Primega Group Holdings Readies Plan For U.S. IPO

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CHUNYIP WONG
Primega Is Growing Slowly And Operating Results Are Declining
Primega Group Holdings Limited (PGHL) has filed to raise $8.75 million in an IPO of its common shares, according to an SEC F-1 registration statement.
Primega provides construction transportation services for materials use and disposal and ancillary services.
PGHL is producing slow growth from a small base, reduced operating margin, and has substantial regulatory, operating, and investor information risks, so my outlook on the IPO is to Sell [Avoid].
What Does Primega Group Do?
Hong Kong, PRC-based Primega Group Holdings Limited was founded to provide soil and rock transportation services to and from construction sites and other related services in the greater Hong Kong region.
Management is headed by Chairman Mr. Man Siu Ming, who has been with the firm since September 2018 and was previously a construction subcontractor at Chi Yip En. & Trans. Company Limited is a company providing transportation and logistics services in Hong Kong, so Mr. Ming has extensive industry experience.
The company’s primary offerings include the following:
Soil and rock transportation.
Diesel oil trading.
Construction works (ELS works and bored piling services).
The company generates the majority of its revenue from soil and rock transportation services.
As of March 31, 2023, Primega has booked fair market value investment of $2,407 from investors.
The company currently operates a fleet of 43 tipper trucks and related machinery and obtains new soil and rock transportation customers primarily through competitive bidding processes.
Primega also operates as a provider of biodiesel oil from wholesale oil companies to customers at construction sites.
General and Administrative expenses as a percentage of total revenue have risen as revenues have increased slightly, as the figures below indicate:
General and Administrative Expenses vs. Revenue Period Percentage FY Ended March 31, 2023 10.7% FY Ended March 31, 2022 6.6% Click to enlarge
(Source – SEC)
The General and Administrative efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of General and Administrative expense, was 0.6x in the most recent reporting period. (Source – SEC).
What Is Primega’s Market?
The Hong Kong market for construction-related services was an estimated $31.3 billion in 2022, per a 2023 market research report by GlobalData.
The construction services market in Hong Kong is expected to grow at an Average Annual Growth Rate of more than 2% from 2024 to 2027.
The primary reason for this expected growth is increasing investment in “transportation, electricity, housing, and industrial sectors,” which are heavily determined by governmental authorities there.
Also, Beijing is expecting to increase its investment in construction works of renewable energy and completion of projects “to upgrade and expand university healthcare teaching facilities…”
The greater Hong Kong region market for construction services highly fragmented, with numerous service providers of various sizes producing intense bidding competition which can result in low final margins for the winning bidder.
Primega Group Holdings Limited’s Recent Financial Results
The company’s recent financial results can be summarized as follows:
Slowly growing top line revenue from a small base
Reduced gross profit and gross margin
Lower operating profit and cash flow from operations.
Below are relevant financial results derived from the firm’s registration statement:
Total Revenue Period Total Revenue % Variance vs. Prior FY Ended March 31, 2023 $11,143,138 6.3% FY Ended March 31, 2022 $10,483,094 Gross Profit (Loss) Period Gross Profit (Loss) % Variance vs. Prior FY Ended March 31, 2023 $2,178,047 -26.4% FY Ended March 31, 2022 $2,960,192 Gross Margin Period Gross Margin % Variance vs. Prior FY Ended March 31, 2023 19.55% -30.8% FY Ended March 31, 2022 28.24% Operating Profit (Loss) Period Operating Profit (Loss) Operating Margin FY Ended March 31, 2023 $989,334 8.9% FY Ended March 31, 2022 $2,266,071 21.6% Comprehensive Income (Loss) Period Comprehensive Income (Loss) Net Margin FY Ended March 31, 2023 $1,167,260 10.5% FY Ended March 31, 2022 $1,993,605 19.0% Cash Flow From Operations Period Cash Flow From Operations FY Ended March 31, 2023 $839,954 FY Ended March 31, 2022 $1,963,155 (Glossary Of Terms) Click to enlarge
(Source – SEC)
As of March 31, 2023, Primega had $240,219 in cash and $8.5 million in total liabilities.
Free cash flow during the twelve months ending March 31, 2023, was $793,556.
Primega Group Holdings Limited’s IPO Details
Primega intends to raise $8.75 million in gross proceeds from an IPO of its ordinary shares, offering 1.75 million shares at a proposed midpoint price of $5.00 per share.
There have been no shareholders which have indicated an interest in purchasing shares in the IPO.
Assuming a successful IPO, the company’s enterprise value at IPO would approximate $125 million, excluding the effects of underwriter over-allotment options.
The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 7.29%.
Company leadership says it will use the net proceeds as follows:
Approximately 35% to expand our existing business by acquiring additional machinery and equipment including tipper trucks and excavation machines and employing additional staff; Approximately 20% to upgrade our information technology systems to allow us to track the location and deployment of our trucks to improve resource allocation and efficiency; and The balance is to fund working capital and for other general corporate purposes. (Source – SEC)
Management’s presentation of the company roadshow is not available.
Regarding outstanding legal proceedings, the leadership said that the firm is not subject to any legal proceeding or threat that would have a material adverse effect on its financial condition or business operations.
The sole listed bookrunner of the IPO is Eddid Securities USA.
Valuation Metrics For Primega
Below is a table of relevant capitalization and valuation figures for the company:
Measure [TTM] Amount Market Capitalization at IPO $120,000,000 Enterprise Value $124,790,219 Price / Sales 10.77 EV / Revenue 11.20 EV / EBITDA 57.29 Earnings Per Share $0.04 Operating Margin 19.55% Net Margin 8.88% Float To Outstanding Shares Ratio 7.29% Proposed IPO Midpoint Price per Share $5.00 Capital Expenditures -$46,398 Free Cash Flow Yield Per Share -0.04% Debt / EBITDA Multiple 2.20 CapEx Ratio 0.00 Revenue Growth Rate 6.30% (Glossary Of Terms) Click to enlarge
(Source – SEC)
Primega’s Profitability Is Falling
PGHL is seeking U.S. public capital market investment to fund its capital expenditure and working capital requirements.
The firm’s financials have produced moderately growing top line revenue from a small base, lowered gross profit and gross margin, and reduced operating profit and cash flow from operations.
Free cash flow for the twelve months ending March 31, 2023, was $793,556.
General and Administrative expenses as a percentage of total revenue have risen as revenue has increased somewhat; its General and Administrative efficiency multiple was only 0.6x in the most recent reporting period.
The firm currently plans to pay no dividends and to keep future earnings, if any, for the expansion and operation of its business initiatives.
PGHL’s recent capital spending history indicates it has not spent heavily on capital expenditures out of its operating cash flow.
The market opportunity for the company’s operations in Hong Kong is significant but subject to strong and fragmented competition in a relatively small but dense region.
Risks to the company’s outlook as a public company include its Cayman Islands domicile and operations within China, which has proven to be highly unpredictable across regulatory and financial aspects.
Also, the firm is a “foreign private issuer” and an “emerging growth company,” which will allow management to disclose substantially less information to shareholders.
Such company stocks have typically performed poorly post-IPO.
Management is seeking an Enterprise Value/Revenue multiple of approximately 11.2x on relatively low growth from a small revenue base.
Given Primega Group Holdings Limited’s slow growth, lower operating margin, and significant regulatory and investor information risks, my opinion on the IPO is to Sell [Avoid].
Expected IPO Pricing Date: To be announced.

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