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Tuesday, January 31, 2023

VinFast Auto Seeks U.S. IPO For International Expansion (VFS)

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A Quick Take On VinFast Auto Ltd.

VinFast Auto Ltd. (VFS) has filed to raise an undisclosed amount in an IPO of its ordinary shares, according to an F-1 registration statement.

The firm manufactures electric vehicles for various e-mobility use cases.

VFS seeks to expand into North America and Europe, where the firm has no name recognition and little distribution presence.

I’ll provide an update when we learn more details about the IPO from management.

VinFast Overview

Hai Phong City, Vietnam-based VinFast Auto Ltd. was founded to produce e-scooters followed by passenger cars and e-buses.

Management is headed by Global CEO Ms. Le Thi Thu Thuy, who was previously a Vice President at Lehman Brothers in Japan, Thailand and Singapore until 2008.

Management plans to sell its line of electric SUVs in major global markets, including the U.S., Canada and Europe, in addition to Vietnam.

As of September 30, 2022, VinFast has booked fair market value investment of $301 million in equity and $2.5 billion in debt from investors including Vingroup, VIG and Asian Star Trading & Investments Pte. Ltd.

VinFast – Customer Acquisition

The company plans to target a variety of demographics in major markets through VinFast showrooms.

The firm will provide different modes of purchasing, leasing or subscribing to automobiles or battery technologies.

Selling & Distribution expenses as a percentage of total revenue have increased significantly as revenues have varied, as the figures below indicate:

Selling & Distribution

Expenses vs. Revenue

Period

Percentage

Nine Mos. Ended September 30, 2022

32.0%

2021

13.7%

2020

9.8%

(Source – SEC)

The Selling & Distribution efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling & Distribution spend, fell to negative (0.2x) in the most recent reporting period, as shown in the table below:

Selling & Distribution

Efficiency Rate

Period

Multiple

Nine Mos. Ended September 30, 2022

-0.2

2021

1.0

(Source – SEC)

VinFast’s Market & Competition

According to a 2021 market research report by Allied Market Research, the global market for electric or hybrid SUVs was an estimated $35.6 billion in 2020 and is forecasted to reach $252.7 billion by 2030.

This represents a forecast CAGR of 25.1% from 2021 to 2030.

The main drivers for this expected growth are improved vehicle driving characteristics, lower energy usage, reduced noise and decreased maintenance requirements.

Also, consumers are becoming more environmentally conscious and charging networks continue to grow in size and coverage, making electric vehicle ownership more convenient.

Major competitive or other industry participants include:

VinFast Auto Ltd. Financial Performance

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

  • Variable topline revenue

  • High gross loss and negative gross margin

  • Increasing operating losses

  • Growing cash used in operations

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

Total Revenue

Period

Total Revenue

% Variance vs. Prior

Nine Mos. Ended September 30, 2022

$ 439,400,000

-6.4%

2021

$ 670,600,000

16.6%

2020

$ 574,992,600

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

Nine Mos. Ended September 30, 2022

$ (358,900,000)

31.7%

2021

$ (387,300,000)

37.7%

2020

$ (281,194,200)

Gross Margin

Period

Gross Margin

Nine Mos. Ended September 30, 2022

-81.68%

2021

-57.75%

2020

-48.90%

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

Nine Mos. Ended September 30, 2022

$ (1,231,700,000)

-280.3%

2021

$ (1,132,500,000)

-168.9%

2020

$ (556,311,000)

-96.8%

Net Income (Loss)

Period

Net Income (Loss)

Net Margin

Nine Mos. Ended September 30, 2022

$ (1,445,000,000)

-328.9%

2021

$ (1,348,100,000)

-306.8%

2020

$ (795,908,400)

-181.1%

Cash Flow From Operations

Period

Cash Flow From Operations

Nine Mos. Ended September 30, 2022

$ (1,068,148,590)

2021

$ (1,212,095,731)

2020

$ (392,664,972)

(Glossary Of Terms)

(Source – SEC)

As of September 30, 2022, VinFast had $77.6 million in cash and $8.8 billion in total liabilities.

Free cash flow during the twelve months ended September 30, 2022, was negative ($1.9 billion).

VinFast Auto Ltd. IPO Details

VinFast intends to raise an undisclosed amount in gross proceeds from an IPO of its ordinary shares, although the figure sought may be in excess of $1 billion.

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

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

We plan to use the net proceeds of this offering to repay the remaining outstanding Share Acquisition P-Notes issued in connection with the Reorganization, in part or in full, depending on the size of the offering. As of the date of this prospectus, the amount outstanding under the Share Acquisition P-Note held by Vingroup was approximately $1,078.8 million on a consolidated group basis.

[And for:]

investments in research and development of products, services and technology sales

investments in sales and marketing and expansion of sales channels

investments in the development of our manufacturing facilities

the balance for working capital and general corporate purposes, which may include potential strategic investments and acquisitions, although we have not identified any specific investments or acquisition opportunities at this time.

(Source – SEC)

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 material legal or administrative claim.

The listed bookrunners of the IPO are Citigroup, Morgan Stanley, Credit Suisse and other investment banks.

Commentary About VinFast’s IPO

VFS is seeking U.S. public investment capital to fund its future growth plans.

The company’s financials have shown high but fluctuating topline revenue, substantial gross loss and negative gross margin, growing operating losses and increasing cash used in operations.

Free cash flow for the twelve months ended September 30, 2022, was negative ($1.9 billion).

Selling & Distribution expenses as a percentage of total revenue have risen materially as revenues have grown; its Selling & Distribution efficiency multiple fell to negative (0.2x) in the most recent reporting period.

The firm currently plans to pay no dividends and to retain any future earnings for reinvestment back into the firm’s operating and growth initiatives.

VinFast’s trailing twelve-month CapEx Ratio was negative (2.19), which indicates it has spent heavily on capital expenditures despite substantial operating cash use.

The market opportunity for electric SUVs is large and expected to grow substantially in the coming years as more people seek electric vehicles for their various benefits, so the firm has positive industry dynamics in its favor.

However, the company faces significant and growing competition from major automobile manufacturers as the industry plans to introduce numerous models in the near future.

Citigroup is the lead underwriter and there is no performance data on IPOs led by the firm over the last 12-month period.

Risks to the company’s outlook as a public company include its need to create a significant retail presence in major markets and the need for large amounts of expansion capital to do so.

Also, the company has no international name recognition, so generating significant sales growth ex-Asia may be very time-consuming and costly.

When we learn management’s pricing and valuation assumptions, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.



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