IPO Update: Jayud Global Logistics Readies U.S. IPO Terms

A Quick Take On Jayud Global Logistics

Jayud Global Logistics Limited (JYD) has filed to raise $6.75 million in an IPO of its Class A ordinary shares, according to an amended F-1/A registration statement.

The firm provides a range of freight logistics services to companies in southeastern China and overseas.

Although the low price, low float IPO may attract day traders seeking volatility, given the high valuation multiple, ongoing and unpredictable regulatory risks and low-margin business, I'm on Hold for the IPO.

Jayud Global Overview

Shenzhen, China-based Jayud Global Logistics Limited was founded to provide cross-border logistics services to enterprise customers in the Greater Bay Area of Southeastern China.

Management is headed by founder, Chairman and CEO Mr. Xiaogang Geng, who has been with the firm since its inception in 2011 and was previously manager of the customer affairs department at Yigao Semiconductor Equipment Co.

The company's primary offerings include the following:

• Freight forwarding

• Supply chain management

• Other value-added services

As of June 30, 2022, Jayud Global has booked fair market value investment of $5.6 million in equity capital from investors including Europa Investment Holding (Founder Geng), Cassini Investment Holding, Tucana Investment Holding (Jianhong Huang) and Fornax Investment Holding.

Jayud Global - Customer Acquisition

The company has established logistic facilities in 12 provinces in China and in Hong Kong [SAR].

The firm seeks customers interested in its end-to-end supply logistics solutions.

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

(Source - SEC)

The Selling efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling expense, rose to a strong 35.9x in the most recent reporting period, as shown in the table below:

(Source - SEC)

Jayud Global's Market & Competition

According to a 2022 market research report by 360 Market Updates, the global contract logistics market was an estimated $180.1 billion in 2021 and is forecast to reach $242.5 billion by 2028.

This represents a forecast CAGR of 3.9% from 2022 to 2028.

The main drivers for this expected growth are increasing demand from companies to redesign and improve their supply chains in the wake of the global pandemic.

Also, the continued growth of the e-commerce sector is placing increasing demands on supply chain efficiencies and risk reduction.

Major competitive or other industry participants include:

• Sinotrans Logistics Ltd.

• Beijing Changjiu Logistics Co., Ltd.

• Kerry Logistics Limited

• Others

The industries the firm operates in remain highly fragmented and the company is subject to a wide variety of competitors of all sizes, from domestic companies to international logistics firms.

Jayud Global Logistics Limited Financial Performance

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

• Sharply growing topline revenue

• Increasing gross profit but stable gross margin

• Growing operating profit but low operating margin

• A swing to cash used in operations

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

(Source - SEC)

As of June 30, 2022, Jayud Global had $7 million in cash and $25.2 million in total liabilities.

Free cash flow during the twelve months ending June 30, 2022, was $1.7 million.

Jayud Global's IPO Details

JYD intends to sell 1.5 million shares of Class A common stock at a proposed midpoint price of $4.50 per share for gross proceeds of approximately $6.75 million, not including the sale of customary underwriter options.

No existing or potentially new shareholders have indicated an interest in purchasing shares at the IPO price.

Class A stockholders will be entitled to one vote per share. The sole Class B shareholder, founder and CEO Mr. Geng will be entitled to ten votes per share and will have voting control of the company immediately post-IPO.

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

Assuming a successful IPO at the midpoint of the proposed price range, the company's enterprise value at IPO (excluding underwriter options) would approximate $90.1 million.

The float to outstanding shares ratio (excluding underwriter options) will be approximately 6.98%. 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:

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

Regarding outstanding legal proceedings, management says the firm is not currently a party to any legal or administrative proceeding that it considers 'material.'

The sole listed bookrunner of the IPO is The Benchmark Company.

Valuation Metrics For Jayud Global

Below is a table of the firm's relevant capitalization and valuation metrics at IPO, excluding the effects of underwriter options:

(Source - SEC)

Commentary About Jayud Global Logistics

JYD is seeking U.S. public capital market investment to expand its operations and for general corporate working capital needs.

The company's financials have produced strong growth in topline revenue, growing gross profit but stable gross margin, increasing operating profit but low operating margin and a swing to cash used in operations.

Free cash flow for the twelve months ending June 30, 2022, was $1.7 million.

Selling expenses as a percentage of total revenue have trended lower as revenue has increased; its Selling efficiency multiple rose to 35.9x in the most recent reporting period.

The firm currently plans to pay no dividends other than an existing dividend payable as of June 30, 2022, of approximately $1,035,552 and to retain any future earnings to reinvest back into the growth and working requirements of the business.

The market opportunity for providing logistics services is large but is expected to grow at a moderate rate of growth in the coming years. The company faces a wide variety of competitive pressures from companies of all sizes.

Like other companies with Chinese operations 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 interests in operating subsidiaries, some of which may be located in the PRC. Additionally, restrictions on the transfer of funds between subsidiaries within China may exist.

The Chinese government's crackdown on certain IPO company candidates combined with added reporting and disclosure requirements from the U.S. has put a serious damper on Chinese or related IPOs resulting in generally poor post-IPO performance.

Also, a potentially significant risk to the company's outlook is the uncertain future status of Chinese company stocks in relation to the U.S. HFCA act, which requires delisting if the firm's auditors do not make their working papers available for audit by the PCAOB.

Prospective investors would be well advised to consider the potential implications of specific laws regarding earnings repatriation and changing or unpredictable Chinese regulatory rulings that may affect such companies and U.S. stock listings.

Additionally, post-IPO communications from the management of smaller Chinese companies that have become public in the U.S. has been spotty and perfunctory, indicating a lack of interest in shareholder communication, only providing the bare minimum required by the SEC and a generally inadequate approach to keeping shareholders up-to-date about management's priorities.

The Benchmark Company is the lead underwriter, and the three IPOs led by the firm over the last 12-month period have generated an average return of 218.9% since their IPO. This is a top-tier performance for all significant underwriters during the period.

Risks to the company's outlook as a public company include its low operating margin, which tends to produce low stock multiple valuations, as well as the aforementioned unpredictable regulatory risks.

As for valuation expectations, management is asking IPO investors to pay an Enterprise Value / EBITDA multiple of around 27x.

Although the low price, low float IPO may attract day traders, given the high valuation multiple, ongoing and unpredictable regulatory risks and low-margin business, I'm on Hold for the IPO.

Expected IPO Pricing Date: To be announced

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