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A quick look at JE Cleantech Holdings Limited
JE Cleantech Holdings Limited (JECT) has applied to raise $12 million in an initial public offering of its common stock, according to an F-1 registration statement.
The Company sells a variety of cleaning equipment to various end-use markets, although it faces significant customer concentration risk. I’m waiting for the IPO.
Company & Technology
Singapore-based JE Cleantech was established in 1999 to sell precision cleaning systems and centralized dishwashing products, and management says it ranked first in Malaysia’s precision cleaning equipment market in 2020.
Management is led by Founder, Chairman and CEO, Ms. Hong Bee Yin, who has been with the Company since its inception in 1999 and was previously Deputy General Manager at JLW Property Consultants Pte Ltd. was.
The company’s main offerings include:
JE Cleantech has booked a fair market value investment of US$2.7 million as of June 30, 2021 from investors including the Founder and Triple Business Limited.
JE Cleantech – Customer Acquisition
The company sells its systems to various types of industrial customers in the Asia-Pacific region.
Industry verticals include aerospace, hard disk drives, semiconductors, instrumentation, surface treatment services and public transportation operators.
Selling and marketing expenses as a percentage of total sales have decreased as sales have increased, as shown in the following figures:
|
sales and marketing |
Expenses vs. Income |
|
period |
percentage |
|
Six months ending June 30, 2021 |
0.1% |
|
2020 |
0.1% |
|
2019 |
0.3% |
(Source – SEC)
The Sales and Marketing Effectiveness Multiple, defined as how many dollars of additional new revenue generated by each dollar of sales and marketing spend, was 455.3 times over the most recent reporting period, as shown in the following table:
|
sales and marketing |
efficiency rate |
|
period |
Several |
|
Six months ending June 30, 2021 |
455.3 |
|
2020 |
157.5 |
(Source – SEC)
Market and competition of JE Cleantech
According to a 2021 market research report by Growth Market Reports, the global water/water-based laundry detergent market was valued at US$482.5 million in 2019 and is projected to reach US$662 million by 2027.
This equates to a projected CAGR of 5.4% from 2020 to 2027.
The main drivers for this expected growth are continued expansion in aerospace, automotive, medical and other industries that require parts washing facilities.
Also, the manufacturing industry is trying to extend the life of their expensive machinery by removing contaminants from the operating environment.
Management says the precision cleaning industry in Malaysia shows a high level of consolidation, with 80% of industry revenue generated by the top five companies.
However, the company’s Singapore dishwashing services market has a low penetration rate and is less consolidated.
Financial performance of JE Cleantech
The company’s recent financial results can be summarized as follows:
The following are relevant financial results arising from the company’s registration statement:
|
total revenue |
||
|
period |
total revenue |
% variance vs. before |
|
Six months ending June 30, 2021 |
$6,622,000 |
37.9% |
|
2020 |
$15,905,000 |
17.4% |
|
2019 |
$13,542,183 |
|
|
gross profit (loss) |
||
|
period |
gross profit (loss) |
% variance vs. before |
|
Six months ending June 30, 2021 |
$1,478,000 |
55.8% |
|
2020 |
$4,389,000 |
19.3% |
|
2019 |
$3,680,078 |
|
|
gross margin |
||
|
period |
gross margin |
|
|
Six months ending June 30, 2021 |
22.32% |
|
|
2020 |
27.60% |
|
|
2019 |
27.17% |
|
|
Operating Profit (Loss) |
||
|
period |
Operating Profit (Loss) |
operating margin |
|
Six months ending June 30, 2021 |
$636,000 |
9.6% |
|
2020 |
$2,627,000 |
16.5% |
|
2019 |
$1,719,253 |
12.7% |
|
Overall result (loss) |
||
|
period |
Overall result (loss) |
net margin |
|
Six months ending June 30, 2021 |
$444,000 |
6.7% |
|
2020 |
$1,324,000 |
20.0% |
|
2019 |
$217,787 |
3.3% |
|
Cash flow from operations |
||
|
period |
Cash flow from operations |
|
|
Six months ending June 30, 2021 |
$2,627,000 |
|
|
2020 |
$828,000 |
|
|
2019 |
$1,148,399 |
|
|
(Glossary of terms) |
(Source – SEC)
As of June 30, 2021, JE Cleantech had $2 million in cash and $9.1 million in total debt.
Free cash flow for the twelve months ended June 30, 2021 was $2.7 million.
JE Cleantech IPO details
JE Cleantech intends to raise $12 million in gross proceeds from an initial public offering of its common stock and is offering 3 million shares at a proposed price of $4.00 per share.
No existing shareholder has expressed an interest in buying shares at the IPO price.
Assuming a successful IPO, the Company’s enterprise value at IPO would be approximately $55.1 million excluding the impact of underwriters’ over-allotment options.
The ratio of free float to outstanding shares (excluding over-allotments by underwriters) will be approximately 20%. A number below 10% is generally considered a “low float” stock, which can experience significant price volatility.
Management says it will use the net proceeds from the IPO as follows:
SEC. EDGAR
(Source – SEC)
Management’s presentation of the company’s roadshow is not available.
Regarding pending litigation, management says the company is not a party “to any significant litigation.”
The sole public bookrunner for the IPO is ViewTrade Securities.
Valuation metrics for JE Cleantech
Below is a table of relevant cap and valuation numbers for the company:
|
Measure [TTM] |
amount |
|
Market capitalization at IPO |
$60,000,000 |
|
Enterprise value |
$55,067,000 |
|
price / sale |
3.38 |
|
EV / Revenue |
3.11 |
|
EV / EBITDA |
17.15 |
|
earnings per share |
$0.15 |
|
operating margin |
18.12% |
|
net margin |
13.42% |
|
Ratio of float to shares outstanding |
20.00% |
|
Proposed IPO midpoint price per share |
$4.00 |
|
Net Free Cash Flow |
$2,653,851 |
|
Free cash flow yield per share |
4.42% |
|
sales growth rate |
37.93% |
|
(Glossary of terms) |
(Source – SEC)
Commentary on the IPO of JE Cleantech
JECT seeks US capital market investment to expand its manufacturing capacity and general working capital.
The company’s financials have resulted in increasing revenues, growing gross profit and variable gross margin, higher operating income and inconsistent cash flow from operations.
Free cash flow for the twelve months ended June 30, 2021 was $2.7 million.
Selling and marketing expenses as a percentage of total revenue were minimal; The multiple for sales and marketing efficiency was a very high 455x in the last reporting period.
The company paid a dividend in 2019, but not in 2020 or 2021.
The market opportunity for various types of dishwashing systems is quite large and is expected to grow at a moderate growth rate, although management believes that centralized dishwashing services represent strong growth potential in Singapore.
ViewTrade Securities is the lead underwriter and there is no data on the firm’s IPO participation in the past 12 months.
The main risk to the company’s prospects is its customer concentration, with 51.1% of its sales in H1 2021 coming from one customer.
As for the valuation, it’s difficult to determine a valuation based on a direct comparison or an industry level comparison, so I’m waiting for the IPO.
Estimated IPO Price Date: To be announced.
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