VinFast Auto Targets US IPO for International Expansion (VFS)

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A quick look at VinFast Auto Ltd.

VinFast Auto Ltd. (VFS) has requested to raise an undisclosed amount in an initial public offering of its common stock, according to an F-1 registration statement.

The company manufactures electrical Vehicles for different use cases of e-mobility.

VFS is looking to expand into North America and Europe, where the company has little brand awareness and little sales presence.

I will provide an update when we get more details on 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 led by Global CEO Ms. Le Thi Thu Thuy, who was previously Vice President at Lehman Brothers in Japan, Thailand and Singapore until 2008.

Management plans to sell its electric SUV range in key global markets, including the United States, Canada and Europe, as well as Vietnam.

As of September 30, 2022, VinFast has received advice from investors such as Vingroup, VIG and Asian Star Trading & Investments Pte. Invested $301 million in equity and $2.5 billion in debt at fair market value. GmbH.

VinFast – customer acquisition

The Company plans to target a variety of demographics in key markets through the VinFast showrooms.

The company will offer different types of purchase, lease or subscription of automobiles or battery technologies.

Selling and distribution expenses as a percentage of total revenue have increased significantly as revenue has fluctuated, as shown in the following figures:

Sales & Distribution	Expenses vs. Income
Period	percentage
Nine Mo. Ends September 30, 2022	32.0%
2021	13.7%
2020	9.8%

click to enlarge

(Source – SEC)

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

Sales & Distribution	efficiency rate
Period	Several
Nine Mo. Ends September 30, 2022	-0.2
2021	1.0

click to enlarge

(Source – SEC)

Market & Competition of VinFast

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

This equates to a projected CAGR of 25.1% from 2021 to 2030.

The main drivers for this expected growth are improved vehicle drivability, lower energy consumption, reduced noise and lower maintenance requirements.

In addition, consumers are becoming more environmentally conscious and charging networks are becoming larger and more ubiquitous, making EV ownership more convenient.

Key contestants or other industry participants include:

• BMW Group (OTCPK:BMWYY)

• BYD Company (OTCPK:BYDDY)

• Daimler (OTCPK:DTRUY)

• Ford Motor Company (F)

• Group Renault (OTCPK:RNSDF)

• Honda engine (HMC)

• Kia Corporation

• Tata Motors (TTM)

• Tesla (TSLA)

• Volkswagen (OTCPK:VLKAF)

• Volvo Car Corporation (OTCPK:VLVOF)

• Other

VinFast Auto Ltd. financial performance

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

• Variable turnover

• High gross loss and negative gross margin

• Increasing operating losses

• Growing cash used in operations

The following are relevant financial results arising from the company’s registration statement:

total revenue
Period	total revenue	% variance vs. before
Nine Mo. Ends 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. before
Nine Mo. Ends September 30, 2022	$(358,900,000)	31.7%
2021	$(387,300,000)	37.7%
2020	$(281,194,200)
gross margin
Period	gross margin
Nine Mo. Ends September 30, 2022	-81.68%
2021	-57.75%
2020	-48.90%
Operating Profit (Loss)
Period	Operating Profit (Loss)	operating margin
Nine Mo. Ends 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 Mo. Ends 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 Mo. Ends September 30, 2022	$(1,068,148,590)
2021	$(1,212,095,731)
2020	$(392,664,972)
(Glossary of terms)

click to enlarge

(Source – SEC)

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

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

VinFast Auto Ltd. IPO details

VinFast intends to raise undisclosed gross proceeds from an initial public offering of its common stock, although the target amount could be in excess of $1 billion.

No existing shareholder has expressed an interest in buying 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 some or all of the remaining outstanding stock purchase P-Notes issued in connection with the restructuring, depending on the size of the offering. As of the date of this prospectus, the outstanding amount 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 as well as expansion of sales channels

Investments in the development of our production facilities

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

(Source – SEC)

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

With respect to pending litigation, management says the Company 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 on VinFast’s IPO

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

The company’s financials show high but volatile revenues, significant gross losses and negative gross margin, growing operating losses and increasing cash burn.

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

Selling and distribution expenses as a percentage of total revenue have increased significantly as revenue has grown; The Selling & Distribution efficiency factor fell to negative (0.2x) in the last reporting period.

The company currently plans not to pay dividends and to retain future profits for reinvestment in the company’s operating and growth initiatives.

VinFast’s trailing 12-month investment ratio was negative (2.19), indicating that the company has spent heavily on capital expenditures despite significant operating cash usage.

The market opportunity for electric SUVs is large and is expected to grow significantly in the coming years as more and more people seek electric vehicles for their various advantages, thus the company is benefiting from positive industry dynamics.

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

Citigroup is the lead underwriter and there is no performance data on IPOs led by the firm in the past 12 months.

Risks to the company’s prospects as a public company include the need to establish a significant retail presence in key markets and the need for large amounts of expansion capital to do so.

Also, the company does not have an international profile, so generating significant revenue growth outside of Asia can be very time consuming and costly.

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

Estimated IPO Price Date: To be announced.