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Its title might sound sizzling, however a newly filed New York IPO plan from the China-related SolarMax Technology, Inc. (SMXT) tells fairly a distinct story.
That’s our general evaluation of the upcoming itemizing by an organization whose IPO prospectus filed final week exhibits it’s sorely in want of a lesson within the significance of diversifying its income sources. Other than its place as a small participant within the sizzling solar energy sector, the opposite noteworthy factor about this IPO is that it’s one of many few by a China-related firm in New York currently.
Such listings got here to a near-standstill a couple of 12 months in the past after the disastrous IPO for the Uber-like DiDi Global (OTCPK:DIDIY), which managed to upset regulators in each the U.S. and China. Many – although not all – of the problems that put the brakes on most choices after DiDi have been resolved now, together with final week’s closing of a cybersecurity evaluate towards DiDi that leads to a report high quality of 8 billion yuan ($1.2 billion) towards the corporate.
With that subject within the rear-view mirror, it’s fairly attainable that the SolarMax IPO might sign the resumption of extra Chinese choices within the months forward, together with some doubtlessly bigger ones.
With regard to measurement, SolarMax’s IPO is comparatively modest, aiming to lift about $30 million by promoting 7.5 million shares for $4 apiece, the prospectus exhibits. In reality, this isn’t the primary time SolarMax has sought such an inventory. It initially filed for a New York IPO in December 2018. But it withdrew the applying in October 2020, saying at the moment it determined to make a backdoor itemizing utilizing a particular goal acquisition firm (SPAC) as an alternative. That SPAC deal apparently by no means occurred, which is why the corporate is coming again to market now with the newest IPO plan.
Truth be informed, there’s not an excessive amount of to get enthusiastic about with the corporate in its present kind. But it does appear to have a strong sufficient basis in its core areas of constructing industrial-scale photo voltaic farms in China and rooftop-style solar energy era initiatives for each residential and industrial purchasers within the U.S. Thus, if it might use its base and experience to seek out extra prospects for one or each companies, the corporate might have some room for important progress.
There’s actually no scarcity of alternatives in both enterprise space. China and most western international locations are aggressively constructing new photo voltaic farms to wean themselves off dirtier, carbon-emitting vitality powered by coal and pure fuel. That drive has gained urgency in current months with Russia’s invasion of Ukraine, which has led most western international locations to speed up their new photo voltaic mission constructing to eradicate their reliance on Russian oil.
Now SolarMax simply must faucet into a few of that demand.
Thin shopper roster
SolarMax is definitely a U.S. firm, based mostly within the state of Nevada. It has two models, one within the U.S. constructing onsite rooftop-style photo voltaic methods for residential prospects and industrial purchasers like factories and workplace buildings. The different unit is in China, constructing industrial-scale photo voltaic farms.
The China operation was the corporate’s massive breadwinner till just lately, offering greater than 70% of its $131.6 million income for 2020. But then the corporate’s China-based income plunged to simply $7.8 million final 12 months from $94 million in 2020. As a outcome, its general income additionally plunged 71% in 2021 year-on-year.
The motive for the plunge is sort of straightforward to establish and owes to SolarMax’s reliance on a single buyer in China, a state-owned firm referred to as State Power Investment Corp. Guizhou Jinyuan Weining Energy Co. Ltd. (SPIC). SolarMax was constructing 4 initiatives for the shopper over the past two years and completed the work in 2021. As a outcome, its China-based income fell to zero within the first three months of this 12 months. What’s extra, there’s no indication in its prospectus that it has any new work coming from SPIC, or some other China purchasers, within the close to future.
SolarMax’s U.S. enterprise is a little more steady, although its income additionally dropped to $27.3 million final 12 months from $28.8 million in 2020. But right here once more, the corporate factors out that each one of its U.S. enterprise of putting in rooftop-style photo voltaic methods is predicated within the state of California, as soon as extra underscoring its lack of variety.
The backside line is that SolarMax incurred unfavourable money movement in 2020 and 2021, in addition to $2 million in unfavourable money movement from its operations within the first three months of this 12 months. It added that its monetary statements for the final two years have included language indicating it might face a money crunch that might halt its operations at any time.
Its money place appears slightly unsure in the mean time, although not at disaster stage simply but. SolarMax had about $5 million in money on the finish of March, although that might rise to greater than $30 million if it might probably full its IPO. It made no point out of short-term debt within the prospectus, although it had about $45 million in long-term debt.
The prospectus mentioned the corporate intends to make use of proceeds from the IPO for normal company functions, most probably to fund its money-losing operations that included a $1.3 million web loss within the first three months of this 12 months. But it’s attainable the corporate might additionally use a few of the new funds for an additional acquisition that might assist it diversify in both the U.S., China, or each.
In valuation phrases, SolarMax could be valued at about $190 million if it might probably full the IPO based mostly on the phrases in its prospectus. That would give it a price-to-sales (P/S) ratio of about 0.6 based mostly on its 2020 income, although the determine drops to simply 0.2 based mostly on the 2021 income determine. Similar photo voltaic farm-building specialist ReneSola (SOL) trades at a far larger P/S ratio of 5.7, exhibiting simply how modest SolarMax is pricing its providing.
Such modesty is absolutely acceptable on this case, and even at this comparatively low degree, the corporate might have problem attracting traders to its shares.
Disclosure: None
Editor’s Note: The abstract bullets for this text had been chosen by Seeking Alpha editors.