Baiya International Group Proposes Terms For U.S. Mini-IPO (Pending:BIYA)

A Quick Take On Baiya International Group

Baiya International Group Inc. (BIYA) has filed to raise $15 million in an IPO of its ordinary shares, according to an SEC F-1 registration statement.

The firm provides online job-matching services in China.

Given BIYA’s apparent in-process transition to an online platform, substantial revenue decline, competitive position, ongoing regulatory risks, and likely information deficit for U.S. shareholders, my outlook on the IPO is to Sell [Avoid].

Baiya Overview

Dongguan, China-based Baiya International Group Inc. was founded to enable companies to source employees or contract workers via its only platform.

Management is headed by Chief Executive Officer Ms. Siyu Yang, who has been with the firm since October 2021 and was previously the founder and CEO of Sichuan Xinhaisheng Labor Service.

The company’s primary offerings include the following:

• Job matching

• Entrusted recruitment

• Project outsourcing

• Labor dispatching – phasing out.

The company operates primarily in the Pearl River Delta and Yangtze River Delta regions.

As of June 30, 2023, Baiya has booked fair market value investment of $2.1 million from investors, including Daoning Xia, Hemei International Group and numerous other entities.

Baiya Customer/User Acquisition

Prior to 2022, the company performed its service primarily offline and pursued clients through its direct sales and marketing efforts, seeking to connect employing companies with HR service companies.

The firm’s “entrusted recruitment” service is one of the main revenue drivers for the company. Entrusted recruitment in China entails a process where companies choose to outsource their hiring and recruitment to third-party agencies, allowing them to focus on their core business operations.

Selling expenses as a percentage of total revenue have dropped as revenues have decreased, as the figures below indicate:

Click to enlarge

(Source – SEC.)

The Selling efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling expense, was negative 24.0x in the most recent reporting period, as shown in the table below:

Click to enlarge

(Source – SEC.)

Baiya’s Market & Competition

According to a 2022 market research report by Business Market Insights, the Asia Pacific market for online recruitment was an estimated $6.8 billion in 2021 and is forecasted to reach nearly $12.5 billion by 2028.

This represents a forecast CAGR (Compound Annual Growth Rate) of 9.0% from 2021 to 2028.

The main drivers for this expected growth are the increasing use of online technologies to increase efficiency in the hiring process.

Also, the integration of AI technologies is expected to increase the value-added aspects of online recruitment.

The permanent segment accounted for the largest share of the online recruitment market in the APAC region in 2020, with the IT segment holding the largest market share by industry vertical.

Major competitive or other industry participants include the following:

Baiya International Group Inc. Financial Performance

The company’s recent financial results can be summarized as follows:

• Sharply dropping top line revenue

• Falling gross profit and gross margin

• Reduced operating losses

• Variable cash flow or use from operations.

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

Click to enlarge

(Source – SEC.)

As of June 30, 2023, Baiya had $2.4 million in cash and $6.7 million in total liabilities.

Free cash flow during the twelve months ending June 30, 2023, was $2.3 million.

Baiya International Group Inc. IPO Details

Baiya intends to raise $15 million in gross proceeds from an IPO of its ordinary shares, offering three million shares at a proposed midpoint price of $5.00 per share.

No existing shareholders have indicated an interest in purchasing shares at the IPO price.

The firm operates both a variable interest entity [VIE] and wholly foreign-owned subsidiary structures [WFOE], so the company going public will have no direct interests in the operating entities.

It is also a “foreign private issuer” and an “emerging growth company,” which means it can choose to disclose substantially less information to public shareholders.

Such companies have typically performed very poorly post-IPO on U.S. public capital markets.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $50.0 million, excluding the effects of underwriter over-allotment options.

The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 23.08%.

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

We anticipate that we will use the net proceeds from this offering to continue development of the Gongwuyuan Platform; to pursue suitable opportunities for business growth and expansion within the industry; to support our marketing; to fund increased compensation for employees and training enhancements; and to provide funding for working capital and other general corporate purposes. Proceeds of this offering in the amount of $500,000 shall be used to fund an escrow account for a period of 12 months following the closing date of this offering, which account shall be used in the event we have to indemnify the underwriters pursuant to the terms of an underwriting agreement with the underwriters.

(Source – SEC.)

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

Regarding outstanding legal proceedings, management said the firm has been awarded a judgment of RMB316,991, which management is seeking to enforce.

The firm also stated that

“There are no proceedings in which any of our directors, officers, or any beneficial shareholder of more than five percent (5%) of our voting securities is an adverse party or has a material interest adverse to us.”

The sole listed bookrunner of the IPO is Revere Securities.

Valuation Metrics For Baiya

Below is a table of relevant capitalization and valuation figures for the company:

Click to enlarge

(Source – SEC.)

Commentary About Baiya’s IPO

Baiya International Group Inc. is seeking U.S. public capital market investment to continue developing its online recruitment platform and for general corporate purposes.

The firm’s financials have produced dropping topline revenue, reduced gross profit and gross margin, lower operating losses and fluctuating cash flow or use from operations.

Free cash flow for the twelve months ending June 30, 2023, was $2.3 million.

Selling expenses as a percentage of total revenue have fallen as revenue has dropped sharply; its Selling efficiency multiple was negative (24.0x) in the most recent reporting period.

The firm currently plans to pay no dividends and retain future earnings, if any, for reinvestment back into the firm’s growth initiatives and working capital requirements.

BIYA’s recent capital spending history indicates it has not spent on capital expenditures in the past twelve months.

The market opportunity for online recruitment is large and expected to grow at a reasonably strong rate of growth in the coming years, but the firm faces large and diverse competitors in the market.

Management is seeking an Enterprise Value/Revenue multiple of approximately 4.5x on sharply contracting topline revenue.

Given the firm’s apparent in-process transition to an online platform, its substantial revenue decline, competitive position, ongoing regulatory risks, and likely information deficit for U.S. shareholders, my outlook on the IPO is to Sell [Avoid].

Expected IPO Pricing Date: To be announced.