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A brief overview of Multi Ways Holdings Limited
Multi Ways Holdings Limited (MWG) has applied to raise $16 million in an initial public offering of its common stock, according to an F-1 registration statement.
The company rents sells heavy construction and related equipment in Singapore and abroad.
With MWG attempting an IPO at $2.50 per share, I am skeptical about the stock’s mid-term post-IPO performance as many Asian company IPOs have performed poorly at $5.00 or less.
While the low price may attract day traders looking for volatility, I’m waiting for the IPO.
Overview of several options
Singapore based Multi Ways Holdings Limited was formed to offer the sale, rental and overhaul of heavy construction and related equipment in Singapore and the surrounding region.
Management is led by Founder, Chairman and CEO Mr. “James” Lim Eng Hock, who is at Company since its inception in 2002 and has extensive experience in the industrial machinery and heavy construction industries.
As of June 30, 2022, Multi Ways has booked a fair market value investment of $5.44 million from investors, including the founder.
Multi Ways – Customer Acquisition
The company is looking for customers in Singapore, Australia, the United Arab Emirates, the Maldives, Indonesia and the Philippines.
The company’s customer base is in the infrastructure and building construction, mining, oil & gas and marine sectors.
Selling and distribution expenses as a percentage of total sales tended to decline slightly as sales increased, as shown in the following figures:
|
sales and distribution |
Expenses vs. Income |
|
Period |
percentage |
|
Six months ending June 30, 2022 |
3.7% |
|
2021 |
3.3% |
|
2020 |
3.9% |
click to enlarge
(Source – SEC)
The Sales and Distribution Efficiency Multiplier, defined as how many dollars of additional new revenue generated by each dollar of sales and distribution spend, increased sharply to 9.8x in the most recent reporting period, as shown in the table below:
|
sales and distribution |
efficiency rate |
|
Period |
Several |
|
Six months ending June 30, 2022 |
9.8 |
|
2021 |
3.2 |
click to enlarge
(Source – SEC)
Market and Competition of Multi Ways
According to a 2022 market research report by Grand View Research, the global construction equipment rental market was estimated at US$73 billion in 2021 and is projected to reach US$103.6 billion by 2030.
This equates to a projected CAGR of 3.9% from 2022 to 2030.
The main drivers for this expected growth are an increase in government spending on public infrastructure in emerging markets worldwide.
Also, the chart below shows the global breakdown by market value and region:
Global Rental Market for Construction Equipment (Grand View Research)
Key contestants or other industry participants include:
-
Tat Hong Holdings Ltd
-
Sin Heng Heavy Machinery Ltd
-
Antar Cranes Services Pte. GmbH
-
INA Heavy Machinery & Equipment Pte Ltd
-
Ahern Rentals Inc.
-
AKTIO Corporation
-
Caterpillar Inc.
-
Byrne gear hire
-
Cramo Plc
-
Finning International Inc.
-
Liebherr International AG
-
Kanamoto Co.,Ltd.
-
Maxim Crane Works, LP
-
United Rentals, Inc.
Financial performance of Multi Ways Holdings Limited
The company’s recent financial results can be summarized as follows:
-
Increasing topline earnings
-
Increase in gross profit and gross margin
-
Higher operating profit
-
Reduced cash flow from operations
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, 2022 |
$20,094,000 |
58.2% |
|
2021 |
$33,406,000 |
11.8% |
|
2020 |
$29,886,000 |
|
|
gross profit (loss) |
||
|
Period |
gross profit (loss) |
% variance vs. before |
|
Six months ending June 30, 2022 |
$5,602,000 |
22.5% |
|
2021 |
$9,357,000 |
36.8% |
|
2020 |
$6,842,000 |
|
|
gross margin |
||
|
Period |
gross margin |
|
|
Six months ending June 30, 2022 |
27.88% |
|
|
2021 |
28.01% |
|
|
2020 |
22.89% |
|
|
Operating Profit (Loss) |
||
|
Period |
Operating Profit (Loss) |
operating margin |
|
Six months ending June 30, 2022 |
$1,570,000 |
7.8% |
|
2021 |
$1,634,000 |
4.9% |
|
2020 |
$(605,000) |
-2.0% |
|
Overall result (loss) |
||
|
Period |
Overall result (loss) |
net margin |
|
Six months ending June 30, 2022 |
$1,212,000 |
6.0% |
|
2021 |
$1,456,000 |
7.2% |
|
2020 |
$1,319,000 |
6.6% |
|
Cash flow from operations |
||
|
Period |
Cash flow from operations |
|
|
Six months ending June 30, 2022 |
$501,000 |
|
|
2021 |
$5,630,000 |
|
|
2020 |
$1,656,000 |
|
|
(Glossary of terms) |
click to enlarge
(Source – SEC)
As of June 30, 2022, Multi Ways had $952,000 in cash and $42.8 million in total debt.
Free cash flow for the twelve months ended June 30, 2022 was negative ($587,000).
Multi Ways Holdings Limited IPO details
Multi Ways intends to raise $16 million in gross proceeds from an initial public offering of its common stock in which the Company will offer 5.2 million shares and shareholders will sell 1.2 million shares at a proposed mid-price of $2.50 offer per share.
No existing shareholder has expressed an interest in purchasing shares at the IPO price.
The Company is also registering a resale prospectus for two selling shareholders to sell up to approximately 3 million shares.
Assuming a successful IPO, the Company’s enterprise value at IPO would be approximately $90.5 million, excluding the impact of underwriters’ over-allotment options.
The free float to outstanding share ratio (excluding over-allotments by underwriters) will be approximately 21.3%. 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:
We currently intend to use the net proceeds from this offering to expand and renew our heavy construction equipment fleet, seek expansion opportunities through merger and acquisition activities, expand our warehousing facilities and capacity, acquire technology information and for general working capital and company purposes.
(Source – SEC)
Management’s presentation of the company’s roadshow is not available.
Regarding pending lawsuits, management says the company “is not a party to any significant lawsuit in Singapore. We are not aware of any lawsuits involving us outside of Singapore.’
The sole public bookrunner for the IPO is Spartan Capital Securities.
Evaluation metrics for multiple opportunities
Below is a table of relevant cap and valuation numbers for the company:
|
Measure [TTM] |
Crowd |
|
Market capitalization at IPO |
$75,000,000 |
|
Enterprise value |
$90,478,000 |
|
price / sale |
1.84 |
|
EV / Revenue |
2.22 |
|
EV / EBITDA |
40.30 |
|
earnings per share |
$0.05 |
|
operating margin |
5.50% |
|
net margin |
3.58% |
|
Ratio of float to shares outstanding |
21.33% |
|
Proposed IPO midpoint price per share |
$2.50 |
|
Net Free Cash Flow |
-$587,000 |
|
Free cash flow yield per share |
-0.78% |
|
Debt / EBITDA multiple |
02/12 |
|
investment rate |
0.09 |
|
sales growth rate |
58.16% |
|
(Glossary of terms) |
click to enlarge
(Source – SEC)
Comment on Multi Ways IPO
MWG is seeking public capital market investment in the US to fund its various expansion plans.
The company’s financials showed increasing revenues, growing gross profits and gross margins, and higher operating profits, but lower cash flow from operations.
Free cash flow for the twelve months ended June 30, 2022 was negative ($587,000).
Selling and distribution expenses as a percentage of total revenue has declined slightly as revenue has increased; The sales and distribution efficiency multiple increased 9.8x in the most recent reporting period.
The company currently plans not to pay any dividends and to reinvest all future earnings back into the growth and operational needs of the company.
MWG’s CapEx ratio indicates that it’s spent heavily on investments related to its operating cash flow.
The market opportunity for heavy construction equipment rental is large and is expected to grow at a moderate growth rate through 2030 despite the Company facing significant competition in key global markets.
Like other companies with offices in Asian countries looking to enter US markets, the proposed publicly traded entity will operate as a Cayman Islands company owning interests in its offices in other countries.
US investors would only have an interest in an offshore company with interests in or only arrangements with operating subsidiaries (i.e. may not have equity interests), some of which may be based in or carry out significant operations in China or other Asian countries with restrictions or unpredictable regulatory environment in relation to those interests.
In addition, there may be restrictions on the transfer of funds between subsidiaries in China or other Asian countries.
Prospective investors are well advised to consider the potential impact of certain laws relating to profit repatriation and changing or unanticipated regulatory decisions that may affect such companies and their US stock listings.
In addition, the post-IPO management disclosures of smaller Asian companies released in the US were patchy and superficial, indicating a lack of interest in communicating with shareholders and only the bare minimum required by the SEC and a generally inadequate one Approach to this provides keeping shareholders informed of management’s priorities.
Spartan Capital Securities is the lead underwriter and the only IPO led by the firm in the past 12 months has generated a negative return (78.9%) since its IPO. This is a lowest performance for any major underwriter over the period.
As for valuation expectations, management is asking investors to pay an enterprise value/revenue multiple of around 2.2x at the IPO.
Recently, many companies have gone public on US stock exchanges at a price of $5.00 per share. Almost all of these IPOs have performed poorly after going public.
With MWG attempting an IPO at $2.50 per share, I’m even more skeptical about the medium-term post-IPO performance of the stock.
While the low price may attract day traders looking for volatility, I’m waiting for the IPO.
Estimated IPO Price Date: To be announced.
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