Consumer Products Maker Blue-Touch Holdings Begins IPO Effort (Private:BTHG)

A Quick Take On Blue-Touch Holdings Group

Blue-Touch Holdings Group Co., Ltd (BTHG) has filed to raise an undisclosed amount in an IPO of its ordinary shares, according to an F-1 registration statement.

The firm designs and sells baby skincare products and household cleaning products in China.

Blue-Touch is still a very small company in a large market with major competitors.

When we learn more about the IPO’s details from management, I’ll provide an update.

Blue-Touch Overview

Fuzhou City, China-based Blue-Touch Holdings Group Co., Ltd was founded in 2014 to develop and sell baby skincare and toiletry products and household cleaning products under the Blue-Touch brand using safe and sustainable ingredients.

Management is headed by Chairman and CEO Guanzhao Lin, who has been with the firm since September 2014 and was previously CEO of 2W Products and CEO of 2Win prior to that.

The company’s primary offerings include:

Body oils and moisturizers
Lotions
Shampoo and body wash
Fabric softeners
Laundry detergent
Multi-functional cleaners and disinfectants

As of December 31, 2021, Blue-Touch has booked fair market value investment of $7.7 million from investors including ST Investment Group, LinFeng Investment and others.

Blue-Touch – Customer Acquisition

The company relies on third party manufacturers and offline distributors to manufacture and sell its product within China.

Blue-Touch counted five manufacturers and seventeen offline distributors in China during 2021.

Sales and Marketing expenses as a percentage of total revenue have dropped as revenues have increased, as the figures below indicate:

Sales & Marketing	Expenses vs. Revenue
Period	Percentage
2021	10.5%
2020	12.5%

(Source – SEC)

The Sales and Marketing efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, was 5.1x in the most recent reporting period. (Source – SEC)

Blue-Touch’s Market & Competition

According to a market research report by ResearchAndMarkets, the Chinese baby care products market was an estimated $11.6 billion in 2019 and is forecast to reach $21.5 billion by 2026.

This represents a forecast CAGR of 9.24% from 2020 to 2026.

The main drivers for this expected growth are growing awareness of the importance of child hygiene, growing employment of the population and over the longer term, the 3-child policy introduced by the Chinese government in 2021.

Also, large e-commerce platforms will be major players in the sales of related products. However, consumer demands for higher quality products may result in the diminution of certain brands that fail to provide quality products.

Major competitive or other industry participants include:

Johnson & Johnson
Aveeno
Pigeon
Sebamed
Baby Elephant
Frog Prince
Yumeijing
Unilever

Blue-Touch Holdings Group Financial Performance

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

Growing topline revenue from a small base
Increasing gross profit and gross margin
Higher operating profit
A swing to cash flow from operations

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

Total Revenue
Period	Total Revenue	% Variance vs. Prior
2021	$ 6,655,515	114.9%
2020	$ 3,096,924

Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
2021	$ 2,585,649	134.3%
2020	$ 1,103,341

Gross Margin
Period	Gross Margin
2021	38.85%
2020	35.63%

Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
2021	$ 1,032,911	15.5%
2020	$ 77,816	2.5%

Comprehensive Income (Loss)
Period	Comprehensive Income (Loss)	Net Margin
2021	$ 847,630	12.7%
2020	$ (127,562)	-1.9%

Cash Flow From Operations
Period	Cash Flow From Operations
2021	$ 256,070
2020	$ (664,109)

(Glossary Of Terms)

As of December 31, 2021, Blue-Touch had $1.9 million in cash and $589,548 in total liabilities.

Free cash flow during the twelve months ended December 31, 2021, was negative ($425,110).

Blue-Touch Holdings Group IPO Details

Blue-Touch intends to raise an undisclosed amount in gross proceeds from an IPO of its ordinary shares.

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

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

approximately 20% of the net proceeds from this offering for product innovation and development;

approximately 40% of the net proceeds from this offering for business expansions and for the acquisitions of, or investments in, businesses engaged in maternal and newborn skincare industry, although as of the date of this prospectus, our Company has not identified, nor has our Company engaged in any material discussions regarding, any potential target; and

approximately 40% of the net proceeds from this offering for working capital, operating expenses and other general corporate purposes.

(Source – SEC)

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

Regarding outstanding legal proceedings, management said the firm is not currently a party to any material lawsuits.

The sole listed bookrunner of the IPO is Univest Securities, an active underwriter of IPOs of companies from China.

Commentary About Blue-Touch’s IPO

BTHG is seeking U.S. capital market investment to fund its general, unspecified expansion plans.

The firm’s financials have produced increasing topline revenue from a small base, higher gross profit and gross margin, growing operating profit and a swing to cash flow from operations.

Free cash flow for the twelve months ended December 31, 2021, was negative ($425,110).

Sales and Marketing expenses as a percentage of total revenue have dropped as revenues have increased; its Sales and Marketing efficiency multiple was 5.1x in 2021.

The firm currently plans to pay no dividends and intends to keep any future earnings for reinvestment back into the company’s growth initiatives.

Blue-Touch’s trailing twelve-month CapEx Ratio was -0.38, which indicates it has spent extensively on capital expenditures as a percentage of its operating cash flow.

The market opportunity for baby care products in China is large and expected grow at a substantial rate of growth in the coming years, but features large and entrenched competitors.

Like other firms with Chinese operations seeking to tap U.S. markets, the firm operates within a WFOE structure or Wholly Foreign Owned Entity. U.S. investors would only have an interest in an offshore firm with interests in operating subsidiaries, some of which may be located in the PRC. Additionally, restrictions on the transfer of funds between subsidiaries within China may exist.

The recent Chinese government crackdown on IPO company candidates combined with added reporting and disclosure requirements from the U.S. has put a serious damper on Chinese or related IPOs resulting in generally poor post-IPO performance.

Also, a potential significant risk to the company’s outlook is the uncertain future status of Chinese company stocks in relation to the U.S. HFCA act, which requires delisting if the firm’s auditors do not make their working papers available for audit by the PCAOB.

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.

Univest Securities is the sole underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 8.0% since their IPO. This is a middle-tier performance for all major underwriters during the period.

The primary risk to the company’s outlook is the continuing regulatory uncertainty arising from unpredictable COVID-19 lockdown in major cities within China.