Majestic Ideal Holdings Readies $17 Million U.S. IPO Plan

A Quick Take On Majestic Ideal Holdings Ltd.

Majestic Ideal Holdings Ltd. (MJID) has filed to boost $16.875 million in an IPO of its strange shares, based on an F-1 registration assertion.

The agency supplies provide chain consulting and administration companies to firms within the attire trade.

Given the corporate’s small dimension, comparatively low margin, high-risk profile working within the PRC and its plan to broaden operations internationally in costlier areas of the U.S. and Europe, I’m on Hold for the IPO.

Majestic Ideal Overview

Hong Kong, PRC-based Majestic Ideal Holdings Ltd. was based to supply a full vary of provide chain administration companies to Asian firms and others within the attire trade.

Management is headed by Chief Executive Officer Ms. Suqin Li, who has been with the agency since November 2021 and has beforehand held a number of senior roles in varied garment trade firms for 15 years and manages the agency’s yarn buying and selling and sourcing phase in addition to overseeing each day operations.

The firm’s main choices embody the next:

• Market analysis

• Product design

• Product growth

• Raw materials sourcing

• Production and high quality management

• Logistics administration

As of September 30, 2022, Majestic Ideal has booked honest market worth funding of $8.1 million in equity, financial institution borrowings and associated occasion payables from buyers together with Ms. Yuk Yin Judy Li and Mr. Sek Yan Ko.

Majestic Ideal – Customer Acquisition

The firm seeks purchasers in search of its built-in one-stop options and companies.

Management plans to diversify its buyer base from the PRC to the United States and Europe.

Selling & Marketing bills as a proportion of complete income have fallen as revenues have elevated, because the figures under point out:

Click to enlarge

(Source – SEC)

The Selling & Marketing effectivity a number of, outlined as what number of {dollars} of further new income are generated by every greenback of Selling & Marketing expense, was 42.4x in the latest reporting interval. (Source – SEC)

Majestic Ideal’s Market & Competition

According to a 2022 market research report by Grand View Research, the worldwide attire provide chain market was an estimated $864 billion in 2021 and is forecast to achieve $1.12 trillion by 2028.

This represents a forecast CAGR of three.8% from 2022 to 2028.

The important drivers for this anticipated development are a rising demand for attire from the fashion-conscious phase and the rising use of on-line retail channels.

Also, the chart under exhibits the historic and projected future development of the U.S. attire provide chain market by course of by 2028:

Major aggressive or different trade members embody the next:

• BSL Ltd.

• INVISTA Equities, LLC (Koch Industries, Inc.)

• Luthai Group

• Paulo de Oliveira firm

• China Textiles (Shenzhen) Co., Ltd.

• Paramount Textile Mills [P] Ltd.

• Successori Reda SpA

• Mayur Fabrics

• Rhodia SA (Solvay Group)

• Li & Fung Limited

Majestic Ideal Holdings Ltd Financial Performance

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

• Growing topline income

• Dropping gross revenue and gross margin

• Higher working revenue

• A swing to money circulation from operations

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

Click to enlarge

(Source – SEC)

As of September 30, 2022, Majestic Ideal had $163,989 in money and $10.9 million in complete liabilities.

Free money circulation throughout the twelve months ending September 30, 2022, was $3.0 million.

Majestic Ideal Holdings Ltd IPO Details

Majestic Ideal intends to boost $16.875 million in gross proceeds from an IPO of its strange shares, providing 3.75 million shares (2.5 million from the corporate and 1.25 million from a promoting shareholder) at a proposed midpoint worth of $4.50 per share.

No present shareholders have indicated an curiosity in buying shares on the IPO worth.

Assuming a profitable IPO, the corporate’s enterprise worth at IPO would approximate $57.3 million, excluding the results of underwriter over-allotment choices.

Immediately following the IPO, the corporate shall be managed by the corporate co-founders.

The float to excellent shares ratio (excluding underwriter over-allotments) shall be roughly 27.27%. A determine beneath 10% is usually thought of a ‘low float’ stock which may be topic to vital worth volatility.

As a international non-public issuer, the corporate can select to make the most of lowered, delayed or exempted monetary and senior officer disclosure necessities versus people who home U.S. companies are required to comply with.

Management says it can use the online proceeds from the IPO as follows:

Management’s presentation of the corporate roadshow shouldn’t be out there.

Regarding excellent authorized proceedings, administration stated the agency shouldn’t be topic to any materials authorized proceedings and is searching for to implement proceedings in opposition to a former buyer who didn’t pay quantities due.

The sole listed bookrunner of the IPO is Univest Securities.

Valuation Metrics For Majestic Ideal

Below is a desk of related capitalization and valuation figures for the corporate:

Click to enlarge

(Source – SEC)

Commentary About Majestic Ideal’s IPO

MJID is searching for U.S. public capital market funding to fund its common company development initiatives and dealing capital necessities.

The agency’s financials have proven growing topline income, lowered gross revenue and gross margin, rising working revenue and a swing to money circulation from operations.

Free money circulation for the twelve months ending September 30, 2022, was $3.0 million. Selling & Marketing bills as a proportion of complete income has fallen as income has elevated; its Selling & Marketing effectivity a number of was a really excessive 42.4x.

The agency at the moment plans to pay no dividends to retain any future earnings for reinvestment again into the corporate’s development and common working capital wants. The firm’s latest capital spending historical past signifies it has spent evenly on capital expenditures as a proportion of its working money circulation.

The market alternative for the attire provide chain market is predicted to develop at a comparatively gradual charge of development within the coming years, though the market is sort of giant.

Like different firms with Chinese operations searching for to faucet U.S. markets, the agency operates inside a WFOE construction or Wholly Foreign Owned Entity. U.S. buyers would solely have an curiosity in an offshore agency with pursuits in working subsidiaries, a few of which can be situated within the PRC. Additionally, restrictions on the switch of funds between subsidiaries inside China could exist.

The Chinese authorities’s crackdown on sure IPO firm candidates mixed with added reporting and disclosure necessities from the U.S. has put a critical damper on Chinese or associated IPOs leading to typically poor post-IPO efficiency.

Also, a doubtlessly vital danger 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 out there for audit by the PCAOB.

Prospective buyers could be properly suggested to contemplate the potential implications of particular legal guidelines concerning earnings repatriation and altering or unpredictable Chinese regulatory rulings that will have an effect on such firms and U.S. stock listings.

Additionally, post-IPO communications from the administration of smaller Chinese firms which have grow to be public within the U.S. has been spotty and perfunctory, indicating an absence of curiosity in shareholder communication, solely offering the naked minimal required by the SEC and a typically insufficient method to preserving shareholders up-to-date about administration’s priorities.

Univest Securities is the only underwriter, and IPOs led by the agency during the last 12-month interval have generated a mean return of 328.2% since their IPO. This is a top-tier efficiency for all main underwriters throughout the interval.

Risks to the corporate’s outlook as a public firm embody its classification as a PRC resident enterprise, which can have an effect on all kinds of the agency’s monetary actions.

As for valuation expectations, administration is asking buyers to pay an Enterprise Value/Revenue a number of of roughly 3.6x on reasonably rising topline income.

Given the corporate’s small dimension, comparatively low margin, high-risk profile working within the PRC and its plan to broaden operations internationally in costlier areas of the U.S. and Europe, I’m on Hold for the IPO.

Expected IPO Pricing Date: To be introduced.