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Chinese producer applies to boost $25 million by way of a dangerous Nasdaq itemizing as China-U.S. tensions stay excessive.
The newest U.S. IPO plan from a Chinese firm is decidedly low-tech, looking for to boost modest funds because it additionally tries to keep away from U.S.-China tensions which have worn out billions of {dollars} in market worth from different New York-listed Chinese shares over the past 12 months.
The plan will see industrial kitchen equipment producer Li Bang International (LBGJ) step again from the stoves to boost $25 million by way of an providing of 5 million shares at $5 apiece. The firm is comparatively small, with a goal market worth of round $100 million, suggesting the modest IPO may have a probably transformative influence on the enterprise – if it makes it to market.
Like many Chinese firms that checklist abroad, Li Bang is a Cayman Islands firm that in the end owns a number of China-based firms which can be the engines of its industrial enterprise, in response to its prospectus filed final week with the U.S. Securities and Exchange Commission (SEC).
Notably, Li Bang doesn’t seem like a variable curiosity entity (VIE) – a controversial company construction utilized by most U.S.-listed Chinese firms that has drawn considerations from securities regulators in each the U.S. and China.
The firm additionally notes that its auditor is a U.S.-based agency that has an information-sharing settlement with the SEC-affiliated Public Company Accounting Oversight Board. That’s additionally a key level, as most U.S.-listed Chinese firms use China-based auditors which can be barred by Chinese legislation from such data sharing – a proven fact that has led the U.S. securities regulator to threaten to delist all New York-listed Chinese firms until Beijing modifications its stance.
Li Bang’s enterprise additionally seems decidedly low-tech and doesn’t contain massive volumes of person knowledge – two different elements which have raised current considerations by Chinese regulators over some bigger Chinese firms which can be already listed within the U.S.
Li Bang designs and sells stainless-steel kitchen gear in China underneath the high-end Libang model to massive industrial purchasers like worldwide inns, firms, public establishments, colleges, and hospitals. The firm’s web site reveals it counts Radisson and Ramada inns, excessive colleges and universities, corporates throughout a various vary of sectors, in addition to governments in any respect ranges as purchasers, all of these in China.
Third-party knowledge within the prospectus exhibits that China’s industrial kitchen equipment trade was value over $12 billion in 2020 and is tipped to hit $14 billion this 12 months. That’s not precisely large development, however nonetheless a considerable market alternative.
While making massive stainless-steel cookers for industrial prospects lacks the flashier attraction of shiny and strokable residence kitchen home equipment, Li Bang makes up for that with the colour of its massive money. The firm produced internet revenue of $2.7 million in its fiscal 12 months by way of June final 12 months, and about $748,000 within the six months to December 31, 2021.
The newest annual determine represented a greater than doubling of Li Bang’s internet revenue of $1.2 million within the 12 months to June 2020. The firm’s income additionally posted sturdy development over the identical interval, rising to $15.9 million for the 12 months to June 2021 from about $10 million in its earlier fiscal 12 months.
Sure, these aren’t rockstar quantities in absolute phrases, and Li Bang remains to be a comparatively small fry in its addressable market. But its internet return to shareholders of 12.5% and 16.7% on 2020 and 2021 monetary 12 months revenues, respectively, could be tastier to many buyers than a pile of steamed Shanghai dumplings.
Expanding capability
Around 30% of the funds raised from the deliberate itemizing are designated for development of two factories to develop Li Bang’s manufacturing capability. Some 15% will go to new manufacturing gear, whereas over $11.1 million are flagged for day-to-day bills.
What Li Bang doesn’t plan to do is turbocharge its enterprise. The firm is aware of its area of interest – servicing the industrial kitchen market in Yangtze River Delta cities centered on the prosperous Shanghai space. It’s a modest however worthwhile technique that’s mirrored within the modest dimension of its IPO.
Many firms wouldn’t hassle with an IPO to boost a piddly $25 million. But after the disastrous U.S. mega-listing final 12 months by the Uber-like DiDi Global (OTCPK:DIDIY), and subsequent delisting of the corporate this 12 months, Chinese firms are solely simply beginning to return to the U.S. IPO enviornment. The good ones are conserving their fundraising targets unassuming and ambitions small scale.
China-based firms not too long ago taking the identical low-profile IPO path as Li Bang embrace tax advisory enterprise Lichen China Ltd. (LICN), training supplies supplier Jianzhi Education Technology Group Co. Ltd. (JZ), and photo voltaic panel firm SolarMax Technology Inc. (SMXT).
No doubt executives within the Li Bang boardroom had been inspired by the current extremely profitable IPO by language coaching firm Golden Sun Education (GSUN), whose shares quadrupled of their first buying and selling day on the Nasdaq.
Of its shares now issued, 75% are managed by Li Bang CEO and Chairman Huang Feng – a standard incidence amongst Chinese firms which means minority shareholders could have little say in how the corporate is run. If the corporate succeeds in promoting shares for $5, Li Bang will begin life with a market capitalization of virtually $114 million – not too shabby for a modest industrial kitchen producer.
From a valuation perspective, a $5 share value would give Li Bang a price-to-earnings (P/E) ratio of 11.7 primarily based on its revenue within the 2020/21 fiscal 12 months. This comparatively modest P/E ratio aligns with Li Bang’s modest development projections. The firm doesn’t wish to revolutionize the trade; it merely desires to maintain on making cheap earnings – or maybe barely stepped-up earnings from these additional IPO-funded factories and upgraded manufacturing services.
Despite its modest aspirations, Li Bang argues it does have a number of aggressive benefits that assist it stand out from the pack. Those embrace superior R&D and design capabilities, excessive model recognition, and a dedication to sustaining what the corporate calls “its leading market position.”
But it might take greater than that type of self-assessment to get buyers on board. The highway to U.S. IPO riches is fraught with peril for Chinese firms today, as governments in each jurisdictions take growing curiosity in what such firms are as much as.
While the corporate is clearly making an attempt to take steps to keep away from working afoul of regulators on either side of the Pacific and a deteriorating U.S.-China relationship, such factors will stay main threat elements for any Chinese firm itemizing in New York proper now.
But Li Bang figures the dangers and pressures are well worth the potential rewards. A profitable IPO may take the corporate to the following stage, vaulting it from simply one other Yangtze River Delta industrial kitchen equipment maker to among the many ranks of China’s prime gamers. Who is aware of: perhaps the itemizing may mark the beginning of a shinier future the place Libang-branded stainless-steel ovens and different home equipment develop into fixtures in massive industrial kitchens round China.
Disclosure: None.
Editor’s Note: The abstract bullets for this text had been chosen by Seeking Alpha editors.