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What is prestige wealth?
Headquartered in Hong Kong, China, Prestige Wealth Inc. (PWM) was established to provide wealth management services to high net worth and high net worth clients in Hong Kong and mainland China and asset management requirements.
Management is led by Chairman and CEO Hongtao Shi, who has been with the company since its predecessor’s inception in 2004 and previously served as Director of Securities Analysis at Pacific United Inc.
The company’s main offerings include:
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Wealth Management Services
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Wealth Management Services
As of March 31, 2022, Prestige has booked an investment at market value as of March 31, 2022 of $705,867 from investors including Prestige Financial Holdings Group Limited.
The company seeks new client relationships with high net worth and high net worth individuals and families in China primarily through word of mouth.
Market and competition of prestige
According to a 2018 market research report by Boston Consulting Group and Lufax, China’s total wealth management market was estimated at about $6.1 trillion.
The offline wealth management segment accounted for 65.4%, or about $4 trillion, of China’s total wealth management market.
Also, the wealth and wealth management industry is expected to come under more rigorous regulatory scrutiny, which will lead to growth in independent online distribution.
Key contestants or other industry participants include:
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banks
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Traditional non-bank financial institutions
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Non-Traditional Financial Companies
Prestige Wealth IPO Date and Details
The date of Prestige Wealth’s initial public offering or initial public offering has not yet been announced by the company or its underwriter.
(Warning: Compared to stocks with more history, IPOs typically have less information for investors to review and analyze. For this reason, investors should exercise caution when considering investing in an IPO or immediately after an IPO. Also Investors should stick with it, however, remember that many IPOs are heavily marketed, past company performance is no guarantee of future results, and potential risks may be underestimated.)
Prestige intends to raise gross proceeds of US$15 million from an initial public offering of its common shares and is offering 2.5 million shares at a proposed mid-market price of US$6.00.
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 $50.8 million, excluding the impact of underwriters’ over-allotment options.
The free float to outstanding share ratio (excluding over-allotments by underwriters) will be approximately 23.81%. 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:
Proposed use of IPO proceeds (SEC EDGAR)
Management’s presentation of the company’s roadshow is not available.
With respect to pending litigation, management said that the Company and its subsidiaries are not currently involved in any litigation that would materially adversely affect its financial condition or operations.
The sole public bookrunner for the IPO is Network 1 Financial Securities.
How to invest in the company’s stock: 7 steps
Investors can purchase shares of the stock in the same manner as shares of other publicly traded companies or as part of the pre-IPO allotment.
Note: This report is not a recommendation to buy stocks or other securities. For investors interested in making a potential investment after the IPO closes, the following steps to buying shares will be helpful.
Step 1: Understand the financial history of the company
Although not much public financial information is available about the company, investors can view the company’s financial history on its Form S-1 or F-1 with the SEC (source).
Step 2: Evaluate the company’s financial statements
The primary financial statements available for publicly traded companies include the income statement, balance sheet, and cash flow statement. These financial statements can help investors understand a company’s cash capitalization structure, cash flow trends, and financial condition.
My summary of the company’s recent financial results is below:
The company’s financials show lower sales, lower gross profit, increasing operating profit and growing cash flow from operations.
Free cash flow for the twelve months ended March 31, 2022 was $824,606.
Selling, general and administrative expenses as a percentage of total sales varied with fluctuations in sales; its Sell, G&A efficiency multiple fell to negative (2.7x) over the last reporting period.
The company currently plans not to pay dividends going forward and to retain all future profits to reinvest in the company’s growth plans.
In March 2021, the company paid a one-time dividend of $3.5 million to existing shareholders.
Step 3: Evaluate the company’s potential against your investment horizon
When investors evaluate potential stocks to buy, it’s important to consider their time horizon and risk tolerance before buying stocks. For example, a swing trader might be interested in short-term growth potential, while a long-term investor might prioritize strong financials over short-term price movements.
Step 4: Choose a brokerage
Investors who do not already have a trading account start by choosing a brokerage firm. Account types commonly used for trading stocks include a standard brokerage account or a retirement account like an IRA.
Investors who prefer fee-based advice can open a trading account with a full-service broker or independent investment advisor, and those looking to manage their portfolio at a reduced cost can opt for a discount brokerage firm.
Step 5: Choose an investment size and strategy
Investors who have decided to buy shares in the company should consider how many shares they want to buy and what investment strategy they want to adopt for their new position. The investment strategy determines an investor’s holding period and exit strategy.
Many investors choose to buy stocks and hold them for an extended period of time. Examples of basic investment strategies are swing trading, short-term trading, or investing over a long-term holding period.
Investors wishing to receive an allocation of shares at the IPO price prior to the IPO would “express interest” to their broker prior to the IPO. Declaring an interest is not a guarantee that the investor will receive an allocation of shares prior to the IPO.
Step 6: Choose an order type
Investors have many ways of placing orders to buy stocks, including market orders, limit orders, and stop orders.
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Market Order: This is the most common type of order filled by retail traders. A market order executes a trade immediately at the best available transaction price.
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Limit Order: When an investor places a buy limit order, they set a maximum price to be paid for the shares.
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Stop Order: A buy stop order is an order to buy at a specific price, known as the stop price, which will be higher than the current market price. In the case of buy stop, the stop price is lower than the current market price.
Step 7: Submit the trade
After investors fund their account with cash, they can set an investment size and order type, and then submit the trade to place an order. If the trade is a market order, it will be executed immediately at the best available market price.
However, when investors place a limit order or stop order, the investor may have to wait for the stock to reach its target price or stop-loss price for the trade to complete.
The final result
PWM is seeking public investment capital in the US to fund its general corporate expansion initiatives.
The wealth and wealth management market opportunity in China is large and likely to increase in the coming years, although pinpointing a potential growth rate is difficult.
Like other companies with Chinese operations looking to enter US markets, the company operates within a WFOE structure, or a wholly foreign-owned entity. US investors would only have an interest in an offshore company with interests in operating subsidiaries, some of which may be located in the PRC. In addition, there may be restrictions on the transfer of funds between subsidiaries within China.
The Chinese government’s recent crackdown on IPO candidates, coupled with additional reporting and disclosure requirements from the US, has put a serious damper on Chinese or related IPOs, resulting in generally poor post-IPO performance.
Also, a potential significant risk to the company’s prospects is the uncertain future status of Chinese company stocks in relation to the US HFCA law, which requires delisting if the company’s auditors fail to make their working papers available for PCAOB review.
Prospective investors are well advised to consider the potential impact of specific laws relating to profit repatriation and changing or unpredictable Chinese regulatory decisions that may affect such companies and US stock listings.
In addition, the post-IPO disclosures from management of smaller Chinese companies that have become public in the US have been patchy and superficial, indicating a lack of interest in communicating with shareholders and only the bare minimum required by the SEC and a whole another approach to keeping shareholders informed about management’s priorities.
Network 1 Financial Securities is the lead underwriter and IPOs led by the firm over the past 12 months have generated an average return of 75.7% since going public. This is a peak performance for all major underwriters over the period.
The main risk to the company’s prospects as a public company is its tiny size compared to its main rivals and poor performance in recent periods.
As for valuation, management is asking investors to pay an enterprise value/revenue multiple of 25.7x, an extremely high multiple even if the company grew revenue.
Given the company’s falling earnings, extremely high valuation expectations, and regulatory risks as a Chinese company, I’m keeping my IPO outlook on hold, although day traders may be attracted by the stock’s low notional price at the IPO.
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