VinFast Auto seeks US IPO for international expansion (VFS)

A quick take on VinFast Auto Ltd.

VinFast Auto Ltd. (VFS) has applied to raise an undisclosed amount in its common stock IPO, according to an F-1 registration statement.

The company manufactures electricity Vehicles for various e-mobility use cases.

VFS is looking to expand into North America and Europe, where the company is lesser known and has little distribution presence.

We will provide an update as soon as we have more details about the IPO from management.

Overview of VinFast

Based in Hai Phong, Vietnam, VinFast Auto Ltd. was set up to produce e-scooters, followed by passenger cars and e-buses.

The management team is led by Global CEO Le Thi Thu Thuy, who until 2008 served as Vice President at Lehman Brothers in Japan, Thailand and Singapore.

Management plans to sell its line of electric SUVs in major global markets, including the United States, Canada and Europe, in addition to Vietnam.

As of September 30, 2022, VinFast is owned by Vingroup, VIG and Asian Star Trading & Investments Pte.

VinFast – Customer Acquisition

The company plans to target different demographics in key markets through VinFast showrooms.

The company offers different modes of buying, leasing, or subscribing to automotive or battery technology.

As the chart below shows, sales and distribution costs as a percentage of total revenue increased significantly as revenue changed.

Sales/Distribution	cost to income
period	percentage
nine moss. Ends September 30, 2022	32.0%
2021	13.7%
2020	9.8%

click to enlarge

(Source – SEC)

As shown in the table below, the sales and distribution efficiency multiple, defined as how many dollars of new revenue is generated for every dollar spent on sales and distribution, was negative (0.2 times) in the most recent reporting period. decreased.

Sales/Distribution	Efficiency rate
period	many
nine moss. Ends September 30, 2022	-0.2
2021	1.0

click to enlarge

(Source – SEC)

VinFast Market and Competition

According to a 2021 market research report by Allied Market Research, the global market for electric or hybrid SUVs is estimated at $35.6 billion in 2020 and is projected to reach $252.7 billion by 2030.

This represents a projected CAGR of 25.1% from 2021 to 2030.

The main drivers of this expected growth are improved vehicle driving characteristics, reduced energy usage, reduced noise and reduced maintenance requirements.

And as consumers become more environmentally conscious and charging networks continue to expand in size and reach, electric vehicle ownership becomes more convenient.

Major competitors or other industry participants are:

• BMW Group (OTCPK:BMWYY)

• BYD (OTCK:BYDDY)

• Daimler (OTCPK:DTRUY)

• Ford Motor Company (female)

• Groupe Renault (OTCPK: RNSDF)

• Honda Motor Co., Ltd. (HMC)

• Kia Corporation

• Tata Motors (TTM)

• Tesla (TSLA)

• Volkswagen (OTCPK:VLKAF)

• Volvo Car Corporation (OTCK:VLVOF)

• others

VinFast Auto Ltd. Financial Results

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

• Variable top-line earnings

• High Gross Loss and Negative Gross Margin

• Increase in operating loss

• Increased cash used in sales

Below are the relevant financial results obtained from the company’s registration statement.

gross income
Period	gross income	% variance vs. prior
nine moss. Ends September 30, 2022	$439.4 million	-6.4%
2021	$670,600,000	16.6%
2020	$574,992,600
gross profit (loss)
period	gross profit (loss)	% variance vs. prior
nine moss. Ends September 30, 2022	$ (358,900,000)	31.7%
2021	$ (387,300,000)	37.7%
2020	$ (281,194,200)
gross profit
period	gross profit
nine moss. Ends September 30, 2022	-81.68%
2021	-57.75%
2020	-48.90%
Operating income (loss)
period	Operating income (loss)	Operating margin
nine moss. Ends September 30, 2022	$ (1,231,700,000)	-280.3%
2021	$ (1,132,500,000)	-168.9%
2020	$ (556,311,000)	-96.8%
Net profit (loss)
period	Net profit (loss)	net profit margin
nine moss. Ends September 30, 2022	$ (1,445,000,000)	-328.9%
2021	$ (1,348,100,000)	-306.8%
2020	$ (795,908,400)	-181.1%
Cash flow from operating activities
Period	Cash flow from operating activities
nine moss. Ends September 30, 2022	$ (1,068,148,590)
2021	$ (1,212,095,731)
2020	$ (392,664,972)
(Glossary)

click to enlarge

(Source – SEC)

As of September 30, 2022, VinFast had cash of $77.6 million and total liabilities of $8.8 billion.

Free cash flow was negative ($1.9 billion) for the 12 months ended September 30, 2022.

Details of VinFast Auto Ltd. IPO

VinFast intends to raise an undisclosed sum from its common stock IPO, the amount sought could exceed $1 billion.

Existing shareholders have shown no interest in buying shares at the IPO price.

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

The Company intends to use the net proceeds from this offering, depending on the size of the offering, to partially or fully repay the remaining outstanding share purchase P-notes issued in connection with the restructuring. As of the date of this prospectus, Vingroup’s balance under the Acquisition P-Note was approximately $1,078.8 million on a consolidated group basis.

[And for:]

Investment in research and development of products, services and technology sales

Investment in sales and marketing and expansion of sales channels

Investment in developing manufacturing facilities

Although we have not identified any specific investment or acquisition opportunities at this time, we have outstanding working capital and general corporate purpose balances. This may include potential strategic investments and acquisitions.

(Source – SEC)

Company roadshow executive presentations are not available.

Regarding pending legal proceedings, management said the company is not currently a party to any material legal or administrative claims.

Listed bookrunners for the IPO are Citigroup, Morgan Stanley, Credit Suisse and other investment banks.

Commentary on VinFast’s IPO

VFS is seeking US public investment capital to fund future growth plans.

The company’s financials show high but variable top-line earnings, strong gross margins, negative gross margins, widening operating losses, and increased cash used in operations.

Free cash flow was negative ($1.9 billion) for the 12 months ended September 30, 2022.

Sales and distribution costs as a percentage of total revenue have risen significantly as revenue increases. In the most recent reporting period, the sales and distribution efficiency multiple fell to negative (0.2x).

The company currently plans to pay no dividend and will retain future earnings to reinvest in the company’s operations and growth initiatives.

VinFast’s CapEx Ratio has been negative (2.19) over the last 12 months, indicating that it spent a lot on capital expenditures despite its high operating cash usage.

The company has favorable industry dynamics as the market opportunity for electric SUVs is large and is expected to grow significantly over the next few years as more people seek out electric vehicles for their various benefits.

However, the company faces significant and increasing competition from major automakers as the industry plans to introduce a number of models in the near future.

Citigroup is the lead underwriter and there is no performance data for the company-led IPOs over the past 12 months.

Risks to the company’s prospects as a publicly traded company include the need to establish a significant retail presence in key markets, which will require significant expansion capital.

Also, the company does not have an international profile, so generating significant sales growth outside of Asia can be very time-consuming and expensive.

Once I know management’s pricing and valuation assumptions, I’ll give my final opinion.

Expected IPO Pricing Date: To be announced.