CBL International Aims For $16.5 Million U.S. IPO (Pending:BANL)

A Quick Take On CBL International Limited

CBL International Limited (BANL) has filed to raise $16.5 million in an IPO of its ordinary shares, according to an F-1 registration statement.

The firm provides fuel bunkering services in various ports in the Asia Pacific region.

Given a high valuation multiple for the IPO and the firm’s low margin business model, I’m on Hold for CBL’s IPO.

CBL Overview

Kuala Lumpur, Malaysia-based CBL was founded to provide fuel bunkering facilitation for marine vessel refueling in Asia Pacific ports.

Management is headed by Chairman and CEO Mr. Teck Lim Chia, who has been with the firm since inception of the group and was previously employed at various firms in the fuel oil business and oil trading industry in Asia.

The company’s primary country operations include:

• Malaysia

• China

• Philippines

• Thailand

• Singapore

• South Korea

As of June 30, 2022, CBL has booked fair market value investment of $490,000 as of June 30, 2022 from investors including CBL Asia Limited and Straits Energy Resources Berhad.

CBL – Customer Acquisition

The company seeks relationships with international liner operators with vessels sailing along regular routes and schedules.

The firm currently has operations in approximately 34 ports throughout Asia.

Selling and Distribution expenses as a percentage of total revenue have fallen as revenues have increased, as the figures below indicate:

Selling and Distribution	Expenses vs. Revenue
Period	Percentage
Six Mos. Ended June 30, 2022	0.2%
2021	0.3%
2020	0.3%

Click to enlarge

(Source – SEC)

The Selling and Distribution efficiency multiple, defined as how many dollars of additional new revenue is generated by each dollar of Selling and Distribution spend, rose sharply to 147.4x in the most recent reporting period, as shown in the table below:

Selling and Distribution	Efficiency Rate
Period	Multiple
Six Mos. Ended June 30, 2022	147.4
2021	95.4

Click to enlarge

(Source – SEC)

CBL’s Market & Competition

According to a 2022 market research report by Allied Market Research, the global bunker fuel market was an estimated $109.6 billion in 2020 and is forecast to reach $164.9 billion by 2030.

This represents a forecast CAGR of 4.3% from 2021 to 2030.

The main drivers for this expected growth are a growth in the use of liquefied natural gas, liquefied petroleum gas and gasoil as substitutes for existing fuel oils.

Also, fuel reduction initiatives are expected to act as a brake to the industry’s growth as it grapples with increasing government regulations designed to reduce pollution.

Major competitive or other industry participants include:

• BP (BP)

• Exxon Mobil (XOM)

• Royal Dutch Shell (SHEL)

• Lukoil (OTC:LUKOY)

• Sinopec Group (SHI)

• Gazprom Neft PJSC

• Chevron Corporation (CVX)

• PETRONAS (OTCPK:PNADF)

• TotalEnergies SE (TTE)

• Neste Oyj (OTCPK:NTOIF)

CBL International Limited Financial Performance

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

• Uneven topline revenue growth

• Growing gross profit but lowered gross margin

• Reduced operating profit and operating margin

• Variable 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 June 30, 2022	$ 235,696,705	47.9%
2021	$ 326,540,712	39.4%
2020	$ 234,257,668
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
Six Mos. Ended June 30, 2022	$ 4,043,443	32.0%
2021	$ 7,590,630	22.2%
2020	$ 6,210,709
Gross Margin
Period	Gross Margin
Six Mos. Ended June 30, 2022	1.72%
2021	2.32%
2020	2.65%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
Six Mos. Ended June 30, 2022	$ 1,547,106	0.7%
2021	$ 4,230,997	1.3%
2020	$ 3,451,780	1.5%
Net Income (Loss)
Period	Net Income (Loss)	Net Margin
Six Mos. Ended June 30, 2022	$ 1,088,896	0.5%
2021	$ 3,568,968	1.5%
2020	$ 2,877,723	1.2%
Cash Flow From Operations
Period	Cash Flow From Operations
Six Mos. Ended June 30, 2022	$ 759,089
2021	$ (2,506,577)
2020	$ 3,362,327
(Glossary Of Terms)

Click to enlarge

As of June 30, 2022, CBL had $4.5 million in cash and $24 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2022, was negative ($7,426).

CBL International Limited IPO Details

CBL intends to raise $16.5 million in gross proceeds from an IPO of its ordinary shares, offering 3.75 million shares at a proposed midpoint price of $4.40 each.

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

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $92.2 million, excluding the effects of underwriter over-allotment options.

The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 15.0%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.

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

approximately 28.6%, or $4 million, is expected to be used for enlarging the number of local suppliers to enhance our competitiveness as well as to increase the service options available in the Singapore and South Korea markets;

approximately 28.6%, or $4 million, is expected to be used for further increasing our market shares in our existing markets;

approximately 17.9%, or $2.5 million, is expected to be used for cash collateral to conduct trade financing activities with financial institutions, thus creating transaction records for further acquisition of bank financing to facilitate our business growth;

approximately 7.2%, or $1 million, is expected to be used for procuring and developing a centralized management information system in order to enhance our daily management control and treasury management; and

approximately 17.7%, or $2.5 million, is expected to be used for our general working capital.

(Source – SEC)

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

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

The sole listed bookrunner of the IPO is Pacific Century Securities.

Valuation Metrics For CBL

Below is a table of relevant capitalization and valuation figures for the company:

Measure [TTM]	Amount
Market Capitalization at IPO	$110,000,000
Enterprise Value	$92,213,499
Price / Sales	0.27
EV / Revenue	0.23
EV / EBITDA	22.80
Earnings Per Share	$0.13
Operating Margin	1.00%
Net Margin	0.80%
Float To Outstanding Shares Ratio	15.00%
Proposed IPO Midpoint Price per Share	$4.40
Net Free Cash Flow	-$7,426
Free Cash Flow Yield Per Share	-0.01%
Debt / EBITDA Multiple	0.18
CapEx Ratio	0.71
Revenue Growth Rate	47.88%
(Glossary Of Terms)

Click to enlarge

(Source – SEC)

Commentary About CBL’s IPO

BANL is seeking U.S. public capital market investment to fund its general corporate expansion plans.

The company’s financials have produced variable topline revenue growth, higher gross profit but lowered gross margin, less operating profit and lower operating margin and fluctuating cash flow from operations.

Free cash flow for the twelve months ended June 30, 2022 was negative ($7,426).

Selling and Distribution expenses as a percentage of total revenue fell as revenue increased; its Selling and Distribution efficiency multiple rose to 147x in the most recent reporting period.

The firm currently plans to pay no dividends and to retain most of any future earnings to reinvest back into the business.

BANL’s trailing twelve-month CapEx Ratio was 0.71, which indicates it has spent heavily on capital expenditures as a percentage of its operating cash flow.

The market opportunity for providing fuel bunkering services is large but expected to grow only moderately in the coming years.

Pacific Century Securities is the sole underwriter and there is no data on the firm’s IPO involvement over the last 12-month period.

The primary risk to the company’s outlook is the changing cost of capital environment which may affect its ability to receive or provide trade credit in its operations.

Also, the company has revenue concentration risk due to its reliance on its five largest customers ‘and loss of any of them would adversely affect’ its business results.

With the firm having substantial operations in China and throughout Asia, 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 within China may exist.

Prospective investors would be well advised to consider the potential implications of specific laws regarding earnings repatriation and changing or unpredictable Chinese regulatory rulings that may affect such companies and U.S. stock listings.

As for valuation, management is asking investors to pay an EV/EBITDA multiple of approximately 22.8x.

The firm operates a very low margin business, which I generally do not favor.

Given a high valuation multiple for the IPO, uneven financial results and the firm’s low margin business model, I’m on Hold for CBL’s IPO, although it may attract day traders seeking volatility and a low nominal price.

Expected IPO Pricing Date: To be announced.