IPO Update: Wuxin Technology Holdings (WXT) Proposes Terms for US IPO

A quick take on Wuxin Technology Holdings

Wuxin Technology Holdings Inc. (WXT) has applied to raise $33 million in gross proceeds from the sale of its Class A common stock in its IPO, according to an amended registration statement.

The company offers a variety of Internet of Things [IoT] Semiconductor chips and related electronic smart products.

The stock’s low nominal price may attract volatility-seeking day traders, but given the company’s slowing growth rate and the continued regulatory risk of having virtually all of its operations in China, I think Pending IPO.

Overview of Wushin Technology

Based in Shenzhen, China, Wuxin was founded to develop technology solutions for network computing products for Internet of Things applications.

The management team is led by Chairman and CEO Mr. Liu Lianqi Liu. Mr. Lianqi Liu was previously involved in the design and construction of numerous wide area and customer premises networks in China.

The company’s main products are:

• chips

• module

• antenna

• controller

• smart hardware

• smart appliances

• Other smart products

• Licensed IP

Wuxin has committed investments with a fair market value of $11.8 million as of December 31, 2021 from investors, including various senior management and investment firms.

Wuxin – Customer Acquisition

The company sells its products to various customers and also provides related product design services to other manufacturers.

Wuxin also licenses its IP to companies looking to incorporate the technology into their products and service plans.

As the chart below shows, the percentage of sales and marketing expenses as a percentage of total revenue rises slightly as revenue increases.

sales and marketing	cost to income
period	percentage
Sixmos. Ends December 31, 2021	3.6%
Fiscal year ending June 2021	3.2%
Fiscal year ending June 2020	3.0%

click to enlarge

(Source – SEC)

As shown in the table below, the sales and marketing efficiency multiple, defined as how many dollars of new revenue is generated for every dollar spent on sales and marketing, decreased by a factor of 3.8 in the most recent reporting period. did.

sales and marketing	Efficiency rate
period	many
Sixmos. Ends December 31, 2021	3.8
Fiscal year ending June 2021	10.2

click to enlarge

(Source – SEC)

Wuxing Market and Competition

The global IoT market is valued at an estimated $761 billion in 2020 and is expected to reach $1.39 trillion by 2026, according to a 2020 market research report by Mordor Intelligence.

This represents a projected CAGR of 10.53% from 2021 to 2026.

A major driver of this expected growth is the increasing adoption of IoT technologies across a wide range of industries, including automotive, manufacturing, and healthcare.

And the transition to manufacturing, “Industry 4.0,” focuses on complementing and augmenting human labor with robotics to reduce accidents and increase efficiency.

Regional growth rates are estimated in the chart below.

Major competitors or other industry participants are:

• glossy smart

• sunway communication

• Huizhou Shuobede Wireless Technology Co., Ltd.

• Shenzhen B&T Technology Co., Ltd.

• Hulkson Corporation

• Wonder Mobility

Financial Performance of Wuxin Technology Holdings

The company’s recent financial results can be summarized as follows:

• Increased top-line revenue

• Improve gross profit and gross profit margin

• Improve operating profit and profit margin

• Decrease in operating cash flow

Below are the relevant financial results obtained from the company’s registration statement.

gross income
period	gross income	% variance vs. prior
Sixmos. Ends December 31, 2021	$25,857,670	15.5%
Fiscal year ending June 2021	$46,977,350	47.6%
Fiscal year ending June 2020	$31,833,721
gross profit (loss)
period	gross profit (loss)	% variance vs. prior
Sixmos. Ends December 31, 2021	$11,317,878	35.4%
Fiscal year ending June 2021	$15,025,075	52.3%
Fiscal year ending June 2020	$9,863,152
gross profit
period	gross profit
Sixmos. Ends December 31, 2021	43.77%
Fiscal year ending June 2021	31.98%
Fiscal year ending June 2020	30.98%
Operating income (loss)
period	Operating income (loss)	Operating margin
Sixmos. Ends December 31, 2021	$5,671,863	21.9%
Fiscal year ending June 2021	$6,241,267	13.3%
Fiscal year ending June 2020	$3,345,881	10.5%
Comprehensive income (loss)
period	Comprehensive income (loss)	net profit margin
Sixmos. Ends December 31, 2021	$6,198,573	24.0%
Fiscal year ending June 2021	$7,705,333	29.8%
Fiscal year ending June 2020	$3,816,426	14.8%
Cash flow from operating activities
period	Cash flow from operating activities
Sixmos. Ends December 31, 2021	$631,678
Fiscal year ending June 2021	$4,083,189
Fiscal year ending June 2020	$3,201,611
(Glossary)

click to enlarge

(Source – SEC)

As of December 31, 2021, Wuxin had $6.3 million in cash and $16.1 million in debt.

Free cash flow for the 12 months ended December 31, 2021 was $5.4 million.

Wuxin Technology IPO Details

WXT intends to sell 6 million shares of Class A common stock at a proposed mid-point price of $5.50 per share for gross proceeds of approximately $33 million. This does not include the sale of regular underwriting options.

No existing or potential new shareholders have expressed interest in purchasing shares at the IPO price.

Class A common shareholders will have one vote per share, Class B shareholders will have ten votes per share, and Chairman and CEO Liu will have voting rights in the company immediately after the IPO.

The S&P 500 Index no longer allows companies with multiple classes of stock to be included in the index.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO (excluding underwriting options) would be approximately $181.4 million.

The float ratio (excluding subscription options) to shares outstanding will be approximately 15.0%. Figures below 10% are generally considered “low float” stocks, which can fluctuate significantly in price.

According to the company’s latest regulatory filings, the company plans to use the net proceeds as follows:

20% for research and development.

50% for technology infrastructure, marketing and branding investments, and other capital expenditures.When

30% for other general corporate purposes.

(Source – SEC)

Company roadshow executive presentations are not available.

Regarding pending legal proceedings, management said the company is not currently involved in any legal proceedings that could have a material adverse effect on its financial condition or operations.

The sole listed bookrunner for the IPO is Prime Number Capital.

Wuxin Technology Evaluation Index

Below is a table of the company’s relevant capitalization and valuation metrics at IPO, excluding the impact of underwriting options.

measurement [TTM]	amount
Market capitalization at IPO	$220,000,000
Corporate value	$181,438,997
Price/Sales	4.36
EV/Revenue	3.60
EV/EBITDA	23.63
earnings per share	$0.20
Operating margin	15.22%
net profit margin	16.39%
Free float to outstanding shares ratio	15.00%
per share at proposed IPO mid-price	$5.50
net free cash flow	$5,357,111
Free cash flow yield per share	2.44%
Debt/EBITDA multiple	0.10
Capital investment ratio	7.11
revenue growth rate	15.54%
(Glossary)

click to enlarge

(Source – SEC)

About Wuxin Technology

WXT will seek investment from the United States to fund its general corporate expansion plans.

The company’s financials are showing slow growth, high gross margins and gross margins, rising operating income and margins, but low cash flow from operations, but generating top-line revenue growth.

Free cash flow for the 12 months ended December 31, 2021 was $5.4 million.

Sales and marketing expenses as a percentage of total revenue rose slightly as revenue increased, but the sales and marketing efficiency multiple fell to 3.8x in the most recent reporting period.

The company paid a dividend on its capital in 2021, but has not expressed any intention to do so in the future.

WXT’s CapEx Ratio is 7.11x, indicating that it is spending a small amount on capital expenditures as a percentage of operating cash flow.

The company has favorable industry growth dynamics as the market opportunity for IoT technology solutions is large and expected to grow at a significant growth rate in the coming years.

Like other companies operating in China and looking to tap into the US market, the company operates as a WFOE structure, a wholly foreign company. US investors will only be interested in offshore companies, most of which are interested in operating subsidiaries located in China. In addition, there may be restrictions on transfers of funds between subsidiaries within China.

The recent Chinese government crackdown on IPO candidates combined with additional reporting and disclosure requirements from the United States has severely impacted China or related IPOs, resulting in generally poor post-IPO performance. doing.

Management says its auditors have complied with PCAOB inspection requirements, so the company does not appear to be exposed to possible delisting by the U.S.

Prospective investors should be aware of the potential impact of certain laws regarding the repatriation of earnings, as well as changes or unpredictable Chinese regulatory decisions that may affect such companies and U.S. stock listings. is recommended to consider.

Prime Number Capital is the lead underwriter, and the IPOs it led over the past 12 months have posted negative average post-IPO returns (51.8%). This is the worst performance for any major underwriter for the period.

A major risk to the company’s outlook is the uncertain Chinese regulatory environment for technology companies, exposing the company and its investors to the risk of sudden changes in the company’s status.

In terms of valuation, management is asking IPO investors to pay a 3.6x EV/Revenue multiple, which isn’t expensive given the company’s growth rate, positive earnings, and cash flow.

However, the company’s top-line revenue growth has slowed significantly, and operating cash flow has declined significantly.

The stock’s low nominal price may attract volatility-seeking day traders, but given the company’s slowing top-line growth and continued regulatory risk of having virtually all of its operations in China, I am pending an IPO.

Expected IPO Pricing Date: To be announced.