Tiny Mint Seeks U.S. IPO On Sky-High Valuation (MIMI)

Tiny Mint Is Growing, But IPO Valuation Is Sky-High

Mint Incorporation Limited (MIMI) has filed to raise $7.9 million in an IPO of its Class A ordinary shares, according to an SEC F-1 registration statement.

Mint provides interior design and fitting-out services for commercial properties in the greater Hong Kong region.

The firm is subject to fragmented and intense competition, and its valuation expectations at IPO are excessive, so my outlook on the MIMI IPO is to sell (avoid it).

What Does Mint Do?

Hong Kong, PRC-based Mint Incorporation Limited was founded to provide a range of interior real property design and related construction and management services in Hong Kong, PRC.

Management is headed by co-founder and CEO Mr. Hoi Lung Chan, who has been with the firm since its inception in May 2014 and was previously an architectural designer at Alsop Architects Ltd in Shanghai and Beijing.

The company’s primary offerings include the following:

• Design services.

• Construction management, quality control.

• Repair and maintenance.

• Furniture and materials procurement.

As of March 31, 2024, Mint has booked a fair market value investment of only $5,284 from investors, including various individuals such as the co-founders.

The firm seeks project bidding opportunities from among prospective clients in various commercial property categories including retail stores, food and beverage outlet chains, offices, and luxury residential properties.

In fiscal year 2023, approximately 48.3% of the firm’s revenue came from non-residential projects and 51.7% came from residential sources.

Selling and Marketing expenses as a percentage of total revenue have been virtually nil as revenues have grown from a tiny base, as the figures below indicate:

Click to enlarge

(Source – SEC)

The Selling and Marketing efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling and Marketing expense, was 2,229x in the most recent reporting period on negligible expenses for this item. (Source – SEC)

Markets Overview For Mint

According to a 2024 market research report by GlobalData, the entire construction market in Hong Kong in 2023 was approximately $31.1 billion and is forecasted to reach $34.3 billion by 2028.

This represents a forecast CAGR (Compound Annual Growth Rate) of greater than 2% from 2024 to 2028.

The main drivers for this expected growth are continued government investment and support for key construction initiatives across various categories such as residential, commercial, industrial, infrastructure, institutional, and energy & utilities construction.

The Hong Kong interior design and fitting-out industry is highly fragmented and intensely competitive, so pricing pressures are significant in competitive bidding processes.

Also, growth is likely to be helped by government commitments to develop a number of major roads and railways within the region and with the mainland.

The company says it intends to expand to the US and UK markets, although, given its tiny size, I judge the likelihood of that occurring successfully to be low.

Still, the U.S. interior design market was an estimated $25 billion in 2023, according to a market research report by IBISWorld.

This represented a 4.3% decline from the previous year against an average annual growth rate of 2.9% from 2018 to 2023.

IBISWorld’s market research report on the UK market indicated a total size of GBP1.6 billion in 2024 and declining at a CAGR of (1.1%) for the five years ending in 2025.

My SWOT thumbnail for Mint is described here:

• Strengths

• Weaknesses

  • Tiny size, unpredictable industry growth history, and uncertain regulatory environment in China, WFOE status of subsidiaries.

• Opportunities

• Threats

  • Intense competition from a large number of competitors, slowing Chinese economic activity, and de-emphasis on real property development to drive growth.

Recent Financial Results For Mint

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

• Growing topline revenue, but from a tiny base.

• Increasing gross profit but decreasing gross margin.

• Reduced operating profit but higher cash flow from operations.

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

Click to enlarge

(Source – SEC)

As of March 31, 2024, Mint had $317,322 in cash and $913,749 in total liabilities.

Free cash flow during the twelve months ended March 31, 2024, was $748,246.

IPO And Valuation Details

Mint intends to raise $7.9 million in gross proceeds from an IPO of its Class A ordinary shares, planning to offer 1.75 million shares at a proposed midpoint price of $4.50 per share.

No existing or new prospective shareholders have indicated any interest in purchasing shares of the IPO.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $97.3 million and the market capitalization would be about $102 million, excluding the effects of underwriter over-allotment options.

The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 7.7%, so the stock will be a ‘low-float’ stock subject to significant volatility in open market trading.

The expected dilution of net tangible book value per share for new IPO shareholders would be $3.74 per share at a $4.00 per share IPO price without over-allotment, while the value increase to existing shareholders would be about $0.22 per share.

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

Approximately 30% for increasing operating scale and expanding business and geographic coverage including the United States of America and the United Kingdom;

Approximately 30% for potential strategic investment and acquisitions;

Approximately 10% for upgrading IT services; and

The balance, approximately 30%, to fund working capital and for other general corporate purposes.

(Source – SEC)

Leadership’s company roadshow online presentation is not available.

Regarding outstanding legal proceedings, the leadership said the company is not subject to any ‘litigation, arbitration or claim of material importance,’ however, the firm is subject to the risk of injury on job sites that it manages.

The listed bookrunners of the IPO are Benjamin Securities and Prime Number Capital.

Below is a listing of various capitalization and valuation figures for the firm:

Click to enlarge

(Source – SEC)

Mint Is Growing But Remains Tiny And Risks Abound

MIMI is seeking U.S. public capital market investment to fund its operating needs and potential growth plans internationally.

Mint’s financials have produced increasing topline revenue from a tiny base, growing gross profit but decreasing gross margin, and lower operating profit but increased cash flow from operations.

Free cash flow for the twelve months ended March 31, 2024, was $748,246.

Selling and Marketing expenses as a percentage of total revenue have dropped to virtually zero.

The firm currently plans to pay no dividends despite declaring dividends in fiscal 2023. Management will likely retain any future earnings to reinvest in the firm’s growth plans and operating requirements.

MIMI’s recent capital spending history indicates it has spent sparingly on capital expenditures as a percentage of its operating cash flow.

The market opportunity for providing design and fitting out services in Hong Kong is substantial but characterized by high fragmentation and intense competition.

Risks to the company’s outlook as a public company include its ‘foreign private issuer’ and ’emerging growth company’ status, which enable management to disclose substantially less information to shareholders.

Also, investors would only own an equity interest in a British Virgin Islands shell company and would not have a direct interest in the operating entity in Hong Kong.

Getting profits out of such a PRC-based operating entity would be difficult and subject to numerous restrictions that could change unpredictably.

Many such company stocks have performed badly for investors after their IPO.

Management is seeking an Enterprise Value/EBITDA multiple of approximately 109.2x, which is extremely high.

Given the many risks and threats the company faces combined with the sky-high valuation expectations at IPO, my outlook on the MIMI IPO is to sell (avoid it).

Expected IPO Pricing Date: To be announced.