JS Global IPO (Part 1): A Sustainable Business Model in A Competitive Market

Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

JS Global Lifestyle   / Equity Capital Markets

In our earlier report, we covered <a href="https://www.smartkarma.com/entities/js-global-lifestyle" target="_blank" data-smartkarma-citation="entities:28155:1" rel="noopener">JS Global Lifestyle (1691 HK)</a>’s background, its business model, and the growth prospects and risks it faces in the market. We concluded that the company’s long history of operation and its ability to generate double-digit growth rates (despite capturing only a fraction of the market) makes it an attractive business at the right price. JS Global announced on Monday that it aims to raise around HKD2.9bn or more, offering 449.8 million shares between a low-end price of HKD5.55 and a high-end price of HKD7.25 each. This insight covers the financial performance of the company and its valuation. Our views are:
<ul>
<li>Revenue has shown significant growth over the last three years, and the trend is expected to last. SharkNinja Brand is likely to support the accelerated growth in revenue</li>
<li>JS Global’s GPM level could possibly improve supported by revenue growth and the premium pricing strategy followed for its SharkNinja Brand. OPM, however, could possibly decline on the back of rising costs to support revenue growth</li>
<li>Even if OPM remains at current levels, the company is likely to trade at a premium to close peers. Despite, the company’s ability to generate solid revenue growth, the pricing seems expensive. 
</li>
</ul>
<div style="text-align: center;" class="content-caption">Deal Specifics of JS Global's Offering</div>
<table class="table table-striped">
<tbody>
<tr>
<td colspan="2" style="width: 725.556px;">
Details:
</td>
</tr>
<tr>
<td style="width: 240px;">
Price Determination Date
</td>
<td style="width: 464.444px;">
October 31st, 2019
</td>
</tr>
<tr>
<td style="width: 240px;">
Expected IPO price per share:  
</td>
<td style="width: 464.444px;">
Between HKD5.55 and HKD7.25
</td>
</tr>
<tr>
<td style="width: 240px;">
Number of Shares for IPO:
</td>
<td style="width: 464.444px;">
499.8m shares
</td>
</tr>
<tr>
<td style="width: 240px;">
No. of International Placing Shares
</td>
<td style="width: 464.444px;">
 
449.8m shares
</td>
</tr>
<tr>
<td style="width: 240px;">
No. of HK Offer Shares
</td>
<td style="width: 464.444px;">
 49.9m shares
</td>
</tr>
<tr>
<td style="width: 240px;">
IPO base deal size: 
</td>
<td style="width: 464.444px;">
Approx.HKD2,962.4m
</td>
</tr>
<tr>
<td style="width: 240px;">
Expected market cap after IPO:
</td>
<td style="width: 464.444px;">
Between HKD18,493 m – HKD24,158m
</td>
</tr>
<tr>
<td style="width: 240px;">
Use of Proceeds
</td>
<td style="width: 464.444px;">
* HKD1,481m (50%)- repay debt;
* HKD592.5m (20%)- R&amp;D;
* HKD592.5m (20%) – Market development;
* The balance of HKD296.2m (10%)- Working capital and general corporate purposes.
</td>
</tr>
</tbody>
</table>
<div class="content-remarks">
Source: Company Disclosures
</div>

In our earlier report, we covered JS Global Lifestyle (1691 HK)’s background, its business model, and the growth prospects and risks it faces in the market. We concluded that the company’s long history of operation and its ability to generate double-digit growth rates (despite capturing only a fraction of the market) makes it an attractive business at the right price. JS Global announced on Monday that it aims to raise around HKD2.9bn or more, offering 449.8 million shares between a low-end price of HKD5.55 and a high-end price of HKD7.25 each. This insight covers the financial performance of the company and its valuation. Our views are:

Revenue has shown significant growth over the last three years, and the trend is expected to last. SharkNinja Brand is likely to support the accelerated growth in revenue
JS Global’s GPM level could possibly improve supported by revenue growth and the premium pricing strategy followed for its SharkNinja Brand. OPM, however, could possibly decline on the back of rising costs to support revenue growth
Even if OPM remains at current levels, the company is likely to trade at a premium to close peers. Despite, the company’s ability to generate solid revenue growth, the pricing seems expensive. 


Deal Specifics of JS Global's Offering




Details:




Price Determination Date


October 31st, 2019




Expected IPO price per share:  


Between HKD5.55 and HKD7.25




Number of Shares for IPO:


499.8m shares




No. of International Placing Shares


 
449.8m shares




No. of HK Offer Shares


 49.9m shares




IPO base deal size: 


Approx.HKD2,962.4m




Expected market cap after IPO:


Between HKD18,493 m – HKD24,158m




Use of Proceeds


* HKD1,481m (50%)- repay debt;
* HKD592.5m (20%)- R&amp;D;
* HKD592.5m (20%) – Market development;
* The balance of HKD296.2m (10%)- Working capital and general corporate purposes.





Source: Company Disclosures


JS Global Valuation: Double-Digit Growth But Still Expensive