SAG Holdings Limited (referred to as SAG for short) is a Singapore-headquartered automotive parts distributor whose main business is selling original equipment manufacturer (OEM) and aftermarket parts for both automotive and non-automotive combustion engines across Asia and the Middle East. The company recently filed a prospectus with the U.S. Securities and Exchange Commission (SEC) with plans to list on the NASDAQ and raise $8.7 million in funds. What kind of company is this? Why does it choose to list in the United States? What are the benefits of listing in the U.S.? Why not list on the Hong Kong Stock Exchange (HKEX) or the Singapore Exchange (SGX)? These questions may arouse the attention and curiosity of Chinese enterprises in the same industry. History and founder information of SAG SAG was founded in 2008 by Mr. Neo Chin Heng (Jimmy Neo), a Singaporean. Mr. Jimmy Neo once held a management position at Spare-Parts Zone Pte Ltd, another Singaporean automotive parts distributor, and has rich industry experience and connections. He saw the huge potential and demand in the automotive parts market in Asia and the Middle East, and decided to establish his own company focusing on high-end brands and high-quality parts. He also spotted the market gap and opportunities in non-automotive combustion engine parts (such as those for ships, construction machinery, generators, etc.), and decided to expand into this field to provide professional services and solutions. SAG's main business is divided into two segments: On-Highway and Off-Highway. On-Highway refers to automotive parts, including two types: original equipment manufacturer (OEM) and aftermarket. OEM refers to providing parts that are the same as or similar to original factory accessories by cooperating with automobile manufacturers; aftermarket refers to providing parts that are different from or improved compared to original factory accessories to meet customers' personalized needs or improve performance. SAG mainly sells automotive parts of high-end brands from Europe, Japan and South Korea, such as Mercedes-Benz, BMW, Audi, Toyota, Honda, Hyundai, etc. SAG owns its retail store Autozone (unrelated to the U.S.-based company of the same name) in Singapore and Malaysia, and also sells automotive parts to customers in Asia and the Middle East through other channels. The On-Highway segment accounted for 47% of SAG's revenue in 2022. Off-Highway refers to parts for non-automotive combustion engines, including two types: components and spare parts. Components refer to providing core engine parts such as pistons, cylinders, crankshafts, etc. by cooperating with engine manufacturers; spare parts refer to providing parts required for engine maintenance and replacement such as filters, lubricants, spark plugs, etc. SAG mainly sells non-automotive combustion engine parts of high-end brands from Europe, Japan and the United States, such as Cummins, Caterpillar, Perkins, Mitsubishi, etc. SAG sells non-automotive combustion engine parts to customers in Asia and the Middle East through its own sales team and agents. The Off-Highway segment accounted for 53% of SAG's revenue in 2022. In addition to the above two segments, SAG also has a smaller business: producing parts under its own brand, mainly filters and lubricants. These parts are mainly used for the Off-Highway segment, but can also be used for the On-Highway segment. SAG believes that its branded parts can provide higher cost performance and better customer experience. Financial data and business model of SAG According to the prospectus, SAG achieved revenue of SGD 70.98 million (approximately USD 51.45 million) in 2022; net profit was SGD 2.106 million (approximately USD 1.527 million); the net profit margin was 2.97%, lower than 3.17% in the same period of 2021. SAG achieved full-year revenue of SGD 57.946 million (approximately USD 43.221 million) in 2021, a year-on-year decrease of 7.6%; net profit was SGD 1.839 million (approximately USD 1.372 million), a year-on-year decrease of 25.5%; the net profit margin was 3.17%, higher than 1.99% in full-year 2020. From these data, it can be seen that SAG recovered and improved in 2022, but still faces problems such as slow revenue growth and low net profit margin. SAG's business model is mainly distribution, supplemented by production. The distribution business requires a large amount of inventory and capital turnover, and also faces risks such as market competition and changes in customer demand. The production business requires investment in equipment and technology, and also faces challenges such as brand awareness and quality assurance. In the prospectus, SAG acknowledged that it needs to continuously look for new suppliers and customers to maintain its market share and profit level; it also needs to continuously develop new products and services to meet customers' diversified needs and improve customer loyalty. In addition, SAG is also affected by external factors such as exchange rate fluctuations, tariff changes, rising transportation costs, and supply chain disruptions. Reasons and benefits of SAG's listing on NASDAQ So why does SAG choose to list on the NASDAQ? What are the benefits of listing in the U.S.? According to the prospectus, SAG stated that it chose to list in the U.S. for the following reasons: - The United States is the world's largest, most mature and most active capital market, with numerous investors and institutions, which can provide more funds and liquidity to support SAG's business expansion and innovation; - The NASDAQ is the world's largest and most well-known technology stock exchange, gathering many leading technology companies such as Apple, Google, Microsoft, etc., which can improve SAG's brand awareness and reputation to attract more customers and partners; - The listing requirements and costs of the NASDAQ are relatively low, which can reduce SAG's listing costs and thresholds, accelerate its listing process and save resources; - The NASDAQ adopts fully electronic trading methods, which can improve the trading efficiency and transparency of SAG's stocks, reducing its trading risks and costs. The main benefits of SAG's listing in the U.S. are as follows: - SAG can raise more funds through listing to enhance its financial strength and competitiveness, so as to cope with market changes and challenges; - SAG can improve its corporate image and public awareness through listing to increase its market share and customer loyalty; - SAG can increase the liquidity and value of its stocks through listing to increase shareholder returns and incentive mechanisms; - SAG can expand its internationalization strategy and cooperation network through listing to enter more emerging markets and fields. Why doesn't SAG list on the HKEX or SGX? Compared with the NASDAQ, the HKEX or SGX may have the following disadvantages: - The listing requirements and costs of the HKEX or SGX may be relatively higher, requiring more time and energy to meet; - The market size and activity of the HKEX or SGX may be relatively small, unable to provide sufficient funds and liquidity to support SAG's development; - The proportion of technology stocks on the HKEX or SGX may be relatively low, unable to provide sufficient attention and recognition to enhance SAG's brand value; - The HKEX or SGX may be affected by factors such as geopolitics, economic fluctuations and regulatory changes, increasing uncertainty and risks for SAG. To sum up, SAG Holdings is a Singaporean company focusing on automotive parts distribution, planning to list on the NASDAQ. The company's choice to list in the U.S. is based on its business characteristics, development goals, market environment and other factors, hoping to use the advantages of the NASDAQ to achieve its strategic vision. Listing in the U.S. is beneficial to its financing, expansion, innovation, improvement and other aspects. The company's decision not to list on the HKEX or SGX is due to the shortcomings and risks of these markets. For Chinese enterprises in the same industry, SAG Holdings' listing case can be used as a reference, but they also need to make appropriate choices and decisions based on their own conditions and goals. The NASDAQ is not the only listing option, nor is it suitable for all enterprises. Each enterprise needs to analyze its own listing motivation and strategy based on its own strengths and weaknesses, and choose the most suitable listing platform and timing. © 2021 Meishun (Hong Kong) Management Consulting Co., Ltd. and Meishun (Hangzhou) Management Consulting Co., Ltd. All rights reserved. Meishun Meiyin (Hangzhou) Consulting Management Co., Ltd. is the domestic subsidiary of Hong Kong Meishun Management Consulting Co., Ltd. under the same actual controller. Both companies are under the same actual controller, managed under the same Chinese management, and comply with the laws of Hong Kong and mainland China.