2022 HIKRobot IPO

July 09, 2022

THE GREAT EXIT QUEUE

The list of G2P vendors exploring exits is increasing by the day. Pandemic-infused growth in the sector pushed up valuations and a few companies managed to IPO in 2021, including Berkshire Grey and Autostore (both backed by SoftBank incidentally).

An IPO is a route for investors to exit their investments and "cash in". Another route is to sell to a corporate buyer. For example, Fetch Robotics (incidentally also backed by SoftBank) was acquired by Zebra. There are other routes, including secondary sales, i.e. when one investor sell to another investor, such as when EQT sold the majority of their stake in AutoStore to Thomas H Lee Partners who then sold part of their stake to SoftBank. The end goal for investors is not to hold on to the investment, but simply to manage the business in a way that their original investment is worth more on exit. In a limited IPO where only a small share of equity is listed publicly, some investors retain stakes with a view of selling shares as they increase in value.

HIKRobot, the next IPO prospect

HIKRobot (link) is yet another G2P vendor that is now looking to IPO (source - in Chinese).

HIKRobot is a division of HIKVision, a global vendor of CCTV, camera and AI technology. HIKVision was added to the US black list in 2018 (link to the background). As a result of the blacklisting of the parent company, HIKRobot was also banned from the US market.

HIKRobot's IPO is different to an investor backed IPO in that there is no investor that is looking to exit. HIKRobot is an internal division at HIKVision and was started internally.

Other G2P companies that are likely to be exploring IPOs in the short term = Geek+, Quicktron, and GreyOrange...

So, why are HIKRobot looking to exit?

STIQs interviews over the years have indicated successful Chinese companies start up many different internal divisions and material handling has been a popular area in recent years. This has also been spurred on by the China 2025 plan (source). For example, JD.com have also started up an internal material handling division and may be looking at an IPO. The primary aim for these divisions was to spin them out as IPOs in their own right.

The article appeared to indicate the share structure would remain in place after the IPO, suggesting a limited equity float.

STIQs immediate thought was that HIKRobot may want to sell to the US market and that they would IPO as a way to achieve that. However, as HIKVision intend to remain a key shareholder, will this be acceptable to the US administration? Perhaps.

HIKRobot Financials

HIKRobot revealed interesting financials in the reported IPO. However, STIQ urges some caution with interpreting these numbers as there is no definition or breakdown included. For example, there may be intra-company sales or sales to group companies which could boost results in the short term.

"From 2019 to 2021, Hikvision Robot achieved revenue of 852 million yuan, 1.552 billion yuan, and 2.74 billion yuan; net profit was 30 million yuan, 80 million yuan, and 485 million yuan, respectively." (source, Google Translate)

If the numbers are correct, this would indicate c.82% annual revenue growth in 2020 (to c.US$233m) and c.77% in 2021 (to c.US$411m).*

It should be noted that industry sources highlight that HIK Robot are also involved in industrial machine vision and around half of HIK Robot revenue may originate from that particular segment. Robots revenue may also include consultancy services, such as install, deployment and maintenance.

Chinese market dynamics

There are many different dynamics going on in the Chinese market and some of this has been influenced by the ongoing pandemic and the domestic stance on "zero infections".

Continued sporadic lockdowns and quarantine requirements when travelling to China has hindered a lot of Chinese companies wanting to do international business. There was a 3 week compulsory quarantine requirement on returning back to China, for example.

Chinese companies that had not built up an international organisation before the pandemic have been largely absent from Europe and North America. And, only recently have they increased activity in the Far East and South East Asia.

The primary side effect has been an increased willingness by Chinese vendors to offer OEM production of robots.

Bad timing for an IPO?

A lot of money has been invested in the G2P sector and many investors are trying to pick the right timing for their exit.

2021 was a huge year for IPOs and some observers have argued the tide for IPOs has turned with Russia's war in Ukraine, increasing inflation, remains of pandemic supply chain problems, and what looks more and more likely to be a recession.

Whilst top exit prices have evaporated as money flows into IPOs may have become restricted, material handling remains very popular and we may yet see more IPOs in the short term.