IPO Analysis | 533K Massage Machines Drive RMB 800M Revenue, But Expansion Pressures Erode LEMO SERVICES' (02539) Profitability

Stock News2025-11-26

LEMO SERVICES (02539), China's leading machine massage provider, has entered the final stage of its Hong Kong IPO journey. The company passed the HKEX main board listing hearing on November 18, with CSC Financial International and Shenwan Hongyuan Hong Kong as joint sponsors. On November 25, LEMO SERVICES launched its global offering of 5.56 million shares (10% Hong Kong public offering, 90% international offering), priced at HK$27-40 per share. Trading is expected to commence on December 3, 2025.

According to Frost & Sullivan, LEMO SERVICES ranked first in China's machine massage service market by transaction value for three consecutive years (2022-2024). In 2024, it commanded over 50% market share by revenue. However, while maintaining market dominance, the company's profit growth shows signs of slowing.

Financials reveal: - 2022-2024 revenue: RMB 330M → 587M → 798M - Adjusted net profit: RMB 8.53M → 94.58M → 102M (2024 growth: just 7.85%) - Jan-Aug 2025: Revenue grew 13.72% YoY to RMB 630M, but adjusted net profit only increased 0.92% to RMB 99.19M

The profitability slowdown stems from: 1) Gross margin decline from 41.47% (2023) to 36.07% (2024), due to rising service point fees, new equipment costs, and higher proportion of lower-margin direct-operated business (83.49% of 2025 revenue) 2) Operating expenses growing faster than revenue (marketing +47.66%, admin +57.64% in 2024) 3) Resource allocation mismatch - 80.8% of devices are massage pads deployed in cinemas, which generate the lowest daily transactions (0.18 in 2024 vs. higher volumes in malls/transport hubs)

Despite these challenges, LEMO SERVICES continues aggressive expansion: - Service points grew from 21,727 (2022) to 45,993 (2024), a 45.49% CAGR - Current footprint: 48,000+ service points with 533,000 machines across 337 Chinese cities - IPO proceeds will fund deeper penetration in core scenarios (transport hubs, malls, cinemas) and overseas expansion

The company's heavy reliance on direct operations (70.4% of points) and single revenue stream (98.11% from shared massage in 2024) presents ongoing profitability challenges. Future valuation will depend on balancing growth with earnings quality and developing diversified monetization models.

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