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The Hong Kong Stock Exchange recently announced that Toodar Tech aims to approach an initial public offering through the SPAC company TechStar (7855.HK). If successful, Toodar Tech could become the third laser radar company from China to be publicly listed, following Hesai Technology (NASDAQ: HSAI) and SUTENG Juchuang (2498.HK). This event represents a significant development in the realm of laser technology and autonomous driving solutions.
Toodar Tech has garnered attention for being the first supplier to successfully mass-produce high-performance laser radar solutions specifically designed for vehiclesAccording to their prospectus, the agreed valuation for this merger transaction stands at a staggering 11.7 billion Hong Kong dollarsIndependent third party investors, namely Huangshan Jianxin Capital, Fucheng, and Zhuhai Hengqin Huagai, have collectively undertaken an investment amounting to 551 million Hong Kong dollars as part of this endeavor.
It's crucial to note that since the introduction of the "Hong Kong version" of SPACs in 2022, the expected surge that mirrored the US market has not materializedInstead, the SPAC landscape in Hong Kong has remained distinctly quiet, raising questions about its viability within the Asian financial hub.
This current SPAC venture could mark a pivotal moment for Toodar Tech in their quest to thrive amid the competitive landscape.
Examining the dynamics behind Toodar Tech, it is virtually impossible to overlook their association with NIO, a prominent player within the electric vehicle spaceThe prospectus reveals a profound financial connection, with NIO Capital providing funding across three rounds as well as becoming Toodar Tech's largest customerReports illustrate that during various reporting periods, NIO accounted for a staggering 88.7%, 90.6%, and 92.4% of Toodar Tech's total revenueSuch dependency on a single client reflects both wealth and potential peril in Toodar's operational strategy.
Despite being buoyed by support from NIO, Toodar Tech finds itself in an uncomfortable paradox of generating high sales but concurrently racking up losses
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From 2022 to the first nine months of 2024, Toodar reported revenues of approximately $66.3 million, $121 million, and $119 million, respectivelyAs the competition intensifies—particularly with rival companies such as Li Auto and Xpeng—Toodar is navigating a market increasingly driven by price sensitivity.
The competitive landscape for ADAS (Advanced Driver-Assistance Systems) laser radar solutions demonstrates the fierce rivalry among top players like Toodar Tech, SUTENG Juchuang, and Hesai TechnologyIn 2023, market shares for Toodar, SUTENG, and Hesai were closely aligned at 18.6%, 18.2%, and 17.5%, respectively, underscoring the thin margins amidst cutthroat competitionPublic reports indicate that Hesai plans to reduce its laser radar pricing by half by 2025, targeting markets below the 150,000 Yuan mark, while SUTENG aims to capture the market with products priced as low as $200, achieving a spectacular 260% year-on-year increase in shipments in the first three quarters of 2024. Toodar Tech has also seen a gradual decline in average pricing for its products each year.
The Falcon, Sparrow, and Jaguar series represent Toodar Tech's main laser radar sensors, with the Falcon series contributing approximately 98% to total revenueYet, during the reporting periods, the gross profit margins for this product line were significantly negative, recording -64.6%, -36.2%, and -15.7%. Although Toodar is making strides towards mass production, the company has not yet reached the threshold of profitability, accumulating losses of approximately $537 million in just under three years.
Amid ongoing financial struggles and mounting losses, Toodar Tech faces heightened pressure as it competes with publicly listed companiesIn the first nine months of 2024, a combination of operational, investment, and financing activities resulted in a cash decrease of $72.97 millionBy the end of September 2024, Toodar reported having a mere $34.5 million in cash, while its net liabilities escalated from $575 million at the end of 2023 to $700 million.
Looking ahead, Toodar Tech anticipates achieving a positive gross margin by the fourth quarter of 2024. However, its continued momentum necessitates the injection of capital
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Toodar had aimed for an IPO on NASDAQ as early as 2023 but made little progressBy December 2024, Toodar entered into a business merger agreement with TechStar, aspiring to circumvent traditional setbacks by listing on the Hong Kong stock market via SPAC.
Diverging from the narrative typically associated with traditional IPOs, the SPAC pathway offers an alternative approach to raising fundsIn this framework, investment banks or private equity firms create a shell company, raising capital through an IPO and then seeking target companies for acquisition to facilitate their entry into the public market.
The SPAC process circumvents many of the traditional IPO routines, thus allowing for a more accelerated timelineIt is commonly noted that, with adequate preparations, the entire SPAC and De-SPAC transaction process can be finalized within six monthsDuring the precarious financial climate of 2020, the SPAC model surged in popularity on Wall Street, becoming one of the most notable trends of that year.
The Hong Kong Stock Exchange adopted the SPAC mechanism in 2022, with 14 SPACs filing applications and five successfully listing that same yearDespite this, the "Hong Kong version" of SPAC has encountered stagnation, unable to replicate the vigorous activity seen in its U.S. counterpart.
According to the merger stipulations applicable to Hong Kong, SPACs must announce their De-SPAC transaction within 24 months post-IPO, and complete it within 36 monthsThis means 2025 stands as a critical deadline for the five existing SPAC entitiesOnly in October 2024 did Huide Acquisition successfully finalize a De-SPAC transaction with Shiteng Holdings, marking a rare triumph in the Hong Kong landscape.
As the SPAC market grapples with its share of obstacles, two additional SPACs, Vision Deal and INTERRA, seem to be facing insurmountable challengesVision Deal's merger with Quwan Group was terminated, while INTERRA has seen a substantial redemption of its shares, resulting in both being suspended from trading.
Market analysts assert that the tepid response to the "Hong Kong version" of SPAC is likely due to elevated entry barriers and limited instances of success
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