Beijing-based software developer ABT Networks, one of the smallest enterprises on the Star Market, set its initial public offering price at CNY 56.88 (USD 7.96) per share. The company is thereby going to start trading in Shanghai at 48.52 times earnings.
Founded in 2007, the firm is now among the security software industry leaders in China. In order to “become the leader in visualized network security technology”, it develops digital solutions and provides IT services, marketing them in China and abroad. The vast majority of ABT’s clients are concentrated within three sectors: education, finance, and health care.
With an R&D team of 87, which is, according to the firm’s official website, “mainly composed of young and middle-aged science & technology elites,” the firm throws heaps of capital at tech improvement: around CNY 69 million (USD 9.72 million) was invested in the research field over the last three years – serious money for a small-sized software company.
ABT has four core revenue streams: embedded securities gateways, virtual security gateways, information security management, network security services. The first direction it the pivotal business of the company – more than half of the current operating income is generated here. Virtual security gateways, having a 25.46% share in the revenue now, is projected to become a “cash cow” with over 35% of the company’s total revenue by 2021.
Institutional broker Lianxun Securities (联讯证券) projects the firm's operating income to grow over the next three years, reaching CNY 249.09 million, CNY 320.23 million and CNY 415.09 million in 2019, 2020 and 2021 respectively. According to the Guangzhou-based financial services provider's estimation, the best option for ABT is to set an IPO price at the level between 37 times and 60 times earnings.
While the ex post financial picture looks bright, ABT might face an extensive set of risk factors in the short term. One of the main issues here is seasonality: historically, the company has been making about 50% of operating income in the fourth quarter. Imbalance of this type is prone to be reflected in the traders' speculating behavior. Another possible hindrance is the high customer concentration: it was reported that top-5 downstream partners of the firm account for 63.25% of its operating income.
Global research and advisory firm Gartner estimates that the worldwide spending on information security products and services exceeded USD 114 billion in 2018. The consultancy published a forecast projecting an 8.7% market size growth in 2019.