A Quick Take On Oriental Rise Holdings Limited
Oriental Rise Holdings Limited (ORIS) has filed to raise $12 million in an IPO of its ordinary shares, according to an SEC F-1 registration statement.
The firm provides various types of tea products to consumers in mainland China.
Oriental Rise’s top line revenue growth is slowing, and the firm is subject to many unpredictable risks in China as a result of its foreign subsidiary structure.
My outlook on the IPO is Neutral [Hold].
Oriental Rise Overview
Ningde City, China-based Oriental Rise Holdings Limited was founded to become a vertically integrated supplier of teas in the PRC, with operations covering cultivation, processing and sale of a variety of teas to wholesale distributors and retail customers.
Management is headed by Chairman and CEO Mr. Dezhi Liu, who has been with the firm since 2011 and was previously Chief of the Credit Department of the Agricultural Bank of China Zhenjiang Runzhou Branch.
The company’s primary offerings include the following:
-
Primarily processed white and black teas
-
Refined white and black tea.
ORIS derives 83.7% of its revenue from white tea products.
As of June 30, 2023, Oriental Rise has booked fair market value investment of $7.4 million from investors, including Plentiful Thriving, Affluent Kind, and Emiline Cryielle Forcade.
Oriental Rise Customer Acquisition
The firm sells most of its tea products to tea business operators who further process or package the tea products for sale to end-user businesses or individual customers.
The company’s top five customers accounted for 42% of its revenue for the six-month period ended June 30, 2023.
Selling and Distribution expenses as a percentage of total revenue have dropped as revenues have increased, as the figures below indicate:
Selling and Distribution |
Expenses vs. Revenue |
Period |
Percentage |
Six Mos. Ended June 30, 2023 |
0.2% |
2022 |
0.3% |
2021 |
0.5% |
(Source – SEC.)
The Selling and Distribution efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling and Distribution expense, has dropped to 8.3x in the most recent reporting period, as shown in the table below:
Selling and Distribution |
Efficiency Rate |
Period |
Multiple |
Six Mos. Ended June 30, 2023 |
8.3 |
2022 |
27.7 |
(Source – SEC.)
Oriental Rise’s Market & Competition
According to a 2023 market research report by imarc, the Chinese tea market was an estimated $50 billion in 2022 and is forecasted to reach $84.5 billion by 2028.
This represents a forecast CAGR (Compound Annual Growth Rate) of 9.1% from 2023 to 2028.
The main drivers for this expected growth are awareness of the health benefits of tea and tea variants, along with increasing availability via offline and online distribution channels.
Also, the Chinese government has not imposed regulatory licensing restrictions or limitations on tea exports, which is adding to market demand.
The tea production and sale market in China is highly fragmented. According to management, in 2020, the market in mainland China had over 50,000 participants, with the white tea market at 1,000 competitors.
Oriental Rise Holdings Limited Financial Performance
The company’s recent financial results can be summarized as follows:
-
Slowing growth in top line revenue
-
Increasing gross profit and growing gross margin
-
Growing operating profit
-
Higher cash flow from operations.
Below are relevant financial results derived from the firm’s registration statement:
Total Revenue |
||
Period |
Total Revenue |
% Variance vs. Prior |
Six Mos. Ended June 30, 2023 |
$ 15,071,000 |
2.1% |
2022 |
$ 24,306,000 |
8.7% |
2021 |
$ 22,368,000 |
|
Gross Profit (Loss) |
||
Period |
Gross Profit (Loss) |
% Variance vs. Prior |
Six Mos. Ended June 30, 2023 |
$ 9,193,000 |
0.8% |
2022 |
$ 12,650,000 |
10.2% |
2021 |
$ 11,481,000 |
|
Gross Margin |
||
Period |
Gross Margin |
% Variance vs. Prior |
Six Mos. Ended June 30, 2023 |
61.00% |
-0.8% |
2022 |
52.04% |
1.4% |
2021 |
51.33% |
|
Operating Profit (Loss) |
||
Period |
Operating Profit (Loss) |
Operating Margin |
Six Mos. Ended June 30, 2023 |
$ 8,441,000 |
56.0% |
2022 |
$ 11,912,000 |
49.0% |
2021 |
$ 9,480,000 |
42.4% |
Comprehensive Income (Loss) |
||
Period |
Comprehensive Income (Loss) |
Net Margin |
Six Mos. Ended June 30, 2023 |
$ 5,791,000 |
38.4% |
2022 |
$ 7,298,000 |
30.0% |
2021 |
$ 10,538,000 |
47.1% |
Cash Flow From Operations |
||
Period |
Cash Flow From Operations |
|
Six Mos. Ended June 30, 2023 |
$ 7,563,000 |
|
2022 |
$ 13,578,000 |
|
2021 |
$ 8,912,000 |
|
(Glossary Of Terms.) |
(Source – SEC.)
As of June 30, 2023, Oriental Rise had $30.8 million in cash and $4.4 million in total liabilities.
Free cash flow during the twelve months ending June 30, 2023, was $12.9 million.
Oriental Rise Holdings Limited IPO Details
Oriental Rise intends to raise $12 million in gross proceeds from an IPO of its ordinary shares, offering three million shares at a proposed price of $4.00 per share.
No existing shareholders have indicated an interest in purchasing shares at the IPO price.
Selling shareholders may offer for sale up to one million shares, potentially increasing the supply of shares on the open market.
Assuming a successful IPO, the company’s enterprise value at IPO would approximate $49.4 million, excluding the effects of underwriter over-allotment options.
The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 13.04%.
Management says it will use the net proceeds from the IPO as follows:
Management’s presentation of the company roadshow is not available.
Regarding outstanding legal proceedings, management says the firm is not subject to legal proceedings, filed or pending.
The sole listed bookrunner of the IPO is US Tiger Securities.
Valuation Metrics For Oriental Rise
Below is a table of relevant capitalization and valuation figures for the company:
Measure [TTM] |
Amount |
Market Capitalization at IPO |
$92,000,000 |
Enterprise Value |
$49,357,000 |
Price / Sales |
3.74 |
EV / Revenue |
2.01 |
EV / EBITDA |
4.32 |
Earnings Per Share |
$0.30 |
Operating Margin |
46.39% |
Net Margin |
28.15% |
Float To Outstanding Shares Ratio |
13.04% |
Proposed IPO Midpoint Price per Share |
$4.00 |
Net Free Cash Flow |
$12,886,000 |
Free Cash Flow Yield Per Share |
14.01% |
Debt / EBITDA Multiple |
0.01 |
CapEx Ratio |
8.84 |
Revenue Growth Rate |
2.08% |
(Glossary Of Terms.) |
(Source – SEC.)
Commentary About Oriental Rise’s IPO
ORIS is seeking U.S. public capital market investment for acquisition, new plant and equipment and general corporate purposes.
The firm’s financials have generated decelerating growth in topline revenue, higher gross profit and growing gross margin, increasing operating profit and greater cash flow from operations.
Free cash flow for the twelve months ending June 30, 2023, was $12.9 million.
Selling and Distribution expenses as a percentage of total revenue have dropped as revenue has increased; its Selling and Distribution efficiency multiple fell to 8.3x in the most recent reporting period.
The firm currently plans to pay no dividends and retain any future earnings for reinvestment back into the firm’s growth and working capital requirements.
Oriental Rise is subject to various restrictions from the Cayman Islands and China regarding potential dividend payments.
ORIS’ recent capital spending history indicates it has spent moderately on capital expenditures as a percentage of its operating cash flow.
The market opportunity for providing tea products in China is large and is expected to grow at a reasonably strong rate of growth in the coming years.
However, the company faces an extremely competitive and fragmented market with relatively low barriers to entry.
The firm’s growth rate appears to be slowing, and it operates within an unpredictable Chinese regulatory environment, both in terms of domestic regulations and relative to foreign stock ownership.
Were it not for its China location, the company could be an attractive investment opportunity.
However, given the risks and the generally poor post-IPO performance of Chinese companies and low nominal-priced IPOs in general, my outlook on the Oriental Rise Holdings Limited IPO is Neutral [Hold].
Expected IPO Pricing Date: To be announced.
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