IPO Update: Solowin Seeks IPO Despite Declining Revenue (SWIN)

A Quick Take On Solowin Holdings

Solowin Holdings (SWIN) has filed proposed phrases to boost $15 million in gross proceeds from the sale of its widespread stock in an IPO, in keeping with an amended registration assertion.

The agency supplies a collection of securities brokerage companies to Chinese traders.

SWIN has a excessive income focus from few prospects, and its income has been extremely variable, dropping sharply in the newest reporting interval.

Given the agency’s declining income from a small base, excessive buyer focus and different dangers, and extreme valuation assumption, I’ll move on the IPO.

Solowin Overview

Hong Kong, PRC-based Solowin Holdings was based to develop a large spectrum of economic companies through its Hong Kong-based Solomon JFZ subsidiary for Chinese traders all for buying securities from Hong Kong, Shanghai, Shenzhen, NYSE and Nasdaq stock exchanges.

Management is headed by Chief Executive Officer Mr. Shing Tak Tam, who has been with the agency since 2019 and beforehand labored at various securities companies in Hong Kong, PRC.

The firm’s major choices embrace the next:

• Securities brokerage

• Investment advisory

• Corporate finance

• Asset administration

• Hong Kong pre-IPO and IPO companies

As of September 30, 2022, Solowin has booked honest market worth funding of $4.8 million from traders together with Vulcan Worldwide Holdings Limited, Gemini Asia Holdings Limited and FORTUNE DYNASTY GLOBAL LIMITED.

Solowin – Client Acquisition

The firm seeks shoppers amongst particular person and institutional traders residing inside and outdoors of the PRC.

As of September 30, 2022, the agency counted over 19,000 customers and greater than 1,500 lively shoppers with property in buying and selling accounts.

General & Administrative bills as a proportion of complete income have various as revenues have decreased, because the figures beneath point out:

Click to enlarge

(Source – SEC)

The General & Administrative effectivity a number of, outlined as what number of {dollars} of further new income are generated by every greenback of General & Administrative expense, turned destructive in the newest reporting interval, as proven within the desk beneath:

Click to enlarge

(Source – SEC)

Solowin’s Market & Competition

According to a 2022 market research report by Hong Kong Trade Development Council, as of December 31, 2021, the Hong Kong stock market was the 4th largest in Asia and seventh largest worldwide.

Total market capitalization was roughly $5.4 trillion as of the top of 2021.

The Hong Kong stock market was additionally the 4th largest IPO fundraising market globally, with $42.3 billion raised through IPOs in 2021.

As of December 31, 2021, there have been 638 Exchange Participants-trading and 64 Exchange Participants-non-trading in Hong Kong, representing very robust progress within the variety of individuals since 2012.

Solowin Holdings Financial Performance

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

• Dropping topline income

• Growing gross revenue and gross margin

• Reduced before-tax loss

• Uneven money utilized in operations

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

Click to enlarge

(Source – SEC)

As of September 30, 2022, Solowin had $638,000 in money and $6.1 million in complete liabilities.

Free money circulation through the twelve months ending September 30, 2022, was destructive ($5.2 million).

Solowin’s IPO Details

SWIN intends to promote three million shares of widespread stock at a proposed midpoint value of $5.00 per share for gross proceeds of roughly $15.0 million, not together with the sale of customary underwriter choices.

No present or probably new shareholders have indicated an curiosity in buying shares on the IPO value.

Assuming a profitable IPO on the midpoint of the proposed value vary, the corporate’s enterprise worth at IPO (excluding underwriter choices) would approximate $61.5 million.

The float to excellent shares ratio (excluding underwriter choices) will probably be roughly 20.0%. A determine beneath 10% is usually thought-about a ‘low float’ stock which may be topic to vital value volatility.

As a overseas personal issuer, the corporate can select to reap the benefits of lowered, delayed or exempted monetary and senior officer disclosure necessities versus those who home U.S. companies are required to comply with.

The agency is an ‘rising progress firm’ as outlined by the 2012 JOBS Act and has elected to reap the benefits of lowered public firm reporting necessities; potential shareholders will obtain much less info for the IPO and sooner or later as a publicly-held firm throughout the necessities of the Act.

Per the agency’s most up-to-date regulatory submitting, it plans to make use of the online proceeds as follows:

Management’s presentation of the corporate roadshow will not be out there.

Regarding excellent authorized proceedings, administration says the agency will not be topic to any authorized proceedings that will have a cloth antagonistic affect on its monetary situation or operations.

The sole listed bookrunner of the IPO is EF Hutton.

Valuation Metrics For SWIN

Below is a desk of the agency’s related capitalization and valuation metrics at IPO, excluding the consequences of underwriter choices:

Click to enlarge

(Source – SEC)

Commentary About Solowin

SWIN is searching for U.S. public capital market funding to enhance its expertise choices and for its progress and growth efforts.

The firm’s financials have proven declining topline income however rising gross revenue and gross margin, lowered before-tax loss and variable money utilized in operations.

Free money circulation for the twelve months ending September 30, 2022, was destructive ($5.2 million).

General & Administrative bills as a proportion of complete income have various as income has dropped; its General & Administrative effectivity a number of fell to destructive (0.8x) in the newest reporting interval.

The agency at present plans to pay no dividends and to retain future earnings for reinvestment again into the enterprise for its progress and dealing capital necessities.

SOLWIN’s current capital spending historical past signifies it has not spent on capital expenditures as a proportion of its working money use.

The market alternative for offering securities buying and selling and associated advisory companies to people and establishments in Hong Kong is giant, however its progress is unsure given current Chinese authorities exercise within the area.

Like different corporations with Chinese operations searching for to faucet U.S. markets, the agency operates inside a WFOE construction or Wholly Foreign Owned Entity. U.S. traders 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 might 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 usually poor post-IPO efficiency.

Also, a probably 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 traders could be nicely suggested to think about the potential implications of particular legal guidelines relating to earnings repatriation and altering or unpredictable Chinese regulatory rulings which will have an effect on such corporations and U.S. stock listings.

Additionally, post-IPO communications from the administration of smaller Chinese corporations which have develop into 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 usually insufficient strategy to conserving shareholders up-to-date about administration’s priorities.

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 (58.5%) since their IPO. This is a bottom-tier efficiency for all vital underwriters through the interval.

Risks to the corporate’s outlook as a public firm embrace trade fee dangers and the unpredictable results of abrupt fee modifications, its reliance on third-party expertise suppliers and its excessive income focus amongst a comparatively small variety of shoppers.

Revenue focus for the six months ended September 30, 2022, was 95% from its high 5 prospects, a really excessive focus fee the place the lack of one of many high 5 prospects would end in a cloth income drop.

As for valuation expectations, administration is asking IPO traders to pay an Enterprise Value / Revenue a number of of 29.35x.

Given the agency’s declining income from a small base, excessive buyer focus and different dangers, and extreme valuation assumption, my opinion on the IPO is to Avoid it.

Expected IPO Pricing Date: To be introduced