What Is Prestige Wealth?
Hong Kong, China-based Prestige Wealth Inc. (PWM) was founded to assist high net worth and ultra high net worth clients in Hong Kong and Mainland China with their wealth management and asset management needs.
Management is headed by Chairman and CEO Hongtao Shi, who has been with the firm since the inception of its predecessor in 2004 and was previously director in charge of securities analysis at Pacific United Inc.
The company’s primary offerings include:
Wealth management services
Asset management services
As of March 31, 2022, Prestige has booked fair market value investment of $705,867 as of March 31, 2022 from investors including Prestige Financial Holdings Group Limited.
The firm seeks new client relationships with high net worth and ultra high net worth individuals and families in China primarily through word of mouth referrals.
Prestige’s Market & Competition
According to a 2018 market research report by Boston Consulting Group and Lufax, China’s overall wealth management market was valued at about $6.1 trillion.
The offline wealth management segment accounted for 65.4%, or about $4 trillion, of China’s overall wealth management market.
Also, the asset and wealth management industries are expected to come under tighter regulatory scrutiny resulting in growth of independent online distribution.
Major competitive or other industry participants include:
Non-bank traditional financial institutions
Non-traditional financial entities
Prestige Wealth’s IPO Date & Details
The initial public offering date, or IPO, for Prestige Wealth has not yet been indicated by the company or its underwriter.
(Warning: Compared to stocks with more history, IPOs typically have less information for investors to review and analyze. For this reason, investors should use caution when thinking about investing in an IPO, or immediately post-IPO. Also, investors should keep in mind that many IPOs are heavily marketed, past company performance is not a guarantee of future results and potential risks may be understated.)
Prestige intends to raise $15 million in gross proceeds from an IPO of its ordinary shares, offering 2.5 million shares at a proposed midpoint price of $6.00.
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 $50.8 million, excluding the effects of underwriter over-allotment options.
The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 23.81%. 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:
Management’s presentation of the company roadshow is not available.
Regarding outstanding legal proceedings, management said the company and its subsidiaries are not currently party to any legal proceedings that would have a material adverse effect on its financial condition or operations.
The sole listed bookrunner of the IPO is Network 1 Financial Securities.
How To Invest In The Company’s Stock: 7 Steps
Investors can buy shares of the stock in the same way they may buy stocks of other publicly traded companies, or as part of the pre-IPO allocation.
Note: This report is not a recommendation to purchase stock or any other security. For investors who are interested in pursuing a potential investment after the IPO is complete, the following steps for buying stocks will be helpful.
Step 1: Understand The Company’s Financial History
Although there is not much public financial information available about the company, investors can look at the company’s financial history on their form S-1 or F-1 SEC filing (Source).
Step 2: Assess The Company’s Financial Reports
The primary financial statements available for publicly-traded companies include the income statement, balance sheet, and statement of cash flows. These financial statements can help investors learn about a company’s cash capitalization structure, cash flow trends and financial position.
My summary of the firm’s recent financial results is below:
The firm’s financials have shown lowered topline revenue, reduced gross profit, increasing operating profit and growing cash flow from operations.
Free cash flow for the twelve months ended March 31, 2022, was $824,606.
Selling, G&A expenses as a percentage of total revenue have varied as revenue has fluctuated; its Selling, G&A efficiency multiple dropped to negative (2.7x) in the most recent reporting period.
The firm currently plans to pay no dividends going forward and to retain any future earnings to reinvest back into the company’s growth plans.
In March, 2021, the company paid a one-time dividend of $3.5 million to existing shareholders.
Step 3: Evaluate The Company’s Potential Compared To Your Investment Horizon
When investors evaluate potential stocks to buy, it’s important to consider their time horizon and risk tolerance before buying shares. For example, a swing-trader may be interested in short-term growth potential, whereas a long-term investor may prioritize strong financials ahead of short-term price movements.
Step 4: Select A Brokerage
Investors who do not already have a trading account will begin with the selection of a brokerage firm. The account types commonly used for trading stocks include a standard brokerage account or a retirement account like an IRA.
Investors who prefer advice for a fee can open a trading account with a full-service broker or an independent investment advisor and those who want to manage their portfolio for a reduced cost may choose a discount brokerage company.
Step 5: Choose An Investment Size And Strategy
Investors who have decided to buy shares of company stock should consider how many shares to purchase and what investment strategy to adopt for their new position. The investment strategy will guide an investors’ holding period and exit strategy.
Many investors choose to buy and hold stocks for lengthy periods. Examples of basic investing strategies include swing trading, short-term trading or investing over a long-term holding period.
For investors wishing to gain a pre-IPO allocation of shares at the IPO price, they would ‘indicate interest’ with their broker in advance of the IPO. Indicating an interest is not a guarantee that the investor will receive an allocation of pre-IPO shares.
Step 6: Choose An Order Type
Investors have many choices for placing orders to purchase stocks, including market orders, limit orders and stop orders.
Market order: This is the most common type of order made by retail traders. A market order executes a trade immediately at the best available transaction price.
Limit order: When an investor places a buy limit order, they specify a maximum price to be paid for the shares.
Stop order: A buy-stop order is an order to buy at a specified price, known as the stop price, which will be higher than the current market price. In the case of buy-stop, the stop price will be lower than the current market price.
Step 7: Submit The Trade
After investors have funded their account with cash, they may decide an investment size and order type, then submit the trade to place an order. If the trade is a market order, it will be filled immediately at the best available market price.
However, if investors submit a limit order or stop order, the investor may have to wait until the stock reaches their target price or stop-loss price for the trade to be completed.
The Bottom Line
PWM is seeking U.S. public investment capital to fund its general corporate expansion initiatives.
The market opportunity for wealth and asset management in China is large and will likely grow in the coming years, although it is difficult to determine a potential rate of growth.
Like other firms with Chinese operations seeking to tap U.S. markets, the firm operates within a WFOE structure or Wholly Foreign Owned Entity. U.S. investors would only have an interest in an offshore firm with interests in operating subsidiaries, some of which may be located in the PRC. Additionally, restrictions on the transfer of funds between subsidiaries within China may exist.
The recent Chinese government crackdown on IPO company candidates combined with added reporting and disclosure requirements from the U.S. has put a serious damper on Chinese or related IPOs resulting in generally poor post-IPO performance.
Also, a potential significant risk to the company’s outlook is the uncertain future status of Chinese company stocks in relation to the U.S. HFCA act, which requires delisting if the firm’s auditors do not make their working papers available for audit by the PCAOB.
Prospective investors would be well advised to consider the potential implications of specific laws regarding earnings repatriation and changing or unpredictable Chinese regulatory rulings that may affect such companies and U.S. stock listings.
Additionally, post-IPO communications from management of smaller Chinese companies that have become public in the U.S. has been spotty and perfunctory, indicating a lack of interest in shareholder communication, only providing the bare minimum required by the SEC and a very different approach to keeping shareholders up-to-date about management’s priorities.
Network 1 Financial Securities is the lead underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 75.7% since their IPO. This is an upper-tier performance for all major underwriters during the period.
The primary risk to the company’s outlook as a public company is its tiny size among major competitors and poor performance in recent periods.
As for valuation, management is asking investors to pay an Enterprise Value/Revenue multiple of 25.7x, an extremely high multiple even if the company was growing revenue.
Given the firm’s dropping revenue, extremely high valuation expectations and regulatory risks being a Chinese company, my outlook on the IPO is on Hold, although day traders may be attracted to the low nominal price of the stock at IPO.