HK IPO Subscription: Analysis and Application Plan for Ruichang International Holdings IPO

Ruichang International Holdings Limited is a petroleum refining and petrochemical equipment manufacturer headquartered in Henan Province, China. The company's products are customized according to customer specifications and requirements, divided into four categories: sulfur recovery equipment and volatile organic compound incineration equipment, catalytic cracking equipment, process burners, and heat exchangers and related components. The company also provides equipment installation services for customers, such as electrical installation engineering and mechanical installation engineering.

Ruichang International has two production facilities in Luoyang City, Henan Province, China, with a total construction area of approximately 20,807.4 square meters. To capture the growing demand for refining and petrochemical equipment in overseas markets, the company leased a production facility in Taizhou City, Jiangsu Province, on June 1, 2023, with a construction area of 7,400 square meters.

Ruichang International was established in 1994 and has established stable and long-term business relationships with many well-known industry clients, including subsidiaries and branches of China's three major petroleum refining and petrochemical groups, as well as the largest EPC (engineering, procurement, and construction) contractor in the Chinese industry.

The company's main market has always been China, but internationally, Ruichang International has expanded its presence in Hong Kong, Canada, and Brazil to increase market share. In recent years, the company's revenue has primarily come from contracts with Chinese clients. As of December 31, 2021, 2022, and 2023, the company's revenue was approximately RMB 248.0 million, RMB 419.1 million, and RMB 544.1 million, respectively. During the same period, the company's net profit was approximately RMB 13.2 million, RMB 36.5 million, and RMB 55.2 million, respectively.

IPO Information:

Pre-IPO Investors and Cornerstone Investors:

The company completed a Series A preferred share subscription before its IPO, with the final completion date in May 2021. The cost per share was HKD 0.67, implying a post-transaction valuation of HKD 252 million, a 45% discount to the offering price. Pre-IPO investors are subject to a 6-month lock-up period.

This time, the company introduced three cornerstone investors with an investment amount of HKD 57.8 million. At the lower price limit, cornerstone investors account for 44%; at the mid-point, they account for 37.9%; and at the upper limit, they account for 33.3%. Cornerstone investors are subject to a 6-month lock-up period.

Sponsor:

The company is exclusively sponsored by First Shanghai this time, with First Shanghai also acting as the stabilizing agent. First Shanghai, as a sponsor, has not had a project in three years, and its previous sponsored projects had a 50-50 success rate. As a stabilizing agent, its performance has been relatively poor. For detailed data, see the image.

Financial Situation:

Revenue:2021 revenue was RMB 248 million, 2022 revenue was RMB 419 million, and 2023 revenue was RMB 544 million;

Gross Profit:2021 gross profit was RMB 70.898 million, 2022 gross profit was RMB 133 million, and 2023 gross profit was RMB 192 million;

Annual Profit:2021profit was RMB 13.246 million, 2022 profit was RMB 36.533 million, and 2023 profit was RMB 55.211 million;

Lottery Winning Rate:

The company is offering 125 million shares globally, with 2,500 shares per lot. As of the time of writing, the oversubscription rate is 2.07 times. Based on the current margin situation, there will be no clawback. There are 2,500 lots each for Group A and Group B, with an estimated 3,000 to 7,000 participants. The lottery winning rate for one lot is around 30%, and applying for 12 lots will secure one lot.

Comprehensive Review:

The company's main revenue sources are sulfur recovery equipment and volatile organic compound incineration equipment, generating RMB 77.218 million, accounting for 14.2%; catalytic cracking equipment, generating RMB 319 million, accounting for 58.7%; and process burners, generating RMB 114 million, accounting for 21%. It is a traditional equipment manufacturing and sales company. After reviewing the prospectus, two A-share listed companies, Lanzhou LS Heavy Equipment and Lanpec Technologies, have similar businesses. Comparing their market capitalizations, the valuation is within a reasonable range. This type of stock is listed at the main board threshold, and there's not much to say. It mainly depends on market sentiment.

Ruichang International Holdings is raising HKD 131-174 million this time. If priced at the lower limit, cornerstone investors will lock in 44%, with a circulating value of HKD 73 million. The small scale makes it prone to speculative surges. However, the sponsor and stabilizing agent are relatively mediocre, which is a drawback. Overall, it appears neutral. It depends on whether the two stocks on July 2 perform well. If they do, this small-scale speculative play might still be viable; otherwise, it's better to skip it.

Bull Rating: Bronze Bull

Rating Explanation: True Bull > Gold Bull > Silver Bull > Bronze Bull > Pot Bull (True Bull rating means go all-in with margin; Gold Bull rating has extremely high certainty, also use margin; Silver Bull rating has decent certainty, can spread across multiple accounts; Bronze Bull rating is unstable, prone to sharp rises and falls; Pot Bull rating is not worth participating in)

Subscription Plan:

Tentatively planning for speculative subscription.

$RUICHANG INTL(01334.HK) 

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