ICZOOM Group Seeks US IPO Even as Chinese Listings Under Fire

Is it time for small-cap Chinese listings in New York? This electronics component retailer hopes so.
Aug. 27, 2021 21:58
ICZOOM Group Seeks US IPO Even as Chinese Listings Under Fire

Even as the fate of Chinese listings in New York is unclear, with reports surfacing that companies storing large amounts of user data may be altogether banned from U.S. IPOs, some still eye Wall Street as the destination of choice. While the flow of IPO filings from China has reduced to a drizzle, another company has filed this week, hoping to beat the odds.

ICZOOM Group Inc., based in Shenzhen, seeks to raise up to $36.7 million in an initial public offering on Nasdaq Capital Market.

ICZOOM operates through a variable interest entity (VIE) in China – Shenzhen Pai Ming Electronics Co., Ltd., which sells electronic component products to China-based small and medium-sized enterprises in the consumer electronic industry, Internet of Things (IoT), automotive electronics and industry control. A smaller portion of the company's revenues comes from services to SMEs such as temporary warehousing, logistics and shipping, and customs clearance.

Specifically, ICZOOM sells semiconductor products, such as integrated circuit, discretes, passive components, and optoelectronics at the price of up to $15 per unit. As to other electronic equipment and tools, it offers electromechanical, maintenance, repair & operations, and various design tools at up to $21 per unit, according to the filing. The majority of the products are shipped from Hong Kong, Taiwan, and overseas.

ICZOOM noted that it verifies the suppliers and the products it sells and renders them anonymous to the buyer. It also delivers real-time transaction information on its platform, now counting more than 25 million SKUs from 3,670 brands. Lastly, the company's SaaS suite optimizes the sales operations of its clients, facilitating the management of inventory, procurement, customer service, bill of material, and logistics. About 700 customers bought products on ICZOOM in the six months through December 2020 compared to 866 customers in the year ended June 2020, the prospectus said.

Revenue in the half-year through December 2020 reached $127.7 million, up 59% year-over-year, and the company turned up income of $2 million in contrast to losses in the same period of 2019. In the 12 months through June 2020, ICZOOM booked $165.2 million in revenue on income of $591,870.

The sole underwriter on the offering is Prime Number Capital, LLC. ICZOOM hopes to float its shares under the stock symbol "IZM."

It was early in July when Beijing had screwed the caps on fundraisings following a massive antitrust campaign in the independent tech sector. As a result, several companies halted their plans, including Alibaba Health-backed health tech LinkDoc Technology Ltd., Trip.com-backed Atour Lifestyle, China's top fitness app Keep, backed by Tencent, Little Red Book, and Daojia, to name a few.

Now, The Wall Street Journal reports that Beijing is preparing to ban listings overseas for "companies with large amounts of sensitive consumer data." The medium notes, citing sources familiar with the matter, that companies with "less sensitive data, such as those in the pharmaceutical industry," may still get approved to go public abroad.

Even before this began, the number of Chinese IPOs in the first half-year had exceeded the whole of 2020. After the crackdown, just Faraday Future (Nasdaq: FFIE) has managed to go public through a SPAC deal in late July and just a handful have publicly filed for a listing, ICZOOM being one them.

And perhaps small-cap companies such as ICZOOM have a chance. But uncertainty remains.

Matt Kennedy, senior IPO market strategist at Renaissance Capital, told CapitalWatch in July: "We could see a few more attempt listings. But for the most part, in order for Chinese IPOs to start up again here, U.S. investors will need much more clarity from Beijing on the regulatory side, as well as improved performance from recent U.S. IPOs."

In the head section of its preliminary prospectus, ICZOOM explicitly states: "We are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to limitation on foreign ownership of internet technology companies, regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE agreements. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard that could disallow the VIE structure, which would likely result in a material change in our operations and may cause the value of Class A ordinary shares to depreciate significantly or to become worthless."

Presumably, the section was added after the U.S. securities watchdog issued new rules in late July to reduce risks for U.S. investors. 

IZM, ICZOOM, IPO, China, Nasdaq, LincDoc, Daojia, Keep