IPO Update: Republic Power Group Readies $15 Million U.S. IPO (Pending:RPGL)

A Quick Take On Republic Power Group

Republic Power Group Limited (RPGL) has filed to raise $15 million in gross proceeds from the sale of its common stock in an IPO, according to an amended registration statement.

The company provides software and related services to organizations and government agencies in Singapore and Indonesia.

RPGL’s financials are outdated and management is asking IPO investors to pay an EV/Revenue multiple of 13x on a company that is generating negative revenue growth.

I’m on Hold for the RPGL IPO due to its recent revenue contraction and high valuation, although the low nominal price for its shares may attract day traders seeking volatility.

Republic Power Group Overview

Singapore-based Republic Power was founded to develop custom software solutions for technology companies, airport operators, cruise terminals and law enforcement agencies.

Management is headed by Chairman Sai Bin Loi, who has been with the firm since 2015 and was previously founder of 9G Elevator Pte. Ltd which was later sold to Ryoden in 2008.

The company’s primary offerings include:

• Real-time monitoring

• Resource allocation

• Planning surveillance

• Threat detection

Republic Power has booked fair market value investment of $740,000 as of December 31, 2021 from investors including Chairman Sai Bin Loi, Breydales, Cosmic Paramount Enterprises and Lucky Champion Ventures.

Republic Power – Customer Acquisition

The company generally provides bid-based project proposals to companies or government agencies in the regions in which it operates.

The firm plans to hire sales and business development personnel in additional markets of Vietnam, Malaysia and other Southeast Asia countries.

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

Selling and Marketing	Expenses vs. Revenue
Period	Percentage
Six Mos. Ended December 31, 2021	2.9%
FYE June 30, 2021	9.6%
FYE June 30, 2020	8.6%

Click to enlarge

(Source – SEC)

The Selling & Marketing efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling & Marketing spend, fell to negative (11.4x) in the most recent reporting period, as shown in the table below:

Selling and Marketing	Efficiency Rate
Period	Multiple
Six Mos. Ended December 31, 2021	-11.4
FYE June 30, 2021	3.5

Click to enlarge

(Source – SEC)

The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.

RPGL’s most recent calculation was negative (5%) as of December 31, 2021, so the firm needs significant improvement in this regard, per the table below:

Rule of 40	Calculation
Recent Rev. Growth %	-25%
EBITDA %	20%
Total	-5%

Click to enlarge

(Source – SEC)

Republic Power’s Market & Competition

According to a 2020 market research report by Grand View Research, the global market for cybersecurity software and services was an estimated $157 billion in 2019 and is expected to exceed $300 billion by 2027.

This represents a forecast CAGR of 10.0% from 2020 to 2027.

The main drivers for this expected growth are constantly changing cyber threats against a backdrop of more complicated consumer and enterprise software requirements and infrastructures.

Also, the transition of enterprise IT from on-premises to the cloud will create significant new opportunities for new services and capabilities.

Major competitive or other industry participants include:

• Singapore Technology Engineering Ltd

• NCS Pte. Ltd.

Republic Power Group’s Financial Performance

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

• Contracting topline revenue

• Reduced gross profit but variable gross margin

• Lower operating profit and margin

• Sharply reduced cash flow from operations

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

Total Revenue
Period	Total Revenue	% Variance vs. Prior
Six Mos. Ended December 31, 2021	$ 915,509	-24.8%
FYE June 30, 2021	$ 6,554,807	49.3%
FYE June 30, 2020	$ 4,389,928
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
Six Mos. Ended December 31, 2021	$ 781,030	15.5%
FYE June 30, 2021	$ 3,358,341	39.8%
FYE June 30, 2020	$ 2,402,117
Gross Margin
Period	Gross Margin
Six Mos. Ended December 31, 2021	85.31%
FYE June 30, 2021	51.23%
FYE June 30, 2020	54.72%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
Six Mos. Ended December 31, 2021	$ 181,917	19.9%
FYE June 30, 2021	$ 1,966,842	30.0%
FYE June 30, 2020	$ 1,995,368	45.5%
Net Income (Loss)
Period	Net Income (Loss)	Net Margin
Six Mos. Ended December 31, 2021	$ 127,797	14.0%
FYE June 30, 2021	$ 1,617,485	176.7%
FYE June 30, 2020	$ 1,557,003	170.1%
Cash Flow From Operations
Period	Cash Flow From Operations
Six Mos. Ended December 31, 2021	$ 275,074
FYE June 30, 2021	$ 2,023,967
FYE June 30, 2020	$ 218,727
(Glossary Of Terms)

Click to enlarge

(Source – SEC)

As of December 31, 2021, Republic Power had $143,969 in cash and $1.3 million in total liabilities.

Free cash flow during the twelve months ended December 31, 2021, was $1.44 million.

Republic Power Group’s IPO Details

RPGL intends to sell 3 million shares of common stock at a proposed midpoint price of $5.00 per share for gross proceeds of approximately $15 million, not including the sale of customary underwriter options.

No existing or potentially new shareholders have indicated an interest to purchase shares at the IPO price.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO (excluding underwriter options) would approximate $81.5 million.

The float to outstanding shares ratio (excluding underwriter options) will be approximately 15.8%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.

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

20% for research and development;

20% for investment in marketing and branding, and other capital expenditures;

20% for recruitment of talented professionals; and

40% for general corporate purposes and possible future acquisitions and growth opportunities.

(Source – SEC)

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

Regarding outstanding legal proceedings, management says the firm is not currently a party to any litigation that would have a material adverse effect on its financial condition or operations.

The sole listed bookrunner of the IPO is Univest Securities.

Valuation Metrics For Republic Power Group

Below is a table of the firm’s relevant capitalization and valuation metrics at IPO, excluding the effects of underwriter options:

Measure [TTM]	Amount
Market Capitalization at IPO	$95,000,000
Enterprise Value	$81,505,632
Price / Sales	15.19
EV / Revenue	13.03
EV / EBITDA	42.49
Earnings Per Share	$0.08
Operating Margin	30.68%
Net Margin	25.14%
Float To Outstanding Shares Ratio	15.79%
Proposed IPO Midpoint Price per Share	$5.00
Net Free Cash Flow	$1,440,948
Free Cash Flow Yield Per Share	1.52%
Debt / EBITDA Multiple	0.17
CapEx Ratio	56.76
Revenue Growth Rate	-24.79%
(Glossary Of Terms)

Click to enlarge

(Source – SEC)

Commentary About Republic Power Group

RPGL is seeking U.S. public capital market investment for its corporate expansion plans, which include geographic expansion throughout Southeast Asia.

The firm’s financials show reduced topline revenue, lower gross profit but variable gross margin, less operating profit and margin and decreased cash flow from operations.

Free cash flow for the twelve months ended December 31, 2021, was $1.44 million.

Selling & Marketing expenses as a percentage of total revenue have varied as revenue has fluctuated; its Selling & Marketing efficiency multiple was negative (11.4x) in the most recent reporting period.

RPGL’s Rule of 40 performance has been in negative territory, a poor result.

The firm currently plans to pay no dividends and intends to retain future earnings for its future expansion plans.

The company’s CapEx Ratio is high, which indicates it is spending very lightly on capital expenditures as a percentage of its operating cash flow.

The market opportunity for providing security software is large and expected to grow at 10% CAGR through 2027, so the firm has healthy market dynamics in its favor.

Univest Securities is the sole underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (11.8%) since their IPO. This is a lower-tier performance for all major underwriters during the period.

The primary risks to the company’s outlook are the potential for pandemic lockdowns and resulting slower sales cycles as well as a global economic downturn, reducing budgets for new IT initiatives.

Also, RPGL has significant client concentration risk, with three clients accounting for nearly 78% of the firm’s revenues during the six months ended December 31, 2021.

Like other firms with overseas operations seeking to tap U.S. markets, the firm operates within a British Virgin Islands and wholly owned subsidiary entity in Singapore. U.S. investors would only have an interest in an offshore firm with interests in operating subsidiaries. Additionally, restrictions on the transfer of funds between subsidiaries may exist.

Prospective investors would be well advised to consider the potential implications of specific laws regarding earnings repatriation that may affect such companies and U.S. stock listing value.

RPGL’s financials are outdated and management is asking IPO investors to pay an EV/Revenue multiple of 13x on a company that is generating negative revenue growth.

I’m on Hold for the RPGL IPO due to its recent revenue contraction and high valuation, although the low nominal price for its shares may attract day traders seeking volatility.

Expected IPO Pricing Date: To be announced