GMT EIGHT - New Share

US stock market preview | Aucma Holdings: Industry "price war" in full swing, new energy car 4S stores struggling to hide performance decline

In the process of the comprehensive transition to new energy vehicles in the Chinese automotive market, car dealers are also actively moving towards new energy vehicles. Looking at the overall situation of the Chinese automotive dealer industry, 3458 new stores were opened in the industry in 2023, with 50% of them being new energy vehicles. With the new industry trend, it is expected that new players will emerge and potentially seize opportunities, with Orchid Holdings possibly being one of them. On September 6, Chinese electric vehicle retailer Orchid Holdings submitted an initial public offering (IPO) application to the U.S. Securities and Exchange Commission (SEC), planning to raise up to $6 million. The company plans to issue 1.3 million shares of stock at a price of $4 to $6 per share, raising $6 million. At the midpoint of the proposed price range, Orchid Holdings' market value will reach $176 million. Revenue decrease Loss expansion The prospectus shows that Orchid Holdings was established in 2013 and is a passenger electric vehicle (EV) retailer and comprehensive automotive service supplier from Hainan. Hainan Province was the first province in China to propose a timetable to "ban the sale of fuel vehicles" by 2030. With favorable policies from the local government to promote electric vehicles, Orchid Holdings strategically focuses on the sales and services of electric vehicles rather than internal combustion engine vehicles (ICEVs). As of March 31, 2024, Orchid Holdings operated four dealerships, selling a variety of popular domestic electric vehicles including Geely, Ora, Chery, GAC, Wenjie, Zero Run, and Jetour. Orchid Holdings has also recently started selling some international brand electric vehicles, including Smart, Volkswagen, Volvo, and Kia. According to the Hainan Province Commerce Department, in 2022, Orchid Strong Victories Automotive Sales Service Co., Ltd., a subsidiary of the company, was ranked among the top twenty car dealers in Hainan Province. Its subsidiary, Hainan Blue Sky Automotive Management Co., Ltd., was awarded the 2022 Hainan Province Automobile Distribution Industry (Passenger Car) Top Ten Distributors by the Hainan Automobile Circulation Association. As electric vehicles become more popular in Hainan, the company plans to build battery swapping stations in Sanya and expand its new energy vehicle charging pile business across the island. In terms of performance, in the past fiscal years 2022, 2023, and the first half of 2024 (with the fiscal year ending on September 30 each year) (referred to as the "reporting period"), Orchid Holdings' revenues were $76.9489 million, $68.1336 million, and $33.1897 million, respectively. Net profits were $0.9496 million, -$0.0078 million, and -$0.3994 million, respectively. In summary, Orchid Holdings' revenue declined while losses gradually expanded during the reporting period. In terms of revenue sources, car sales revenue during the period were $72.571 million, $64.805 million, and $31.242 million, accounting for 94.3%, 95.1%, and 94.1% of total revenue, respectively; automotive parts, repair, and maintenance services revenue were $2.435 million, $1.977 million, and $1.122 million, accounting for 3.2%, 2.9%, and 3.4% of total revenue, respectively; financial services revenue were $0.584 million, $0.556 million, and $0.430 million, accounting for less than 1% of total revenue for each period. In summary, the decline in company performance is related to the downturn in car sales business. During the reporting period, new car sales were 4,659 units, 3,661 units, and 1,358 units, showing a significant decline. Orchid Holdings stated that in 2023, there was an oversupply of electric vehicles in the market, leading to significant downward pressure on the company's electric vehicle retail prices. Additionally, some competitors drastically lowered their prices to compete for market share, resulting in a loss of market share for the company. Price reductions led to a decline in Orchid Holdings' profitability, with gross profit margins of 9%, 7%, and 5% during the reporting period. Additionally, the company's liquidity also raised concerns. Operating cash flow was negative at -$0.916 million, -$0.974 million, and -0.662 million during the reporting period, and cash balances at the end of each period fluctuated. Industry price wars are intensifying Automakers offer olive branches to dealership models From what is understood, the domestic car market in China has been caught up in fierce price wars, leading to a dire situation for car dealers. According to the latest report released by the China Automobile Dealers Association on the survival of car dealers in the first half of 2024, the proportion of dealerships facing losses reached 50.8%, which was significantly larger compared to the same period last year. The average gross profit per store experienced a significant decrease year-on-year, especially in new car business, with an average loss of 1.78 million yuan per store and a decline in new car profit contribution to -26.5%. Under the shadow of the industry, Orchid Holdings naturally faced challenges as well. Fortunately, automakers have stepped up their support for dealership models in the face of industry challenges. For example, in June, BYD Company Limited and its brands Tang Shi and Fang Cheng Bao announced the launch of the first batch of dealership partnerships open to the public. This means that besides the top brand, BYD Company Limited is adopting a dealership+direct sales channel model. In May, Chang'an Avita opted for a full transition from direct sales to dealership model, and the company also tried to ensure that dealers absorb all direct sales staff. New energy car companies are also not sitting back. After the launch of its sub-brand Le Dao, NIO announced its channel plan, which differs from the direct sales model of the main NIO brand. Le Dao plans to introduce dealers and establish separate stores, and has even reached out to some leading dealer groups in China. Additionally, companies like Xiaopeng, Zero Run, Jike, and Zhiji are constantly adjusting the balance between direct sales stores and dealerships, accelerating the layout of dealership networks. For example, Xiaopeng's "Jupiter Plan" aims to gradually replace the direct sales model with a dealership model; Jike is increasing the proportion of authorized dealership stores and collaborating with some dealers under Geely's Lynk & Co brand. It can be seen that the "olive branches" extended by the automakers are like a lifeline for the struggling 4S stores. For Orchid Holdings, this is undoubtedly a positive development. After allThe Chinese electric vehicle market is currently in the stage of accelerated penetration, and dealers' market share is expected to continue to grow with the increased efforts of car manufacturers.According to the China Association of Automobile Manufacturers (CAAM), in 2015, the total sales of automobiles in China were 24.6 million units, with a total sales of electric vehicles at 331,100 units. The penetration rate was only 1.35%. By 2022 and 2023, the penetration rate of electric vehicles in China is expected to reach 25.64% and 31.56% respectively. According to the data from the China Passenger Car Association (CPCA), in the first half of 2024, the cumulative sales of electric vehicles increased by 37.2% compared to the previous year. According to the data published by China Automobile Dealers Association, as of the end of 2023, there were 33,779 4S dealerships in China, with an annual growth rate of 0.6%. Domestic brands have shown significant growth of over 60%. Among the new dealerships opened by Chinese people, domestic brands such as Changan, BYD Company Limited, Chery, Aion, and Xiaopeng continue to expand their networks. NAMMI, HYPTEC, Chery iCAR, and BYD Company Limited's Fangchengbao have also achieved growth through the 4S dealership network. With this listing, Ochun Holdings plans to use the funds to expand its new energy vehicle-related businesses, including building battery swapping stations and charging pile networks, in order to seize the growth dividend of new energy vehicle dealers. In conclusion, under the industry price war, Ochun Holdings is facing a decline in revenue and an expansion of losses. However, as car companies layout dealership models and domestic brand dealerships significantly grow, jointly expanding the market for new energy vehicle dealers, Ochun Holdings is attempting to expand its related businesses through listing financing to enjoy the market growth dividend.

13/09/2024

Interpreting new stocks in the US Stock Market | Deterioration in fundamentals, cold response to listing in the US, Funxing Group (FFFZ.US) significantly reduces fundraising amount.

Having many well-known brand clients including Anta, Fujian Septwolves Industry, LI NING, 361, SAMSONITE, and Arctic China, the Fu Xing Group, with a total customer base of over 1600, faced a cold reception when it went public in the United States. On April 2, as the fourth largest zipper manufacturer in mainland China, Fu Xing Group submitted its public offering prospectus to the SEC for the first time, seeking to list on the NASDAQ under the code "FFFZ". At this time, it planned to issue 2 million shares of common stock at a price of 4-4.5 USD per share, raising up to 9 million USD. Based on the midpoint of the proposed offering price range, Fu Xing Group's market value would reach approximately 82 million USD. By September 9, Fu Xing Group had updated its prospectus for the third time, but the company's valuation experienced a drastic decline. In the latest prospectus, Fu Xing Group indicated that it would issue 1 million ADS at a price of 4-6 USD per ADS, raising up to 6 million USD. After the issuance of 1 million ADS, the corresponding public ownership percentage would be as high as 53.76%, meaning that if calculated at a median offering price of 5 USD, Fu Xing Group's market value had significantly decreased to approximately 9.3 million USD. The valuation for listing plummeted from 82 million USD to about 9.3 million USD. Why did Fu Xing Group's valuation change so drastically? And what signal does the fact that Fu Xing Group is issuing a high percentage of shares (53.76%) for its US listing send? Decline in revenue and profit, high dependence on subsidies Established in 1993, the Fu Xing Group has been deeply rooted in the zipper industry for over thirty years, and after years of development, it has established a complete business portfolio from zipper production to processing and sales. According to the Euromonitor report (2023 edition), based on the 2021 sales volume, Fu Xing Group has become the fourth largest zipper manufacturer in mainland China. In terms of business types, Fu Xing Group has three main sources of revenue, namely zipper products, trade in textile raw materials, and zipper processing services. In the 2024 fiscal year (end of 12 months on March 31), revenues from these three main businesses accounted for 54.1%, 37.9%, and 8% respectively. Clearly, zipper products are the core business of Fu Xing Group, consisting mainly of zipper sliders and zipper chains, widely used in clothing, shoes, camping equipment, luggage, such as handbags, briefcases, suitcases, and laptop bags, as well as indoor decorative furniture, such as bedding and sofa covers. From a customer perspective, with years of market reputation, Fu Xing Group has accumulated a wide customer base, with a total of over 1600 customers, including well-known brands such as Anta, Fujian Septwolves Industry, LI NING, 361, SAMSONITE, and Arctic China. In terms of market region, Fu Xing Group's revenue mainly comes from mainland China, with 62.1% of revenue in the 2024 fiscal year (end of 12 months on March 31) coming from mainland China, while the remaining 37.9% comes from Hong Kong, where traders export their products globally. In terms of performance, Fu Xing Group did not perform well in the 2024 fiscal year. During the reporting period, its revenue declined by 12% to 106 million USD, and its net profit declined by 34% to 1.056 million USD, showing a situation of declining revenue and profits. Specifically, the decline in revenue was mainly due to the global economic slowdown, declining customer demand, and the subsequent deterioration of the domestic zipper market competition, resulting in a significant contraction of Fu Xing Group's three main business sectors. Among them, revenue from zipper products decreased by 11%, revenue from the trade of textile raw materials decreased by 14.2%, and revenue from zipper processing services decreased by 7.4%. In terms of market region, revenue from the mainland China market decreased by 10.6% year-on-year, while revenue from Hong Kong decreased by 14.2%. Obviously, overseas demand decreased faster than domestic demand. Although revenue declined, the gross profit margin of Fu Xing Group remained stable at 6.1%. At the same time, the company increased efforts to reduce operating expenses, resulting in a 13% decrease in total operating expenses. This led to Fu Xing Group's operating income increasing by 116% year-on-year to 292,000 USD, but due to a 36% decrease in other income, Fu Xing Group's net profit declined by 34% during the period. It appears that Fu Xing Group's profitability is not actually high, and other income is one of the core factors supporting its net profit. During the reporting period, Fu Xing Group's other income was 7.205 million USD, most of which were government subsidy income, indicating that Fu Xing Group's profitability is closely related to government subsidy income. Looking at the balance sheet, as the company's business continued to decline, Fu Xing Group reduced its debt levels. In the 2023 fiscal year, Fu Xing Group's debt-to-asset ratio was 36.67%, while in the 2024 fiscal year, this indicator decreased by over 4 percentage points to 32.18%, putting the overall debt ratio at a relatively reasonable level. Multiple challenges putting pressure on fundamentals From the perspective of market demand, Fu Xing Group's business operations will continue to be affected by sustained low demand. Although the Euromonitor report (2023 edition) indicated that the global clothing market experienced fluctuations over the past five years (2018 to 2022), with a slight contraction, there is expected to be a noticeable recovery in the global clothing market from 2023-2027 as the global economy picks up, with an annual compound growth rate expected to reach 4.9%. However, based on the current industry situation, the Euromonitor report seems to have overestimated the resilience of the global economy, as the global clothing market industry has not recovered, and there is even a trend of further decline in demand. In such market conditions, zipper companies often face more severe challenges, as the competition in the zipper industry is particularly fierce. According to statistics from the China Zipper Association, there are approximately 2000 zipper manufacturers in mainland China. due to the lack of significant competitive barriers, once market demand declines, competition between companies can quickly deteriorate, and there is even a possibility of price wars. In the company's performance for the 2024 fiscal year, Fu Xing Group has clearly indicated the deterioration of the domestic zipper market, as well as the relationship between the company's net profit and government subsidies.Bigger, also proves the severity of industry competition, as the fourth largest zipper manufacturer in the country, Fuxing Group still faces the challenge of worsening demand and intensifying market competition.In addition, high customer concentration is also one of the potential challenges for Fuxing Group. According to the prospectus, in the 2023 fiscal year, the revenue from the top three customers of Fuxing Group accounted for 16%, 14%, and 15% respectively, while in the 2024 fiscal year, the four top customers accounted for 16%, 13%, 11%, and 11% of the company's total revenue, totaling up to 51%. With such high customer concentration, the loss of a single customer could have a significant impact on the performance of Fuxing Group. Overall, in addition to having a certain advantage in market position, Fuxing Group faces significant pressure in terms of its fundamentals. The company not only needs to address challenges such as low demand, intensified competition, and high customer concentration, but also the over-reliance on subsidies for profitability is a negative factor. Only when global economic recovery brings about a resurgence in demand, can the fundamentals of Fuxing Group potentially improve. It is worth noting that Fuxing Group actually went public on the Singapore main board as early as 2007, with the code "AWK". This current IPO in the US is Fuxing Group's second time entering the capital market. Data shows that as of September 6th, Fuxing Group's market value in Singapore is approximately 8 million US dollars.

12/09/2024

XunChong Technology (XCH.US) successfully listed on Nasdaq, with its stock surging nearly 80% on the first day of trading.

Chinese electric vehicle charging company XCH.US successfully listed on the Nasdaq in the United States on Tuesday. The company issued 3.3 million American depositary shares at a price of $6.20 per share, close to the lower end of the previously priced range of $6-8 per share, raising $20.7 million. On the first day of trading, the stock price surged nearly 80% at one point, triggering a circuit breaker. By the close of trading, the stock had risen about 19% to $7.36. XCH.US is headquartered in Beijing, China, with significant operations in Hamburg, Germany. It combines proprietary charging technology, energy storage technology, and support services to provide comprehensive electric vehicle charging solutions. Its products mainly include the C6 series and C7 series of DC fast chargers, as well as the Net Zero Series (NZS) advanced battery integrated DC fast chargers. Founded in 2015, XCH.US had revenue of $42 million for the 12 months ending on March 31, 2024. UP Fintech Holding Ltd. Sponsored ADR Class A is the sole book-running manager for this transaction.

11/09/2024

Biya International (BIYA.US) lowers IPO size, fundraising amount to decrease by 17% to raise $13 million.

Human resources platform Biya International (BIYA.US), headquartered in Dongguan, China, announced on Tuesday that it is adjusting its upcoming initial public offering (IPO) plan. The company has decided to lower the proposed transaction size and introduce Cathay Securities as a new underwriter. It is understood that the company focuses on connecting enterprises and blue-collar human resources agencies. Biya International currently plans to issue 2.5 million shares of stock at a price of $4 to $6 per share, aiming to raise approximately $13 million. Previously, the company had applied to issue 3 million shares of stock in the same price range. Based on the revised price range midpoint calculation, Biya International's fundraising amount is expected to decrease by 17% from earlier expectations, with an estimated market value of $62.5 million. Through its operating subsidiary "Gongwu Garden", Biya International provides a range of services including job matching, recruitment, project outsourcing, and labor dispatch. The company's business scope covers 5 provinces and 30 cities in China, with a focus on the Pearl River Delta and Yangtze River Delta regions. Since its establishment in 2017, Biya International has achieved significant growth. In the past 12 months leading up to December 31, 2023, the company's sales reached $12 million. Biya International plans to list on the NASDAQ with the stock symbol BIYA. The joint bookrunners for this IPO are Cathay Securities and Revere Securities.

11/09/2024

Chinese electric vehicle retailer O'Chung Holdings (ANE.US) prices IPO at $4-6 per share, aiming to raise $6 million.

Chinese electric vehicle retailer Hainan Aochuang New Energy Development Co., Ltd. (hereinafter referred to as Aochuang Holdings) submitted an initial public offering (IPO) application to the U.S. Securities and Exchange Commission (SEC) last Friday, planning to raise up to $6 million. The company plans to issue 1.3 million shares at a price of $4 to $6 per share, raising $6 million. Based on the midpoint of the proposed price range, Aochuang Holdings' market value will reach $176 million. Aochuang Holdings, a comprehensive automotive service provider, operates four full-service electric vehicle (EV) dealerships in Haikou, covering various aspects of the electric vehicle lifecycle, including new car sales, maintenance and after-sales services, as well as automotive-related financial and insurance solutions. It has dealership agreements with Chinese electric vehicle manufacturers to offer a diverse product lineup of popular brands such as Geely Geometry, Ora, Chery New Energy, and GAC Trumpchi. Headquartered in Haikou, China, Aochuang Holdings was established in 2013 and reported revenues of $67 million in the 12 months ending March 31, 2024. The company plans to list on the Nasdaq with the stock symbol ANE. Aochuang Holdings secretly filed on March 29, 2024. EF Hutton is the sole bookrunner for the transaction.

09/09/2024

Anlin Finance and Economics Printing (PMAX.US) IPO prices at $4 per share, closing at par on its first day of trading.

The Hong Kong financial communications company Anlin Financial Printing (PMAX.US) issued 1.43 million shares of stock at a price of $4 per share (the low end of the $4-6 range), raising $5.7 million. The company had originally applied to issue 1.65 million shares. Anlin Financial Printing was listed on Nasdaq on Thursday, reaching a high of $4.70 during the day and closing at $4.00. However, the stock rose 5.75% in after-hours trading on Thursday, reaching $4.23. Anlin Financial Printing was established in 2019 and primarily provides financial communication services to corporate clients and their advisers in Hong Kong to support compliance and trading needs in the capital markets. Its clients include both domestic and foreign companies listed on the Hong Kong Stock Exchange, as well as companies and their advisers seeking to list on the exchange. WallachBeth Capital served as the sole book-running manager for this transaction.

06/09/2024

Hong Kong shipping agency service company Tianci International (CIIT.US) filed for listing on Nasdaq, intending to raise $10 million through IPO.

Global logistics company Tianci International, which provides sea freight agency services, announced its terms for listing on the Nasdaq on Thursday. The company initially submitted its application in June 2024 but did not meet the minimum market value requirement of $50 million; it currently trades on the OTC market under the ticker symbol "CIIT." The Hong Kong-based company plans to issue 2.2 million shares at a price of $4 to $5 per share, raising $10 million. Based on the midpoint of the proposed issuance price range, the company's market value will reach $76 million. Operating under the name Roshing International, the company leases cargo space from shipping suppliers and provides customized logistics services to meet the needs of various clients. While the business is predominantly focused in the Asia-Pacific region, Roshing International is also expanding its transportation services to African countries. The company's services cover the entire transportation process, from initial customer consultation and route optimization to contract management, risk assessment, and cargo tracking. In addition to its core logistics business, the company generates revenue from selling electronic components (primarily hardware components of electronic devices) and provides software technology services and business consulting services, including assistance with visa applications. Tianci International was established in 2011 and had revenues of $6 million for the 12 months ending April 30, 2024. The company plans to list on the Nasdaq under the ticker symbol CIIT. Benjamin Securities is the sole book-running manager for this transaction.

06/09/2024

Hong Kong clothing supplier 707 Cayman Holdings (MKR.US) is planning to go public in the United States, intending to raise approximately 11 million US dollars.

Hong Kong-based clothing and supply chain management solutions provider 707 Cayman Holdings submitted an application to the Securities and Exchange Commission (SEC) on Thursday, planning to raise up to $11 million in funding through an initial public offering (IPO). This Hong Kong-based company plans to raise approximately $11 million by issuing 2.5 million shares of stock at a price range of $4 to $5 per share. At the midpoint of the proposed price range, 707 Cayman Holdings' valuation will be approximately $99 million. 707 Cayman Holdings provides a range of services to numerous clothing brands, including market trend analysis, design and product development strategies, procurement, production management, quality control, and logistics, focusing on clients in Western Europe, North America, and the Middle East. The company does not produce its own branded products but chooses to collaborate with third-party manufacturers, primarily located in China and Vietnam. Founded in 2021, the company had revenue of approximately $10 million in the 12 months ending March 31, 2024. The company plans to list on the Nasdaq stock market under the symbol "MKR." Bancroft Capital is the sole bookrunner for this transaction.

06/09/2024

Cardiovascular pharmaceutical company Medera will go public in the US through a reverse merger, with a valuation exceeding $600 million.

Cardiovascular disease treatment drug development company Medera Inc. has reached an agreement with Special Purpose Acquisition Company (SPAC) Keen Vision Acquisition Corp. (KVAC.US) to go public through a merger on the Nasdaq. According to the two companies, this transaction values Medera at $6.226 billion. Prior to shareholder redemptions, the total cash proceeds from this deal amount to approximately $1.495 billion from the SPAC's trust account. The transaction has received unanimous approval from the boards of both companies and is expected to be completed in the fourth quarter. Ronald Li, founder and CEO of Medera, stated that the company decided to go public through a SPAC rather than an initial public offering (IPO) because SPAC provided the fastest route to access the capital markets. Li said in an interview, "We both had a choice. It is very important to us that we develop our clinical assets to serve the large population." Through its Sardocor and Novoheart divisions, Medera focuses on incorporating bioengineered human tissue technology and employing a range of next-generation gene and cell-based approaches to eradicate difficult-to-treat cardiovascular diseases. Li mentioned that the company's "miniature human heart" technology allows them to test therapies using laboratory-manufactured human heart tissue, which is more accurate and less controversial than animal experiments. He stated that Medera has three gene-based therapies in clinical trials. Medera has collaborated with Astrazeneca PLC Sponsored ADR (AZN.US), the National Heart Centre Singapore, and other institutions to develop this technology. Kenneth KC Wong, Chairman and CEO of Keen Vision Acquisition, expressed that before deciding that Medera could be a good target, he explored other opportunities. Wong said, "Medera's positioning is very unique because it not only has a clinical aspect but also a technology platform." Last year, Keen Vision raised approximately $1.5 billion through its IPO, including the over-allotment of shares. Data shows that SPAC IPOs in the U.S. have only raised $34 billion in 2023 since reaching a peak of over $162 billion in 2021, marking the lowest level since 2014. SPAC merger deals also peaked in 2021 and have declined to about $60 billion this year. SPAC financing has seen a modest rebound, with IPO sizes reaching $50 billion since January 1st.

05/09/2024

These four companies, which are about to be listed on the US stock market, are worth focusing on. They may reverse the decline of Biotech IPOs.

After a series of unremarkable mergers and "broken IPOs", one of the most closely watched industries in the capital market - biotechnology, is about to see four companies make their debut on the US stock market through IPOs. These biotech companies are expected to price their IPO stocks in the coming weeks, and investors will closely watch to see if they can reignite the excitement of this industry going public. Data compiled by institutions show that this year, the majority of innovative drug developers in the US IPO market raising over $10 million have seen their stock prices struggle, with 6 out of 11 companies trading below their IPO prices, with a median decline of 45% below the IPO price. Well-known biotech companies like BioAge Labs Inc. and MBX Biosciences Inc. will seek to work with top industry bankers and legal teams to reverse the downward trend in pricing of biotech companies going public. Some bankers suggest that the market's response to the next batch of biotech companies will indicate whether other companies in the industry will be able to go public later this year or in early 2025 with investor confidence. Seo Salimi, Co-Head of Equity Capital Markets at Paul Hastings LLP, said, "For biotech companies seeking to go public on the US stock market in 2021 or 2025, the stable or significant upward trend in the stock prices of these four biotech companies planning to go public in September will have a noticeable positive impact." For companies like Bicara Therapeutics Inc. and Zenas Biopharma Inc., which have already shown concept validation data - indicating that their drugs may have significant success in later-stage clinical trials - a strong first-day performance in their IPOs will show that the market's interest in investing in early-stage drug developers is increasing. Additionally, for BioAge, it will also test market interest in investing in early-stage biotech companies focused on weight loss drugs. The dual risks surrounding the development of innovative drugs make the biotech industry a very volatile investment field. During market turbulence, versatile investors often quickly sell biotech stocks that require years of development before they can be sold as treatments. It is understood that with the unprecedented monetary policy stimulus from the US Federal Reserve in 2020 and 2021, liquidity in the market has been extremely abundant, leading to biotech companies raising approximately $46.5 billion in the past two years, even surpassing the sum of the previous eight years - a development that has surprised many non-professionals. The nature of prosperity or downturn in this industry, along with current macroeconomic and geopolitical risks, could potentially plunge the entire US IPO market into chaos, with these four pending biotech company IPOs under close scrutiny. Biotech IPO returns remain lackluster after a period of prosperity - versatile investors were shocked when they first appeared in 2020 and 2021 Data compiled by institutions shows that as of September 3, biotech companies in the industry have raised approximately $2 billion through IPOs this year, a 24% increase from the same period last year, although nearly two-thirds of the revenue was raised during the first two months of the industry's IPO boom. The data shows that in the following six months, the overall proportion of Biotech industry IPO gains in the US stock market has dropped significantly from 17% in February to 6.5%, raising funds of less than $800 million. Most new biotech startups have shown mediocre performance, a key factor leading to a significant decrease in the number of biotech companies going public, and the IPO of Alumis Inc. has faced serious challenges, with its trading price remaining below the IPO price, causing potential Biotech companies planning to go public to feel very anxious. The Nasdaq Biotech Index has risen by about 9.6% this year, thanks to the strong performance of large pharmaceutical companies like Regeneron Pharmaceuticals Inc. and Alnylam Pharmaceuticals Inc., with new biotech companies going public raising an average of over $10 million, seeing little change in stock prices and actual operations compared to their initial public offering. However, more disturbingly, four new listed companies have basically declared the end of their journey on the first day of listing. The Federal Reserve is expected to begin cutting interest rates within two weeks, which may further attract investors to focus on higher-risk biotech investment opportunities. Although lower interest rates take time to enter balance sheets, a strong performance in the market after a successful stock market debut will be crucial for private biotech companies seeking to go public in the next five months. The prospect of increased investor appetite for risk and a series of Federal Reserve interest rate cuts in September could pave the way for a strong market acceptance of the biotech companies to end the year with the DRIVE they need before the real Biotech IPO boom kicks off in 2025. "Biotech may shine in the fourth quarter of this year, and we have a very good product pipeline." said Louis Lehot, a partner at Foley & Lardner. "Investors in the biotech industry IPOs have come successively and are ready to invest larger amounts of money." The recent boost in small-cap stock valuations due to expectations of a Fed rate cut could see these four biotech IPO companies kick off one of the year's peak periods. Successful listings betting on a 100 basis point rate cut by the end of the year could boost trading prices for these new stocks. However, if the US economy overheats, and labor market conditions...The power market is resilient, and the Federal Reserve may refuse to cut rates by 50 basis points in September, instead choosing to cut rates by 25 basis points at each meeting for the rest of the year. This means there is a possibility of a 75 basis point rate cut this year instead of 100 basis points. Therefore, investors need to closely monitor economic data such as nonfarm payrolls, CPI, and core PCE that influence Federal Reserve policy decisions.If the Federal Reserve is about to cut interest rates and the US economy is resilient enough to avoid a recession, then the stock market is very likely to rotate towards small and mid-cap stocks that have been severely hit since 2022, excluding the seven major tech giants. These stocks are theoretically very sensitive to interest rate expectations, and even a small rate cut could boost their prices. With the Federal Reserve expected to start cutting rates, the performance of small and mid-cap stocks may outperform the seven major tech giants in the US. This is mainly because small and mid-cap stocks are often very sensitive to the benchmark interest rates set by the Federal Reserve. They rely heavily on floating rate loans, so a rate cut would reduce their long-standing debt pressure and potentially increase profit margins. Against the backdrop of the Federal Reserve's expected rate cuts this year, the classic rotation rally of small and mid-cap stocks or the trend of profit recovery in small and mid-cap stocks may become evident, driving funds towards small and mid-cap stocks that benefit from rate cuts and have very low prices, rather than the tech giants whose valuations are at historical highs. Investors will become, in a general sense, "comparative shoppers", comparing and selecting among different options.

05/09/2024

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