services for education. The fiscal and taxation education support service market has experienced rapid growth in recent years. The market size increased from about RMB 9.3 billion in 2014 to about RMB 40 billion in 2019, with a compound annual growth rate of about 33.0%. In 2017, the cancellation of the public accounting professional certificate examination led to an increase in the number of candidates taking the accounting professional technical qualification examination, which greatly promoted the market. Since the accounting professional technical qualification examination is more difficult than the accounting professional certificate examination, a larger proportion of candidates choose to receive professional training to pass the exam. As more companies pay more attention to fiscal and taxation training, the market is expected to continue growing. The market is projected to increase from about RMB 47.5 billion in 2020 to about RMB 127.3 billion in 2024, with a compound annual growth rate of about 27.9%.

Income from the China Fiscal and Tax Education Support Service Market

Forecast from 2014 to 2024

The market scale of China's fiscal and tax education support service market in 2019 was approximately RMB 40 billion. The market for fiscal and tax education support services has about 10,000 to 15,000 market participants, which are relatively dispersed. Calculated by revenue, the top ten participants account for about 11.6% of the total market share. The Group's revenue in 2019 was approximately RMB 3.11 billion, ranking tenth among all market participants, accounting for about 0.1% of the total revenue of all fiscal and tax education support service suppliers in China.

• Brand awareness

Since brand awareness has always been one of the highest standards considered by individuals and businesses when choosing institutions, well-established brands with a long history of operation and good reputation are popular among individuals and businesses. However, new entrants usually need many years to build brand awareness and reputation in the market.

• Powerful business network

At present, market participants in China's fiscal and tax education support services have established stable and reliable business networks with all parties. Customers are more likely to choose their regular suppliers of fiscal and tax education support services to ensure the stability of these services.

• Sufficient initial capital and continuous investment

When establishing a fiscal and taxation training institution, huge initial capital is required for campus construction, facilities, and equipment. Moreover, the investment is ongoing rather than one-time.

• qualified teachers

Qualified teachers are generally regarded as the most important educational resource, directly reflecting the teaching quality of education support service providers. Current fiscal and tax education support service providers typically hire teachers with profound industry expertise and extensive teaching experience.

• R&D capability

The customized nature of the fiscal and tax education support service market, along with its ever-changing characteristics, requires market participants to innovate and adjust their services quickly and effectively to meet customer needs. R&D capabilities help fiscal and tax education support service providers attract new customers and maintain relationships with existing ones. Existing fiscal and tax education support service providers have established R&D departments, possess extensive experience in training course design, and are able to develop training courses and programs that meet customer needs and market trends.

The number of customers in the fiscal and tax software and technical support service market increased from 2.3 million in 2014 to 8.0 million in 2019, with a compound annual growth rate of 28.3%. At the same time, revenue in the fiscal and tax software and technical support service market continued to grow rapidly, increasing from RMB 8.4 billion in 2014 to RMB 384 billion in 2019, with a compound annual growth rate of 35.5%. In the future, it is expected that the number of customers in the fiscal and tax software and technical support service market will reach 16.8 million by 2024, with a compound annual growth rate of 15.3%. Meanwhile, revenue in the Chinese fiscal and tax software and technical support service market is expected to continue growing at a compound annual growth rate of 22.6% between 2020 and 2024, reaching RMB 1123 billion in 2024.

Revenue from the China fiscal and tax software and technical support service market

Forecast from 2014 to 2024

TradeGo, a subsidiary of Frost & Sullivan, has extensive research experience in the financial and business services industry. It assists well-known enterprises in successfully listing on the capital market. Successful listings include Noah Holdings (6686.HK), Cadey Advisory (2176.HK), Bairen Cloud Innovation (6608.HK), Zhongguancun Technology Leasing (1601.HK), Baolong Commercial (9909.HK), Travel Orange Culture (8627.HK), Taixiao Lending (1915.HK), China Index Holdings (CIH.NASDAQ), Haitong Hengxin (1905.HK), Asia Times (ATIF.NASDAQ), Liancheng Technology (8635.HK), Aoyuan Health (3662.HK), Ruwei Asset Management (1835.HK), TradeGo (8017.HK), Baiying Leasing (8525.HK), Ziyuan Yuan (8223.HK), Weixin Jinko (2003.HK), Huifu Tianxia (1806.HK), Tianping Daohe (8403.HK), Junyi Global Finance (8350.HK), Shengye Capital (8469.HK), China Art Finance (1572.HK), Xingzheng International (8407.HK), Bank of China Leasing (1606.HK).