ZJK eyes entry to big leagues with potential expansion of Nvidia partnership

Shares of the recently listed high-tech fastener maker nearly tripled after it was invited to participate in Nvidia’s development of new high-tech cooling systems

Key Takeaways:

• ZJK said it has been invited to create fasteners for potential use in new high-tech cooling systems being developed by Nvidia
• The high-tech component maker could raise additional funds through a secondary offering, following its modest September IPO that raised just $6 million

By Doug Young

In the world of high-tech components, it’s all about your customer list. Things like nuts and bolts and optical lenses rarely excite investors, even though they are critical components for a wide range of products. But when someone like Apple chooses your components for use in its iPhones or other products, that’s quite another story.

Newly listed ZJK Industrial Co. Ltd. (ZJK.US) was well aware of that fact when it announced a potential major expansion of its existing partnership with cutting-edge chipmaker Nvidia (NVDA.US) on Dec. 3. What it probably didn’t expect was the huge round of applause it would get from investors after that announcement, reflecting the power of a company’s name that has come to represent the huge potential of artificial intelligence (AI).

Shares of ZJK, which listed at the end of September, nearly tripled the day of the announcement, briefly transforming this otherwise-mundane maker of fasteners used in a wide range of electronics into a “unicorn” by lifting its value past the $1 billion threshold to $1.1 billion. The stock has come down since then, notably dropping 12.5% on Tuesday after China unveiled what looked like a politically motivated anti-trust investigation into Nvidia.

Still, at its latest close of $12.45, ZJK is still worth a sizable $870 million, and its stock is more than double the $5 the shares fetched in their IPO on Sept. 30. What’s more, that listing raised a very modest $6.25 million, which was probably due to the company’s reliance on two small-time underwriters for the deal that saw it sell just 2% of its shares.

At the time of the listing we said we wouldn’t be surprised to see the company return to market with a secondary share offering in the months ahead. The strong reception its stock has received, especially after the latest Nvidia announcement, makes such a possibility look even likelier, potentially with a bigger-name underwriter that could help the company raise many times more than its original amount, potentially even $100 million or more.

ZJK could certainly use such funds as it looks to diversify its manufacturing base beyond China, which is part of a broader industry trend by many manufacturers. What’s more, the Nvidia partnership expansion that got investors so excited will undoubtedly require major new investment, both in R&D and also manufacturing, if the project ultimately bears fruit.

As we’ve previously noted, ZJK already boasts quite a strong customer list that includes not only Nvidia, but also other names like electric vehicle superstar BYD, leading global drone maker DJI and iPhone maker Foxconn. Interestingly, ZJK doesn’t even mention Nvidia and many of its other big-name customers in its IPO prospectus, and instead you only learn about them by checking out the company’s website.

Exploratory phase

Next we’ll look at the Nvidia announcement that got investors so excited. The potential expansion of ZJK’s partnership with Nvidia is still very much in an exploratory stage and involves the development of precision fasteners used in the high-tech cooling systems required for Nvidia’s chip-based products. Such cooling systems are a critical part of high-performance chipsets used for AI, since such products generate huge amounts of heat that must be dissipated to prevent malfunctions.

ZJK, which uses the Zjinlok name for its products, said that following a recent meeting at Nvidia’s California headquarters, it received a request to produce samples that could be used in one of Nvidia’s upcoming liquid cooling manifest projects. In response, ZJK said it has assembled a team of engineers and technical support staff to exclusively focus on the project. It called the development a “turning point” for the company’s growth strategy.

“The expansion of our cooperation into liquid cooling systems provides our company the opportunity to demonstrate the breadth of our capabilities, the strength of our R&D teams and the quality and versatility of our engineering,” said ZJK CEO Ding Ning.

While it’s obviously still quite early and ZJK is probably just one of several companies invited to participate in the project, the potential for such a major new revenue stream is clearly quite large if Nvidia ultimately selects ZJK’s products. The company’s current stable of fasteners already covers a large range of applications, including for use in cars, 5G base stations and drones.

But ZJK’s actual revenue is still relatively small at just $29 million for all of 2023, up 17.2% from the $24.8 million in 2022. The company is also profitable, reporting its net income rose about 6% last year to $7.7 million from $7.3 million in 2022.

From a strategic standpoint, a major expansion of its relationship with Nvidia could mark an important step in ZJK’s bid to diversify beyond its China base, both in terms of customers and also manufacturing. Around $25 million, or 86% of its revenue, came from China last year, while the company also currently does most of its manufacturing from two China-based facilities, one in its hometown of Shenzhen and the other in Qingyuan.

It launched a factory in Vietnam in April this year, and said it also plans to open a U.S. sales office early next year to expand its business there. The Vietnam factory is probably in its very early stages and will require more money to build out, which is where fresh funds from a potential secondary offering could be helpful. And if the Nvidia partnership advances and results in major new orders, that could also require big spending on both R&D and construction of new facilities for manufacturing such high-precision fasteners.

At the end of the day, ZJK looks a bit like a well-run but decidedly small-time company that wasn’t quite prepared for its sudden jump into the spotlight. How it handles the sudden shift will determine whether it has the “right stuff” to play in the big leagues, or whether it ultimately remains just a bit player in the huge global market for high-tech nuts and bolts.

To subscribe to Bamboo Works weekly free newsletter, click  here