February Unleashes Flood of Pint-Sized Chinese IPO Applications

Key Takeaways:

• A dozen smaller Chinese companies have filed prospectuses for U.S. IPOs this month, ending a yearlong pause following the resolution of several regulatory issues
• The largest new application comes from chatbot maker Xiao-I Corp., which is aiming to raise about $50 million

By Doug Young

After a long winter for U.S. IPOs by Chinese companies, spring is suddenly in the air with a vengeance. Twelve such companies have filed new or updated prospectuses with the U.S. securities regulator so far this month, including five this week alone.

The applicants cover a wide range of industries, from recycling, to accounting and trucking services. The one thing they have in common is that all are quite small, generally raising less than $20 million. The largest comes from Xiao-I Corp., a company from the hot AI chatbot sector that has been in nonstop headlines these last few weeks with the phenomenal success of the OpenAI’s ChatGPT.

But even Xiao-I’s IPO is relatively small, aiming to raise just over $50 million if the shares price at the top of their range.

So, what’s happening here? And equally important, how can investors figure out if any of these companies are worth investing in? We’ll provide a very brief rundown of the new applicants below with links to their prospectuses, which is really the best way to answer the latter question.

As to why this is happening, it’s mostly the result of timing. The Chinese New Year holiday ended in early February, and companies are now quickly getting back to work, including in their fundraising activities.

More broadly, Chinese companies are also flocking back to the U.S. following the resolution of two major obstacles that brought new applications to a virtual halt over the last year and a half. One of those obstacles came from China and involved the legality of such listings, which Beijing has recently signaled are permissible. The second came from a dispute between the U.S. and China securities regulators, which has now also been largely resolved.

We expect the removal of those obstacles will produce a bumper crop of large Chinese IPOs in New York later this year. And, indeed, two such listings by drug maker Structure Therapeutics GPCR and autonomous driving technology firm Hesai Group HSAI have already hit the market with strong trading debuts. Another smaller company, accounting services provider Lichen China Ltd. LICN also recently debuted, though with far less stellar results.

We’ll take a quick look at Xiao-I first, as that’s the most interesting of the new applications.

The company is a chatbot maker focused on selling to businesses, rather than consumers, and looks relatively solid in terms of revenue though a bit less stable in profits. The company’s revenue grew 45% year-on-year in the first six months of 2022 to $12.9 million, thought that was sharply slower than the 134% growth it recorded for all of 2021, according to its prospectus. It posted a $590,000 profit in the first six months of last year, reversing a $3 million loss a year earlier.

The company’s cash has been relatively stable at about $1.5 million over the last two years, and this new listing would raise that hugely by adding another $50 million, valuing the company at about $500 million. That could position Xiao-I well to expand into this hot new area.

Waste management to trucking services

We’ll spend the second half of this space looking very briefly at some of the other companies that have filed new listing applications, and also provide links to their prospectuses for anyone who thinks they might be worth a closer look.

• Yukai Health Group Ltd. is a medical device distributor that first filed to list in July last year, and provided an updated prospectus on Feb. 13. The company aims to sell 4 million ordinary shares for $4 to $6 each, which would raise $20 million if they price at their midpoint. 
• Haoxin Holdings Ltd. is a provider of trucking services, and made its first filing for a New York listing on Feb. 10. The company aims to raise about $15 million by selling 3 million ordinary shares for $4 to $6 each. 
• Harden Technologies Inc. is a provider of waste management and recycling equipment that also made its first filing for a U.S. IPO this week with plans to sell 2.5 million ordinary shares. The company could raise about $15 million if the shares price at the midpoint of their $5 to $7 range. 
• Top Kingwin Ltd. provides financial advisory services, and first filed for its New York listing in January before providing an updated prospectus last week. The company is aiming to sell 3 million ordinary shares for between $4 and $5, which would raise $13.5 million at the midpoint of that range. 
• Hongli Group Inc. is a steel products maker and relative veteran in this group of new applicants, having first filed for its New York listing back in December 2021. More than a year later, it’s reviving that listing plan by offering 2.5 million shares for $4 to $6, which would raise $12.5 million at the midpoint. 
• Iczoom Group Inc. is also a relative old-timer in this group, having first filed for its IPO back in August 2021. Now, the electronic components maker is trying again with a new filing this week, offering 1.5 million ordinary shares for $4 to $5 each, which would raise a modest $6.8 million at the midpoint. 

Last but not least are four companies that have filed for listings but haven’t provided any fundraising targets. That hints that they are probably trying to race to market ahead of the crowd. Those consist of: boutique investment bank ZBG Finance Group Ltd.; talent marketplace operator EPWK Holdings Ltd.; group transport services provider Wetour International Ltd.; and vehicle broker U Power Ltd.

At the end of the day, most of these companies are quite small and their chances of becoming the next Alibaba and Tencent are even smaller. But perhaps there’s one or more diamonds in the rough in the bunch for anyone who wants to try to find it.