Could Yulong Eco Material's IPO Trade Like Tantech?

Chinese producer of environmentally-friendly construction materials, Yulong Eco Materials YECO will be making another attempt go public this Friday, June 12. The company is looking to raise $14.2 million in order to expand by offering 2.25 million ADSs between $6.25 and $7.25. The company will list on the NASDAQ under the ticker YECO.

The eco-friendly manufacturer of construction products began in Pingdingshan, China with its two main entities Yulong Concrete and Yulong Brick in 2004. Since then, the company has become the city’s leading producer of fly-ash bricks and concrete. Yulong’s other variable interest entities include Yulong Transport for its concrete business and Yulong Renewables to operates its new recycling and brick plants as well as its hauling operations. The company controls about 51 percent of the brick market and 30 percent of the concrete market in Pingdinshan.

The company has been able to acquire new customers through its reputation and referrals from top real estate and construction firms and through its emphasis on personal relationships. The company’s fly-ash bricks helps replace traditional cement and consumes less energy during manafacteruing which help reduce greenhouse gas emissions.

Yulong further plans to expand by entering the waste hauling business and produce bricks from construction waste as it has received exclusivity rights by the government to conduct business.

Financials

On March 31 of 2015, Yulong reported total revenue of $33.6 million compared with $32.3 million the prior year. Revenue is composed of brick and concrete sales. 2015 brick and concrete revenue equaled $11.8 million (35 percent) and $21.9 million (65 percent) compared with $10.6 million and $21.8 million in 2014. The majority of the company’s revenue growth has come from high selling prices despite lower quantities of product sold.

Net income for 2015 was $6.20 million compared with $7.53 million in 2014. Between 2013 and 2014 net income rose $700 thousand from $10 million to $10.7 million.

As of March 31, 2015, Yulong reported $16.0 million of cash on its balance sheet. Total assets and total liabilities were $71.7 million and $27.6 million. Shareholders’ Equity was recorded at $44.1 million. Yulong noted that it will require $15.4 million within the next 12 months, including $8.1 million to repay short-term bank loans, $2.3 million for capital leases, $2.1 million to purchase a land right use, and $2.9 million for finishing facilities for Yulong Renewable and the installation of an autoclave for Yulong Bricks.

In its S-1, the company states that it believes current working capital is sufficient to support routine operations for the next 12 months.

Similar to Tantech Holdings?

Tantech HoldingsTANH, a Chinese manufacturer of household bamboo and charcoal products, managed to fly under radar with its IPO. Shares soared 118 percent the first day. In April, the company issued 3.2 million ADSs at $4. The stock opened at $6 and climbed to $8.70 before closing up 96 percent at $7.84. The trading range for the day was $5.64 to $9.50. ViewTrade Securities underwrote the offering and will also be bring Yulong to market. Currently the Tantech trades at $19.67 with a 58.89 P/E (ttm).

Tantech, like Yulong is profitable. Its revenue and net income experienced continued year-over-year growth. Both companies seem to signify the growing Chinese demand for eco-friendly products due to increased public awareness of pollution and resource conservation. If Yulong finally prices its IPO, it may provide observant investors with great first day and post-IPO returns like Tantech.

Conclusion and Pricing Info

Yulong’s takeaways include strong and growing fundamentals, potential to grow through acquisitions, and an increased demand for eco-friendly products in its homeland. Using Tantech’s IPO performance as a guide, Yulong could be in for a profitable ride should its IPO finally price this time around.

Yulong expects net proceeds from the offering to equal $14.2 million. It intends to use the proceeds to add another product line for a new brick plant and acquire 70 additional hauling trucks to support the new recycling plant.

The company expects to offer 2.25 million ADSs between $6.25 and $7.25 per ADS. The company will list on the NASDAQ under the ticker YECO. The main underwriters are Axiom Capital Management, Northland Capital Markets, and ViewTrade Securities.