Planet Image International Targets $27 Million U.S. IPO

Summary

• Planet Image International has filed proposed terms for a $27 million IPO.
• The China-based firm manufactures compatible printer cartridges for customers worldwide.
• PLIM has grown revenue and is profitable but is at risk of the negative effects of high inflation, so I'm no Hold for the IPO.
• Looking for more investing ideas like this one? Get them exclusively at IPO Edge. Learn More »

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A Quick Take On Planet Image International

Planet Image International Limited (PLIM) has filed to raise $27 million in an IPO of its Class A ordinary shares, according to an F-1 registration statement.

The firm manufactures and sells compatible print toner cartridges worldwide.

While PLIM has grown impressively through the pandemic period, inflation may take a big bite out of its earning potential for the foreseeable future.

I'm on Hold for the IPO.

Company & Technology

Xinyu City, China-based Planet Image was founded to develop, manufacture and sell a variety of compatible toner cartridges under various labels worldwide.

Management is headed by co-founder and CEO Mr. Shaofang Weng, who has been with the firm since inception in 2011 and was previously manager of engineering at the Zhuhai Seine Technology Co.

The company’s primary offerings include:

• Original Design Manufacturer cartridges

• White label to overseas dealers

• Direct to consumers via company-owned brands

Planet Image has booked fair market value investment of $15 million as of June 30, 2021 from investors including Aster Excellent Limited, Juneng Investment (HOng Kong) and Eagle Heart Limited.

Planet Image - Customer Acquisition

The firm sells its products to others who resell under their own brand names, who design their own versions as well as directly to end user customers.

PLIM has localized sales operations in the U.S, Italy, France, Germany and the UK. Sales in the U.S. and Europe account for most of its revenue, while Mexico and Poland have produced strong growth in recent years.

Selling expenses as a percentage of total revenue have dropped as revenues have increased, as the figures below indicate:

Selling	Expenses vs. Revenue
Period	Percentage
Six Mos. Ended June 30, 2021	21.9%
2020	23.8%
2019	23.8%

Click to enlarge

(Source)

The Selling efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling spend, rose to 0.8x in the most recent reporting period, as shown in the table below:

Selling	Efficiency Rate
Period	Multiple
Six Mos. Ended June 30, 2021	0.8
2020	0.5

Click to enlarge

(Source)

Planet Image’s Market & Competition

According to a 2022 market research report by Maximize Market Research, the global marker for printer ink cartridges was an estimated $13.3 billion in 2021 and is forecast to reach $19 billion by 2027.

This represents a forecast CAGR of 6.2% from 2022 to 2027.

The main drivers for this expected growth are a growth in demand from the Asia Pacific region owing to an increase in the education sector.

Also, the MENA region (Middle East and North Africa) also presents the potential for strong future growth in the industry.

Major competitive or other industry participants include:

• HP Development Company

• Seiko Epson

• Ricoh

• Brother Industries

• Canon Inc.

• Samsung

• Fuji Xerox Co.

• Lexmark International

• Dell

• Casio

• Ritter Cartridges

• Xerox Corporation

• Static Control

• Dynamic Cassette International

• Panasonic Corporation

• LD Products

• Easy inks GMBH

Planet Image International Limited Financial Performance

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

• Growing topline revenue

• Increasing gross profit and gross margin

• Fluctuating operating profit

• A swing to cash used in operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue	% Variance vs. Prior
Six Mos. Ended June 30, 2021	$ 71,684,000	21.6%
2020	$ 132,791,000	15.0%
2019	$ 115,440,000
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
Six Mos. Ended June 30, 2021	$ 27,935,000	22.8%
2020	$ 48,427,000	2.9%
2019	$ 47,063,000
Gross Margin
Period	Gross Margin
Six Mos. Ended June 30, 2021	38.97%
2020	36.47%
2019	40.77%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
Six Mos. Ended June 30, 2021	$ 6,601,000	9.2%
2020	$ 4,104,000	3.1%
2019	$ 9,981,000	8.6%
Comprehensive Income (Loss)
Period	Comprehensive Income (Loss)	Net Margin
Six Mos. Ended June 30, 2021	$ 5,195,000	7.2%
2020	$ 5,029,000	7.0%
2019	$ 10,546,000	14.7%
Cash Flow From Operations
Period	Cash Flow From Operations
Six Mos. Ended June 30, 2021	$ (1,463,000)
2020	$ 6,929,000
2019	$ 1,827,000
(Glossary Of Terms)

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(Source)

As of June 30, 2021, Planet Image had $34.4 million in cash and $76.4 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2021, was $5.3 million.

Planet Image International Limited IPO Details

Planet Image intends to raise $27 million in gross proceeds from an IPO of its Class A ordinary shares, offering 6 million shares at a proposed midpoint price of $4.50 per share.

Class A ordinary shareholders will be entitled to one vote per share and the Class B shareholder, the company founder, will receive 10 votes per share.

The S&P 500 Index no longer admits firms with multiple classes of stock into its index.

No existing shareholders have indicated an interest to purchase shares at the IPO price.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $240 million, excluding the effects of underwriter over-allotment options.

The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 10.23%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.

Management says it will use the net proceeds from the IPO as follows:

approximately 85.0%, or US$20.06 million for constructing a comprehensive, multi-layer production center;

approximately 2.0%, or US$0.47 million for research and development;

approximately 1.5%, or US$0.35 million for upgrading the software systems of our own websites;

Approximately 1.5%, or US$0.35 million for setting up additional warehouses in overseas locations;

approximately 10.0%, or US$2.36 million for general corporate purposes, which may include working capital needs and other corporate uses.

(Source)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management said, 'On November 12, 2021, ML Products, Inc. filed a complaint with the United States District Court for the Central District of California against Aster US, a subsidiary of the Company, and five other defendants, claiming that Aster US [i] violated the Lanham Act by conducting false advertising, [ii] violated the California Business and Professions Code §17200 by engaging in unfair competition, and [iii] violated the California Business and Professions Code §17500 by conducting false advertisement. [...] We believe this lawsuit is without merit and we are defending ourselves vigorously. There is uncertainty, however, regarding ultimate resolution of this lawsuit.'

The sole listed bookrunner of the IPO is Network 1 Financial Securities.

Valuation Metrics For Planet Image

Below is a table of relevant capitalization and valuation figures for the company:

Measure [TTM]	Amount
Market Capitalization at IPO	$263,842,200
Enterprise Value	$239,842,200
Price / Sales	1.81
EV / Revenue	1.65
EV / EBITDA	29.34
Earnings Per Share	$0.13
Operating Margin	5.62%
Net Margin	5.47%
Float To Outstanding Shares Ratio	10.23%
Proposed IPO Midpoint Price per Share	$4.50
Net Free Cash Flow	$5,348,000
Free Cash Flow Yield Per Share	2.03%
Revenue Growth Rate	21.64%
(Glossary Of Terms)

Click to enlarge

(Source)

Commentary About Planet Image’s IPO

PLIM is seeking to raise U.S. investment capital to fund the expansion of its production facilities and for other working capital needs.

The company’s financials show increasing topline revenue, growing gross profit and gross margin, variable operating profit and a swing to cash used in operations.

Free cash flow for the twelve months ended June 30, 2021, was $5.3 million.

Selling expenses as a percentage of total revenue have fallen as revenue has increased; its Selling efficiency multiple rose to 0.8x in the most recent reporting period.

The firm currently plans to pay no dividends on its shares and anticipates that it will retain any future earnings for reinvestment back into the business.

The market opportunity for printer cartridges is large and expected to grow at a moderate rate of growth over the coming years and has extensive competition from large, entrenched market players.

Like other Chinese firms seeking to tap U.S. markets, the firm operates within a WFOE structure or Wholly Foreign Owned Entity. U.S. investors would only have an interest in an offshore firm with contractual rights to the firm’s operational results but would not own the underlying assets.

Also, foreign wholly-owned enterprises have been subject to the Foreign Investment Law of the People’s Republic of China promulgated by the National People’s Congress on March 15, 2019.

Foreign investors and foreign-owned enterprises undertaking investment activities in China are subject to the Special Administrative Measures (Negative List) for the Access of Foreign Investment, of which the latest version was effective July 2020, and Catalogue of Encouraged Industries for Foreign Investment, which became effective in January 2021.

These areas bring risks of changing government regulatory actions, which have recently been large in scope. Prospective investors in the IPO would need to factor in these important structural aspects.

Additionally, the recent Chinese government crackdown on IPO company candidates combined with added reporting and disclosure requirements from the U.S. has put a serious damper on Chinese IPOs and their post-IPO performance. Until these regulatory concerns are eliminated, investing in China-based companies will entail significantly higher risk.

Network 1 Financial Securities is the lead underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (61.9%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.

The primary risk to the company’s outlook is a strong inflationary environment which may make it difficult to pass through raw material price increases to customers, putting downward pressure on margins.

While PLIM has grown impressively through the pandemic period, inflation may take a big bite out of its earning potential for the foreseeable future.

I'm on Hold for the IPO.

Expected IPO Pricing Date: To be announced.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.