YanGuFang International (YGF) Begins U.S. IPO Effort

A Quick Take On YanGuFang International Group

YanGuFang International Group Co., Ltd. (YGF) has filed to boost $23 million in an IPO of its atypical shares, in accordance with an F-1 registration assertion.

The agency produces and sells oats and associated grain merchandise in China.

YGF has grown income rapidly and generates earnings however has swung to free money use.

I’ll present a ultimate opinion after we be taught extra in regards to the IPO from administration.

YanGuFang International Overview

Shanghai, China-based YanGuFang was based to develop oats in Inner Mongolia and to supply completed oat-based merchandise for shopper use in main provinces within the PRC and doubtlessly Thailand.

Management is headed by Chairman and CEO Junguo He, who has been with the agency since inception in August 2012 and was beforehand founding father of YanGuFang Agroeco Tech

The firm’s major choices embrace:

• Oat germ groats

• Oat flour

• Oatmeal

• Oat oil

• Oat bran

The firm sells its completed merchandise within the provinces of Beijing, Shanghai, Jiangsu, Zhejiang, Fujian, Guangdong, Anhui, Chongqing and the Inner Mongolia Autonomous Region.

YanGuFang has booked truthful market worth funding of $12 million as of December 31, 2021 from buyers together with BioNature Organic Solution Co., Upworld Fitness Approach Solutions Co., VicVans Organic Service Co., YanYat Fitness Create Co., Supreme Green Incubator Co., and HeaYan Grain Solution Co.

YanGuFang – Customer Acquisition

The firm sells its merchandise by way of an omni-channel method, corresponding to by its personal cell app, third-party ecommerce platforms, and an offline direct gross sales group by distributors.

Management says it had a 57.5% repurchase fee from subscription clients for the six months ended December 31, 2021.

Selling bills as a share of complete income have risen as revenues have elevated, because the figures beneath point out:

Click to enlarge

(Source – SEC)

The Selling effectivity a number of, outlined as what number of {dollars} of extra new income are generated by every greenback of Selling spend, rose to 1.6x in the latest reporting interval, as proven within the desk beneath:

Click to enlarge

(Source – SEC)

YanGuFang’s Market & Competition

According to a 2018 market research report by Allied Market Research, the worldwide oatmeal market was an estimated $10.5 billion in 2017 and is forecast to achieve $11.9 billion by 2027.

This represents a forecast CAGR of 1.3% from 2018 to 2027.

The most important drivers for this anticipated progress are a need for customers to eat more healthy meals and higher availability of the product in numerous kinds.

Also, the chart beneath exhibits the that the Asia-Pacific area is predicted to account for progress of 1.8% by 2027, the best of all areas:

The following chart exhibits the worldwide oatmeal market share breakdown by product sort:

YanGuFang additionally sells different forms of oat associated merchandise, increasing its potential addressable market past simply oatmeal.

Major aggressive or different business individuals embrace:

• Quaker Oats Company

• Nature’s Path Foods

• Nestlé S.A

• Kellogg NA Co.

• General Mills

• Hamlyn’s Of Scotland

• World Finer Foods

• Weetabix Ltd.

• Cargill

• Bagrry’s India Ltd.

YanGuFang International Group Financial Performance

The firm’s current monetary outcomes may be summarized as follows:

• Growing topline income

• Increasing gross revenue and gross margin

• Higher working revenue however lowered working margin

• A swing to money utilized in operations

Below are related monetary outcomes derived from the agency’s registration assertion:

Click to enlarge

(Source – SEC)

As of December 31, 2021, YanGuFang had $6.2 million in money and $44.1 million in complete liabilities.

Free money stream through the twelve months ended December 31, 2021, was destructive ($10.9 million).

YGF IPO Details

YanGuFang intends to boost $23 million in gross proceeds from an IPO of its atypical shares, though the ultimate quantity could differ.

No current shareholders have indicated an curiosity to buy shares .

Management says it’ll use the web proceeds from the IPO as follows:

roughly 30% of the web proceeds from this providing within the building of extra manufacturing services, buy of latest gear and upgrades of current gear;

roughly 10% of the web proceeds from this providing for the R&D of latest merchandise and applied sciences, upgrades of current merchandise and applied sciences, new hires of R&D workers;

roughly 12% of the web proceeds from this providing for international enterprise enlargement, primarily to North America, South East Asia and Japan; and

roughly 20% of the web proceeds from this providing for advertising and marketing and types promotion;

roughly 28% of the web proceeds from this providing for working capital and different basic company functions;

(Source – SEC)

Management’s presentation of the corporate roadshow isn’t obtainable.

Regarding excellent authorized proceedings, administration says they know of ‘no materials, lively, pending or threatened continuing’ towards it or any subsidiaries or VIEs.

The sole listed bookrunner of the IPO is EF Hutton.

Commentary About YanGuFang’s IPO

YGF is searching for U.S. public capital market funding to extend its manufacturing capability and for its different company enlargement initiatives.

The agency’s financials have produced rising topline income, rising gross revenue and gross margin, elevated working revenue however lowered working margin and a swing to money utilized in operations.

Free money stream for the twelve months ended December 31, 2021, was destructive ($10.9 million).

Selling bills as a share of complete income have grown as income has elevated; its Selling effectivity a number of rose to 1.6x in the latest reporting interval.

The agency presently plans to pay no dividends and intends to retain future earnings to reinvest again into the corporate’s enlargement initiatives.

YGF’s CapEx Ratio is 0.16, which signifies it’s spending closely on capital expenditures as a share of its working money stream.

The market alternative for promoting oat merchandise is giant however anticipated to develop at a sluggish to reasonable fee of progress within the coming years.

Like different Chinese corporations searching for to faucet U.S. markets, the agency operates inside a VIE construction or Variable Interest Entity. U.S. buyers would solely have an curiosity in an offshore agency with contractual rights to the agency’s operational outcomes however wouldn’t personal the underlying belongings.

This is a authorized grey space that brings the chance of administration altering the phrases of the contractual settlement or the Chinese authorities altering the legality of such preparations. Prospective buyers within the IPO would want to issue on this vital structural uncertainty.

Additionally, the Chinese authorities crackdown on IPO firm candidates mixed with added reporting necessities from the U.S. aspect has put a critical damper on Chinese IPOs and their post-IPO efficiency.

EF Hutton is the only underwriter and IPOs led by the agency over the past 12-month interval have generated a mean return of destructive (64.7%) since their IPO. This is a bottom-tier efficiency for all main underwriters through the interval.

A major threat to the corporate’s outlook is the unsure future standing of Chinese firm shares in relation to the U.S. HFCA act, which requires delisting if the agency’s auditors don’t make their working papers obtainable for audit for 3 years by the PCAOB.

Also, the agency faces the uncertainty of extra COVID-19 variants spreading inside China, possible leading to lockdown responses by authorities as a part of their zero-COVID insurance policies.

When we be taught extra particulars in regards to the IPO, together with the corporate’s capitalization figures and proposed pricing and valuation, I’ll present an replace.

Expected IPO Pricing Date: To be introduced.