VC/PE Summary: Jiuding Capital with the Lowest Cost

2012-05-09

Recently, the CSRC released “IPO Declaring Enterprise Basic Information Table” again. The data indicate that by the end of May 3rd, 653 enterprises are queuing up for listing, among which 181 enterprises have passed the examination of the IPO Examination Committee and were at the pre-announcement stage (or to be submitted to the CSRC for IPO within 1-2 months). According to ChinaVenture’s statistical data, 74 VC/PE-backed enterprises involved more than 100 investment institutions. Such institutions are expected to be delisted from A-share market in the coming year. 

According to the above data, ChinaVenture sorted out the VC/PE-backed enterprises which have been submitted or are about to be submitted to the CSRC for IPO since 2012, and performed the statistics of such indicators of the investment institutions as investment scale, investment cost, investment cycle, etc., with view to revealing development characteristics and market trend of China VC/PE industry in recent years. According to the statistics, various types of institutions in the PE industry, e.g., Jiuding Capital, China Science & Merchants Investment Management Group (CSC), Shenzhen Capital, Fortune Capital, Goldstone Investment and GF Xinde, show different investment styles.

Goldstone Investment and Fortune Capital having the most shares, CSC and Jiuding Capital winning by scale

ChinaVenture selected all the enterprises which have been submitted to the CSRC for IPO (including the ones which have passed or didn’t passed the examination of CSRC for IPO) and the listed companies at the pre-announcement stage - nearly 200 announced cases as its research objects. CVSource, the financial data product affiliated to ChinaVenture, sorted out VC/PE firms. According to the statistics, 12 out of the above-mentioned enterprises to be listed have invested more than 3 VC/PE firms. In terms of the total amount of the announced investment cases of the companies to be listed since 2012, the most rapidly-developed China Science & Merchants Investment Management Group (CSC) and Jiuding Capital ranked first two, amounting to 844 million yuan and 539 million yuan, with the average investment volume of 12 million yuan and 9 million yuan. The enterprises that the investment quantity ranked first two were Goldstone Investment and Fortune Capital. Due to its smaller average investment volume, their total investment amounts ranked 7th and 8th. 

Fig. 2: Investment Scale of the Enterprises to Be Submitted to the CSRC for IPO in VC/PE-invested A-share Market since 2012

In terms of specific cases, the single investment of China Science & Merchants Investment Management Group (CSC) is more concentrated. Among its 7 investment projects, the total investment of Solareast (603366, shares bar) and Chongqing Loncin were 728 million yuan, and average investment volume of the rest was 23 million yuan. Jiuding Capital’s investment scale is relatively average: maximum investment volume is 150 million yuan for Hongqi Chain, minimum investment volume 26 million for Sinowealth Electronic, and average investment volume 90 million yuan for the remaining 4 enterprises. Moreover, total investment scale of GF Xinde is 366 million yuan ranking third, with average investment volume of 52.33 million yuan, higher than that of other securities companies engaged in direct investment and most of professional VC/PE firms. 

Jiuding Capital: the lowest cost, the shortest direct investment cycle

To investigate the investment cost of the investment institutions of the companies to be listed, ChinaVenture provided information according to announced enterprise prospectuses, performed the statistics of P/E ratio of investment projects, and then calculated the weighted average of investment costs of investment institutions according to investment amount to get the average investment costs of the main VC/PE firms (see Fig. 3) 

Fig. 3: Investment Cost of the Enterprises to Be Submitted to the CSRC for IPO in VC/PE-invested A-share Market since 2012

Notes: Investment cost (P/E ratio) = valuation of invested enterprise / net profit of the investment in that year; where, enterprises valuation = investment amount /share proportion. 

According to the statistics, Jiuding Capital has minimum P/E ratio, only 8.7 times. As can be seen that, behind its “vigorous” investment style, its investment cost can be controlled effectively. Moreover, the investment costs of Oriental Fortune Capital, Zhongke Hongyi and Fortune Capital is less than 10 times, and most of institutions have the P/E ratio between 10 times - 15 times, and the investment cost of Yonghua Capital is more than 15 times.

As a whole, the average P/E ratio of the above-mentioned investment institutions is 12.3 times, indicating that under the circumstances of the prevailing of Pre-IPO investment and the aggravation of market competition, the investment cost of the whole equity investment industry increases correspondingly. However, compared with average 12-15-time P/E ratio of China PE market in 2011, the investment behaviors of the above-mentioned investment institutions mostly took happen in the first half of the year 2010, and its investment cost didn’t reach its peak.

In terms of the distribution of the P/E ratio, out of 65 companies to be listed held the shares by the above-mentioned institutions, 5 companies have the P/E ratio lower than 6 times, 6 companies 6-8 times, and 10 companies 8-10 times (accounting for 32.3%); 18 companies 10-12 times and 13 companies 12-15 times (accounting for 47.7%; 12 companies 15 times (accounting for 18.5%). The project with the lowest investment cost was Wuxi Huadong Heavy Machinery invested by Jiuding Capital in October 2010, with the P/E ratio of 4 times. The project with the highest investment cost was DYRS invested by Yonghua Capital, with the P/E ratio of 38.6 times.

As far as the investment cycle of the institutions is concerned, that is, from the date that the institution invested in the enterprise to the date that the enterprise was submitted to the CSRC for IPO (It is speculated by the pre-announcement enterprise that the date to be submitted to the CSRC for IPO is the coming two months.). According to ChinaVenture’s statistics, average investment cycle is 26.6 months, that is, among the VC/PE-backed enterprises which have been submitted or are about to be submitted to the CSRC for IPO, the date that the enterprise introduced the PE investor was in the first half of the year 2010. The investment projects during this cycle were dominated by Pre-IPO investment projects.

Among the institutions, Zhongke Hongyi had the longest investment cycle up to 37 months, followed by Fortune Capital and Shenzhen Capital, up to 31 months and 26 months, and then Jiuding Capital and China Science & Merchants Investment Management Group (CSC) , 20 months or so. The investment cycles of securities companies engaged in direct investment were relatively short. The investment cycles of such institutions as Goldstone Investment, GF Xinde, etc. were 18 months or so. Such short an investment cycle benefited from the “recommendation and guarantee + direct investment” that the securities companies engaged in direct investment adopted previously.