InvestorsHub Logo
Followers 1320
Posts 26909
Boards Moderated 6
Alias Born 12/10/2012

Re: None

Tuesday, 08/23/2022 11:27:26 AM

Tuesday, August 23, 2022 11:27:26 AM

Post# of 75
$JZ: The next big CHINESE IPO........... $30MILLION Pricing

Jianzhi Education Technology Aims For $30 Million U.S. IPO
Jul. 08, 2022 1:19 PM ETJianzhi Education Technology Group Co Ltd - ADR



(JZ)FPX, FPXI, IPO, GTIP, CSD, SPAK, IPOS, FPXE, DSPC
Summary
Jianzhi Education Technology Group has filed proposed terms for a $30 million IPO.
The company provides online education content to businesses and consumers in China.
JZ is growing revenue but the firm faces regulatory uncertainty and the IPO is excessively priced, so I'm on Hold for the IPO, although it may see day-trader activity.
Looking for more investing ideas like this one? Get them exclusively at IPO Edge. Learn More »
Thai nerd male teenager studying and doing school homework with tablet for Distance learning online education - stock photo
Erdark/E+ via Getty Images

A Quick Take On Jianzhi Education Technology Group
Jianzhi Education Technology Group Co Ltd - ADR (JZ) has filed to raise $30 million in an IPO of its American Depositary Shares representing underlying ordinary shares, according to an F-1/A registration statement.

The firm provides professional training and education via its digital education content platform.

Given ongoing regulatory uncertainties and the high price of the IPO, I'm on Hold for JZ, although the stock may see high volatility from day-trader interest.

Jianzhi Education Overview
Beijing, China-based Jianzhi Education was founded to offer educational content and IT services to education institutions in China and has since expanded to focus on providing professional education content to consumers directly, focused on the Shanghai and Guangzhou provinces in Southeastern China.

Management is headed by Chief Executive Officer Yong Hu, who has been with the firm since February 2017 and was previously general manager of the Rongji Wuyi (Beijing) Information Technology Co.

The firm was founded by Chairwoman Peixuan Wang, who was previously president and chairwoman at Beijing Sentu.

Below is a graphic showing the firm's two go-to-market approaches, through businesses B2B2C and direct to consumers, or B2C:

Jianzhi Market Approach
Jianzhi Market Approach (SEC)

Jianzhi Education has booked fair market value investment of $26.8 million in equity and debt as of December 31, 2021 from investors including RongDe Holdings, ZhongSiZhiDa, RoseFinch Aquarius and Dongxing Securities (Hong Kong).

Jianzhi Education - Customer Acquisition
The firm seeks customers among businesses that use its content in their online course offerings.

JZ also markets its education content directly to consumers seeking higher education and professional level training.

The firm says it is the 7th largest digital content provider for higher education materials in China.

Sales and Marketing expenses as a percentage of total revenue have risen as revenues have increased, as the figures below indicate:

Sales & Marketing

Expenses vs. Revenue

Period

Percentage

2021

1.6%

2020

1.2%

(Source - SEC)

Jianzhi's Sales and Marketing efficiency multiple was 9.0x in the most recent year.

Jianzhi Education's Market & Competition
According to a 2019 market research report by ResearchAndMarkets, the overall Chinese education services market is forecast to reach a total value of nearly $573 billion by 2023.

This represents a forecast CAGR of 11.3% from 2018 to 2023.

The main drivers for this expected growth are rising household wealth, growing government spending on education and an increase in urban population requiring further skill development.

Also, there is a growing demand for online courses especially as a result of the pandemic and a dual-teacher model in lower-tier cities which can result in higher course completion rates and student success.

The firm faces what it calls "fierce competition" from other companies that compete on a variety of factors:

Brand awareness

Scope of online course offerings

Product pricing

Modern, interactive content

Technology support

Ease of use of courses

Expertise in sales and market

Performance track record

Jianzhi Education Financial Performance
The company's recent financial results can be summarized as follows:

Growing topline revenue

Reduced gross profit and gross margin

Lower operating profit

Increased cash flow from operations

Below are relevant financial results derived from the firm's registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

2021

$ 74,262,826

16.8%

2020

$ 63,574,317

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

2021

$ 16,350,493

-19.4%

2020

$ 20,275,269

Gross Margin

Period

Gross Margin

2021

22.02%

2020

31.89%

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

2021

$ 7,969,550

10.7%

2020

$ 12,948,028

20.4%

Comprehensive Income (Loss)

Period

Comprehensive Income (Loss)

Net Margin

2021

$ 7,605,964

10.2%

2020

$ 12,919,296

17.4%

Cash Flow From Operations

Period

Cash Flow From Operations

2021

$ 23,188,898

2020

$ 15,347,297

(Glossary Of Terms)

(Source - SEC)

As of December 31, 2021, Jianzhi Education had $9.6 million in cash and $69.2 million in total liabilities.

Free cash flow during the twelve months ended December 31, 2021, was $23.2 million.

Jianzhi Education Technology Group Company IPO Details
Jianzhi Education intends to raise $30 million in gross proceeds from an IPO of its American Depositary Shares representing underlying ordinary shares, offering 5 million ADSs at a proposed midpoint price of $6.00 per ADS.

No existing shareholders have indicated an interest to purchase shares at the IPO price.

Assuming a successful IPO, the company's enterprise value at IPO would approximate $337 million, excluding the effects of underwriter over-allotment options.

The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 8.26%. A figure under 10% is generally considered a 'low float' stock which can be subject to significant price volatility.

Management says it will use the net proceeds from the IPO as follows:

Approximately 50.0% expected to be used for developing and producing new educational content and purchase educational content from third parties. In particular, approximately 35.0% will be used to develop and produce new educational content in-house or through commissioning third party enterprises and institutions and approximately 15.0% will be used to purchase educational content from third party enterprises and institutions.

Approximately 25.0% is expected to be used for research and development expenditures in product developing and technology capabilities;

Approximately 10.0% is expected to be used primarily for sales and marketing and customer service activities;

Approximately 10.0% is expected to be used primarily for working capital, such as potential acquisitions and strategic investments, although we have not identified any specific acquisition or investment target; and

Approximately 5.0% is expected to be used primarily for other general corporate purposes.

(Source - SEC)

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

Regarding outstanding legal proceedings, management does not believe any legal claims would have a material adverse effect on its financial condition or operations.

The listed bookrunners of the IPO are AMTD and Univest Securities.

Valuation Metrics For Jianzhi Education
Below is a table of relevant capitalization and valuation figures for the company:

Measure [TTM]

Amount

Market Capitalization at IPO

$363,330,000

Enterprise Value

$337,430,000

Price / Sales

4.89

EV / Revenue

4.54

EV / EBITDA

42.34

Earnings Per Share

$0.12

Operating Margin

10.73%

Net Margin

10.24%

Float To Outstanding Shares Ratio

8.26%

Proposed IPO Midpoint Price per Share

$6.00

Net Free Cash Flow

$23,176,928

Free Cash Flow Yield Per Share

6.38%

Debt / EBITDA Multiple

0.00

CapEx Ratio

1,937.25

Revenue Growth Rate

16.81%

(Glossary Of Terms)

(Source - SEC)

Commentary About Jianzhi Education's IPO
JZ is seeking U.S. public market investment to fund its internal growth initiatives.

The firm's financials generated increasing topline revenue, lowered gross profit and gross margin, reduced operating profit but higher cash flow from operations.

Free cash flow for the twelve months ended December 31, 2021, was $23.2 million.

Sales and Marketing expenses as a percentage of total revenue have risen slightly as revenue has increased; its Sales and Marketing efficiency multiple was 9.0x in the most recent year.

The firm currently plans to pay no dividends and in the near term plans to reinvest any future earnings back into the company's growth initiatives.

The company's CapEx Ratio is quite high, which indicates it is spending very little on capital expenditures as a percentage of its operating cash flow.

The market opportunity for providing online education to Chinese students is quite large and expected to grow at an elevated rate of growth in the coming years, especially as major events such as the COVID-19 pandemic push consumers toward online learning.

Like other Chinese firms seeking to tap U.S. markets, the firm operates within a VIE structure or Variable Interest Entity. U.S. investors would only have an interest in an offshore firm with contractual rights to the firm's operational results but would not own the underlying assets.

This is a legal gray area that brings the risk of management changing the terms of the contractual agreement or the Chinese government altering the legality of such arrangements. Prospective investors in the IPO would need to factor in this important structural uncertainty.

Additionally, the Chinese government crackdown on IPO company candidates combined with added reporting requirements from the U.S. side has put a serious damper on Chinese IPOs and their post-IPO performance.

AMTD is the lead underwriter and there is no data on the firm's IPO involvement over the last 12-month period.

The primary risk to the company's outlook is the ongoing uncertainty of government regulatory activity which has whipsawed the industry in recent years.

As for valuation, compared to other online education companies from China, management is asking investors to pay far higher multiples for the stock at the IPO price.

Given ongoing regulatory uncertainties and the high price of the IPO, I'm on Hold for the JZ IPO.

Expected IPO Pricing Date: To be announced.


Gain Insight and actionable information on U.S. IPOs with IPO Edge research.

Members of IPO Edge get the latest IPO research, news, and industry analysis.

Get started with a free trial!

This article was written by

Donovan Jones profile picture
Donovan Jones
18.42K Followers
Author of
IPO Edge
Get IPO Edge with actionable research on next-generation high growth stocks
I'm the founder of IPO Edge on Seeking Alpha, a research service for investors interested in IPOs on US markets. Subscribers receive access to my proprietary research, valuation, data, commentary, opinions, and chat on U.S. IPOs. Join now to get an insider's 'edge' on new issues coming to market, both before and after the IPO. Start with a 14-day Free Trial.

Show more
Follow
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This report is intended for educational purposes only and is not financial, legal or investment advice. The information referenced or contained herein may change, be in error, become outdated and irrelevant, or removed at any time without notice. You should perform your own research for your particular financial situation before making any decisions. IPO investing can involve significant volatility and risk of loss.


Like This Article

Share

Print
Comment
Get alerts on
JZ - Jianzhi Education Technology Group Co Ltd - ADR
26 Followers
Recommended For You
Bamboo Works profile picture
Jianzhi Bets On Education Stock Renaissance With New York IPO
Bamboo Works
Donovan Jones profile picture
Starbox Group Holdings Aims For $23 Million U.S. IPO
Donovan Jones
Donovan Jones profile picture
IPO Update: GigaCloud Technology Readies $40 Million U.S. IPO
Donovan Jones
Donovan Jones profile picture
GigaCloud Technology Seeks U.S. IPO For Corporate Growth Plans
Donovan Jones
Donovan Jones profile picture
IPO Update: Nano Labs Finalizes Proposed U.S. IPO Terms
Donovan Jones
Comments
Sort byNewest

Disagree with this article? Submit your own. To report a factual error in this article,
. Your feedback matters to us!
About This Article
?
Ticker Covered
JZ
Author's rating at publication
Hold
Author's Rating History
Author's full rating history »
About JZ
1D
5D
1M
6M
1Y
5Y
10Y
Chart is not available
Market Cap
PE
Yield (TTM)
Rev Growth (YoY)
Short Interest
JZ Ratings
SA Author
Hold
3.00
Wall Street
Not Covered
-
Quant
Not Covered
-
More on JZ
Jianzhi Bets On Education Stock Renaissance With New York IPO
Jianzhi Bets On Education Stock Renaissance With New York IPO
Chinese edtech Jianzhi discloses terms for proposed $30M US IPO
LinkDoc Formally Withdraws Its U.S. IPO. Next Stop, Hong Kong?
LinkDoc Formally Withdraws Its U.S. IPO. Next Stop, Hong Kong?
Chinese edtech Jianzhi Education files for US IPO
Seeking Alpha - Power to Investors
Power to Investors
RSS Feed
Sitemap
Affiliate Program
About Us
Feedback
Careers
Contact Us
Terms Of Use
Privacy
Do Not Sell My Personal Information
Market Data Sources
© 2022 Seeking Alpha
Volume:
Day Range:
Bid:
Ask:
Last Trade Time:
Total Trades:
  • 1D
  • 1M
  • 3M
  • 6M
  • 1Y
  • 5Y
Recent JZ News