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Summary

  • TCPI believes that the market for LED lighting solutions is at an inflection point that will drive increased adoption.
  • However, it's not necessarily growing the market, it appears to be cannibalizing the CFL (compact fluorescent lamplighting) market from itself.
  • There was a $4 million foreign exchange swing in TCPI's favor for Q1 '14 vs. Q1 '13, resulting in a 3.9% Q1 '14 profit vs. a 1% Q1 '13 profit.

Based in Cham, Switzerland, TCP International Holdings Ltd. (NYSE:TCPI) scheduled a $100 million IPO on the Nasdaq with a market capitalization of $440 million at a price range midpoint of $14 for Thursday, June 26, 2014.

The full IPO calendar is available at IPOpremium

SEC Documents

Manager, Co-Managers: Deutsche Bank Securities, Piper Jaffray

Joint Managers: Canaccord Genuity, Cowen and Company

End of lockup (180 days): Wednesday, December 24, 2014

End of 25-day quiet period: Monday, July 21, 2014

Summary
TCPI believes that the market for LED lighting solutions is at an inflection point that will drive increased adoption.

However, it's not necessarily growing the market, it appears to be cannibalizing the CFL (compact fluorescent lamplighting) market from itself.

Top line revenue grew 19% for 2013 vs. 2012. The rate of growth slowed to 12% for Q1 '14 vs. Q1 '13.

There was a $4 million foreign exchange swing in TCPI's favor for Q1 '14 vs. Q1 '13, resulting in a 3.9% Q1 '14 profit vs. a 1% Q1 '13 profit.

It's difficult to feel comfortable with income projections when a company has major foreign exchange gains (losses) swings.

TCPI bills itself as a technology company but the gross margin is only 25%. True technology companies have higher gross margins.

Valuation

Glossary

Valuation Ratios

Mrkt Cap (MM)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Q1 '14

TCP International Holdings Ltd. *

$388

1.0

24.9

4.0

4.1

26%

2013 yr

.

0.9

47.3

*Q1 '14 helped by a $3mm swing in foreign exchange (losses) gains

Conclusion

The rating on TCPI is neutral.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

TCPI is a leading global provider of energy efficient LED and CFL (compact fluorescent lamplighting) technologies.

TCPI designs, develops, manufactures and delivers high quality energy efficient lamps, fixtures and internet-based lighting control solutions.

TCPI has established the largest number of Energy Star® compliant lighting products for LEDs and CFLs combined.

Product mix

For the last several years, CFL lamp sales have represented the majority of overall sales mix, comprising 81.7%, 72.6% and 67.5% of 2011, 2012 and 2013 net sales, respectively and 58.8% of net sales for the three months ended March 31, 2014.

The decline in CFL sales as a percentage of net sales principally is the result of the successful introduction and expansion of new LED products, which grew from 4.3% of net sales in 2011 to 15.7% of net sales in 2012, to 25% of net sales in 2013 and to 35.9% of net sales for the three months ended March 31, 2014.

Internally developed technology

TCPI's internally developed driver, optical system, thermal management and power management technologies deliver a high standard of efficiency and light quality.

TCPI's broad portfolio of advanced LED and CFL lamps and fixtures enables it to address a wide range of applications required by its retail and C&I (commercial and industrial) customers.

The lighting market is characterized by rapid product innovation and, as a result, TCPI has maintained integrated product design and manufacturing capabilities to allow TCPI to quickly respond to the rapidly evolving demands of its customers.

TCPI's products are currently offered through thousands of retail and C&I distributors.

Since its inception in 1993, TCPI has sold more than one billion energy efficient lighting products.

General lighting market

The general lighting market is in a state of transition from inefficient lighting technologies, primarily incandescent lamps, to efficient lighting technologies, primarily LEDs and CFLs.

This transition is driven by improving light quality, appealing economics, government regulations, public awareness, and emerging connectivity and control capabilities.

According to McKinsey, the global LED and CFL markets are expected to grow from $22.1 billion in 2011 to $87.4 billion in 2020 in aggregate, representing a CAGR of 16.5%.

LED lighting market

TCPI believes that the market for LED lighting solutions is at an inflection point that will drive increased adoption.

Distribution channels

Currently, TCPI sells the majority of its products in the United States and Canada, accounting for 82.4% of its net sales in 2013.

Key customers in the retail channel include The Home Depot, to which TCPI is one of the largest energy efficient lamp suppliers in the United States; Wal-Mart, from whom TCPI received a Supplier Award of Excellence in 2013, and Carrefour.

Key customers in the Commercial & Industrial (C&I) channel include HD Supply, Regency, Rexel, CED and Grainger.

TCPI's net sales in the United States and Canada are principally made through its retail channel, most notably through The Home Depot and Wal-Mart, as well as through various C&I distributors.

International

In addition, TCPI has significant sales, marketing and distribution infrastructure outside of the United States and Canada, especially in EMEA, Asia and Latin America, which represented 7.7%, 5.1% and 4.9%, respectively, of its net sales in 2013.

In the first half of 2014, TCPI opened its newest sales offices in Japan and Germany.

TCPI's largest Asian customers include IRIS, a C&I distributor in Japan, and Emart, a retailer in South Korea.

In 2012, TCPI acquired its distributors in Europe and Latin America. TCPI believes that these acquisitions have provided it with the ability to expand in markets that are transitioning to energy efficient lighting.

Dividend Policy

No dividends are planned.

Intellectual Property

TCPI owns 21 issued U.S. patents and 19 pending U.S. patent applications.

TCPI's U.S. patents are expected to expire between 2016 and 2032.

Competition

As a result of its broad product portfolio, TCPI faces global competition from a variety of well-established and emerging lighting companies.

TCPI believes that its competitors mainly operate under two distinct business models, with some manufacturing lamps in-house and others purchasing lamps through joint ventures or from original equipment manufacturers, or OEMs, for resale under their own brand.

5% stockholders

Lillian Yan Irrevocable Stock Trust (1) 10.9%

Ellis Yan (2) 56.1%

Solomon Yan (3) 33.0%

Use of proceeds

TCPI expects to net $90 million from its IPO. Proceeds are allocated as follows:

To acquire and develop advanced, automated manufacturing equipment to expand its LED manufacturing capacity, for the repayment of indebtedness outstanding and for general corporate purposes. The indebtedness to be repaid will be a portion of TCPI's outstanding short-term bank loans and revolving line of credit. The short-term bank loans each have a maturity of less than one year. The weighted average interest rate on these loans as of March 31, 2014 was 4.21%.

Disclaimer: This TCPI IPO report is based on a reading and analysis of TCPI's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: TCP International Holdings Ltd.