Intelligent Group Limited Seeks Expansion After U.S. IPO (Pending:INTJ)

A Quick Take On Intelligent Group Limited

Intelligent Group Limited (INTJ) has filed to lift $22.5 million in an IPO of its strange shares, in line with an F-1 registration assertion.

The agency offers monetary public relations providers to corporations in Hong Kong.

Given the agency’s declining income on a tiny base, its working dangers and extreme valuation expectations, I’ll move on the IPO.

Intelligent Group Overview

Hong Kong, PRC-based Intelligent Group Limited was based to supply a spread of monetary PR providers tailor-made to the wants of Hong Kong corporations.

Management is headed by founder, Chairlady and CEO Ms. Wai Lau, who has been with the agency since its inception in 2016 and was beforehand a licensed consultant of Get Nice Financial Group Limited and a licensed consultant of Apollo Capital Management Limited.

The firm’s major choices embrace the next:

• Communications

• Reputation administration

• Investor relations

• Press conferences

• News releases

• Corporate occasions

• Other

As of November 30, 2022, Intelligent Group has booked truthful market worth funding of roughly $258,000 in equity from buyers together with founder Ms. Wai Lau and others.

Intelligent Group – Client Acquisition

The agency obtains new prospects through its direct advertising and marketing and enterprise growth efforts and thru associate referrals and phrase of mouth.

The firm plans to deal with its monetary PR enterprise in Hong Kong by rising its workforce, increasing its market presence into worldwide capital markets, notably the U.S. and establishing what it calls digital Financial PR providers.

Selling bills as a share of whole income have dropped barely as revenues have decreased, because the figures beneath point out:

Click to enlarge

(Source – SEC)

The Selling effectivity a number of, outlined as what number of {dollars} of further new income are generated by every greenback of Selling expense, was unfavourable (8.9x) in the latest reporting interval. (Source – SEC)

Intelligent Group’s Market & Competition

According to a 2023 market research report by The Business Research Company, the worldwide market for public relations was an estimated $107 billion in 2023 and is forecast to achieve $134 billion by 2027.

This represents a forecast CAGR (Compound Annual Growth Rate) of 5.7% by way of 2027.

The principal drivers for this anticipated progress are a rising want for aggressive benefit as organizations of all kinds search to boost their public picture.

Also, the Hong Kong monetary PR market is a small subset of the general market. Hong Kong has suffered from a wide range of challenges in recent times because of latest social unrest adopted by extra direct management from the PRC.

The firm faces intense competitors from a market that options low obstacles to entry and few main individuals.

Financial PR corporations focus their efforts on worker recruitment and growth because the high quality and popularity of their service is wholly a perform of their worker efforts.

Intelligent Group Limited Financial Performance

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

• Declining top-line income

• Reduced gross revenue and gross margin

• Lower working revenue

• Less money stream from operations

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

Click to enlarge

(Source – SEC)

As of November 30, 2022, Intelligent Group had $2.0 million in money and $1.0 million in whole liabilities.

Free money stream in the course of the twelve months ending November 30, 2022, was $903,883.

Intelligent Group Limited IPO Details

Intelligent Group intends to lift $22.5 million in gross proceeds from an IPO of its strange shares, providing 5 million shares at a proposed midpoint worth of $4.50 per share.

No current 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 $50.7 million, excluding the results of underwriter over-allotment choices.

The float to excellent shares ratio (excluding underwriter over-allotments) shall be roughly 34.13%. A determine below 10% is usually thought-about a ‘low float’ stock which might be topic to important worth volatility.

As a overseas personal issuer, the corporate can select to benefit from diminished, delayed or exempted monetary and senior officer disclosure necessities versus people who home U.S. corporations are required to comply with.

Also, the agency is an ‘emerging growth company’ as outlined by the 2012 JOBS Act and has elected to benefit from diminished public firm reporting necessities; potential shareholders will obtain much less info for the IPO and sooner or later as a publicly-held firm inside the necessities of the Act.

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

Approximately 40% for rising our Financial PR enterprise.

We intend to [i] recruit further skilled skilled workers to make sure that we have now adequate workers with acceptable ranges of information, abilities and expertise to supply our Financial PR providers in Hong Kong; [ii] improve the remuneration bundle of our current workers to retain expertise and professionals for our Financial PR enterprise in Hong Kong; and [iii] recruit skilled workers with acceptable expertise in offering Financial PR providers in different worldwide capital markets, specifically the U.S.

Approximately 30% for updating our IT techniques.

We intend to replace our IT techniques by investing in automation, digitalization and app growth in integrating with our Financial PR providers, together with the establishing and automating digital Financial PR providers.

The stability to fund working capital and for different common company functions.

(Source – SEC)

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

Regarding excellent authorized proceedings, administration mentioned it isn’t conscious of any authorized proceedings that may have a fabric hostile influence on its monetary situation or operations.

The sole listed bookrunner of the IPO is Univest Securities.

Valuation Metrics For Intelligent Group

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

Click to enlarge

(Source – SEC)

Commentary About Intelligent Group’s IPO

INTJ is looking for U.S. public capital market to develop its headcount, enhance its IT techniques and develop its operations.

The firm’s financials have produced dropping top-line income, lowered gross revenue and gross margin, diminished working revenue and a drop in money stream from operations.

Free money stream for the twelve months ending November 30, 2022, was $903,883.

Selling bills as a share of whole income dropped barely as income decreased; its Selling effectivity a number of was unfavourable (8.9x).

The agency at the moment plans to pay no dividends, though it has beforehand declared and paid dividends. It intends to retain any near-term future earnings for reinvestment again into its progress and dealing capital necessities.

INTJ’s latest capital spending historical past signifies it has spent evenly on capital expenditures as a share of its working money stream.

The market alternative for offering PR providers is massive and rising at a average charge of progress within the coming years. It is troublesome to find out the market dimension and traits for the corporate’s particular space of focus.

Like different corporations with Chinese operations looking 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 damper on Chinese or associated IPOs leading to usually poor post-IPO efficiency.

Also, a probably important 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 obtainable for audit by the PCAOB.

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

The Chinese authorities could intervene within the firm’s enterprise operations or business at any time and with out warning and has a latest historical past of doing so in sure industries.

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

Univest Securities is the only real underwriter, and IPOs led by the agency over the past 12-month interval have generated a mean return of 12.0% since their IPO. This is a mid-tier efficiency for all main underwriters in the course of the interval however is topic to excessive volatility.

As for valuation expectations, administration is asking buyers to pay an Enterprise Value/Revenue a number of of roughly 27.6x, which seems fairly excessive.

Given the agency’s declining income on a tiny base, its working dangers and extreme valuation expectations, I’ll move on the IPO.

Expected IPO Pricing Date: To be introduced.