IPO Update: UTime Tries U.S. IPO Effort Again
Summary
- UTime has filed to raise $17 million in a U.S. IPO.
- The firm sells low-cost phones and related accessories.
- UTME has produced uneven results and operates in a low margin, highly competitive business requiring scale it doesn't yet have, so I'll watch the IPO from the sidelines.
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Quick Take
UTime (UTME) has filed to raise $17 million from the sale of its common stock in an IPO, according to an amended registration statement.
The company designs and manufactures low cost mobile phones and related accessories.
UTME operates in a highly competitive, low margin business requiring scale, which it doesn’t have.
I'll watch the IPO from the sidelines.
Company & Technology
Shenzhen, China-based UTime was founded to provide a range of design, development, production and sales of lower cost mobile phones, accessories and related electronic products for sale to emerging markets and the entry level within developed markets.
The company is also developing its own branded product offerings through its UTime and Do brands.
Management is headed by Chairman and CEO Mr. Minfei Bao, who has been with the firm since 2008 and was previously general manager of United Creation Technology, Ltd., a mobile phone manufacturer.
The company’s primary offerings include:
Original Electronics Manufacturing
Original Design Manufacturing
Printed Circuit Board Assembly
The company is majority owned and controlled by Chairman Bao, who owns 96.95% of company stock pre-IPO.
Customer Acquisition
The firm sells primarily as an OEM/ODM contract manufacturer to brands that are active in emerging markets
UTME has relationships with companies such as TCL Communication Technology, Haier Electronics and Quality One Wireless.
Selling expenses as a percentage of total revenue have been uneven as revenues have fluctuated, as the figures below indicate:
Selling | Expenses vs. Revenue |
Period | Percentage |
Six Mos. Ended Sept. 30, 2020 | 1.1% |
FYE March 31, 2020 | 4.9% |
FYE March 31, 2019 | -6.1% |
Source: Company registration statement
The Selling efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling spend, was 47.0x in the most recent reporting period, as shown in the table below:
Selling | Efficiency Rate |
Period | Multiple |
Six Mos. Ended Sept. 30, 2020 | 47.0 |
FYE March 31, 2020 | -5.4 |
Source: Company registration statement
Market & Competition
According to a 2019 market research report by IBISWorld, the market for mobile phone manufacturing in China was expected to reach $232 billion in 2019.
This represented an annual average growth rate of 5.0% from 2014 to 2019 and a 3.2% growth in 2019.
Although the industry has grown rapidly from 2013 forward as a result of the popularity of the 4G mobile phone standard, growth has slowed more recently as the market has attained saturation.
Although phone manufacturers are optimistic about the prospects for 5G rollouts, a transition to that standard will likely occur over several years.
Major competitive vendors include:
Wentai
Xiaomi
Samsung Electronics
Shenzhen Transsion Holding
Financial Performance
UTime’s recent financial results can be summarized as follows:
Variable topline revenue
Fluctuating gross profit
Uneven gross margin
A swing to operating profit and comprehensive income
Reduced cash used in operations
Below are relevant financial metrics derived from the firm’s registration statement:
Total Revenue | ||
Period | Total Revenue | % Variance vs. Prior |
Six Mos. Ended Sept. 30, 2020 | $ 26,327,000 | 99.9% |
FYE March 31, 2020 | $ 27,253,000 | -21.0% |
FYE March 31, 2019 | $ 34,506,667 | |
Gross Profit (Loss) | ||
Period | Gross Profit (Loss) | % Variance vs. Prior |
Six Mos. Ended Sept. 30, 2020 | $ 3,405,000 | 129.9% |
FYE March 31, 2020 | $ 2,732,000 | -24.6% |
FYE March 31, 2019 | $ 3,622,899 | |
Gross Margin | ||
Period | Gross Margin | |
Six Mos. Ended Sept. 30, 2020 | 12.93% | |
FYE March 31, 2020 | 10.02% | |
FYE March 31, 2019 | 10.50% | |
Operating Profit (Loss) | ||
Period | Operating Profit (Loss) | Operating Margin |
Six Mos. Ended Sept. 30, 2020 | $ 1,179,000 | 4.5% |
FYE March 31, 2020 | $ (2,781,000) | -10.2% |
FYE March 31, 2019 | $ (1,445,217) | -4.2% |
Comprehensive Income (Loss) | ||
Period | Comprehensive Income (Loss) | |
Six Mos. Ended Sept. 30, 2020 | $ 1,172,000 | |
FYE March 31, 2020 | $ (3,180,000) | |
FYE March 31, 2019 | $ (1,785,072) | |
Cash Flow From Operations | ||
Period | Cash Flow From Operations | |
Six Mos. Ended Sept. 30, 2020 | $ (53,000) | |
FYE March 31, 2020 | $ (2,417,000) | |
FYE March 31, 2019 | $ 316,667 | |
IPO Details
UTME intends to sell 3.75 million shares of common stock at a proposed midpoint price of $4.50 per share for gross proceeds of approximately $17 million, not including the sale of customary underwriter options.
No existing shareholders have indicated an interest to purchase shares at the IPO price.
Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $40 million.
Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 45.36%.
Per the firm’s most recent regulatory filing, the firm plans to use the net proceeds as follows:
Management’s presentation of the company roadshow is not available.
Listed underwriters of the IPO are Boustead Securities and Brilliant Norton Securities Company.
Commentary
UTime is seeking U.S. investment capital to fund its growth and expansion efforts.
The firm’s financials show a return to topline revenue growth.
Free cash flow for the six months ended September 30, 2020 was negative ($988,304).
Sales and Marketing expenses as a percentage of total revenue have dropped as revenues have increased and its Sales and Marketing efficiency rate was a very high 47x.
The market opportunity for selling low-cost smartphones is growing moderately as there is intense competition on a price basis.
Boustead Securities is the lead left underwriter and its sole IPO led by the firm over the last 12-month period has generated a return of 100.6% since their IPO.
As for valuation, management is asking IPO investors to pay an EV/Revenue of .98x trailing twelve month revenues.
UTime operates in a low margin business where scale is extremely important. The company lacks scale and has an uneven reporting history. The firm previously attempted to go public and my previous opinion was to avoid the IPO.
I'll pass on the IPO this time, too.
Expected IPO Pricing Date: April 5, 2021.
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This article was written by
Donovan Jones is an IPO research specialist with 15 years of experience identifying opportunities for IPOs. He focuses on high-growth technology, consumer, and life science companies.
He leads the investing group IPO Edge which offers: actionable information on growth stocks through first look S-1 filings, previews on upcoming IPOs, an IPO calendar for tracking what’s on the horizon, a database of U.S. IPOs, and a guide to IPO investing to walk you through the entire IPO lifecycle - from filing to listing to quiet period and lockup expiration dates. Learn more.Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (5)
First, BS if you had taken part in the ipo you would have said so yesterday.
Second, 43% of their revenue was from grandpa-type feature phones and apparently according to some chinese webpages, another 25% of their revenue since March 2020 was from selling masks. Lol this is not going to end well.
