New Gonow Drives Closer To Hong Kong Listing

Key Takeaways:

• New Gonow has received a key regulatory nod to list in Hong Kong, reporting rapidly improving margins as it gains economies of scale
• The company manufactures recreational vehicles in China for sale in Australia, and aims to eventually expand to North America and Europe

By Doug Young

A chance meeting in Australia a decade ago marked the start of a long road that could soon peak with a Hong Kong listing for New Gonow Recreational Vehicles Inc. The maker of towable recreational vehicles (RV) applied for the listing in May, and last week received a necessary green light from the China Securities Regulatory Commission (CSRC) to move ahead.

The company plans to issue up to 276 million shares, according to the CSRC post, which didn’t provide any fundraising targets. Based on a likely market value of between $300 million and $500 million by our calculations, the deal could raise around $50 million if it moves ahead. Its sole underwriter is Huatai International, the global arm of one of China’s leading brokerages, which also suggests this sort of mid-sized fundraising target.

While surging Chinese car exports have grabbed global headlines over the last year, the RV market remains a relatively small niche still dominated by global brands like Thor Industries THO and Winnebago WGO. New Gonow is hoping to join that group someday, though nearly all of its sales currently come from Australia and New Zealand, which together make up the world’s third-largest RV market behind North America and Europe.

New Gonow’s sales have been revving up recently, powered by a combination of retirees with plenty of time to travel and also young people looking for new types of adventure off the usual beaten tracks. The company’s sales more than doubled between 2021 and 2023 on that boom, helped by a return to normal after the end of the pandemic. The company’s profit more than tripled over that time as it gained economies of scale – a point it hopes will attract investors.

New Gonow is a textbook case of a Chinese company acquiring a Western brand, then moving its production to China to reduce costs. While such a strategy has a spotty record, often because such acquired brands are already past their prime, it seems to be working well in the case of New Gonow, which has developed its own brands alongside the acquired one.

The company’s move into RVs dates back to a chance encounter detailed in a 2014 article on the Australian website caravancampingsales.com.au. That year, a group of people from the company was in Australia creating buzz in their search for an RV maker to acquire, said Stan Guthrie, who was a major shareholder at that time in Regent, a major local RV maker that New Gonow ended up acquiring.

“I tracked them down and invited them over,” he said, referring to Regent’s production base in the city of Melbourne. “They immediately liked what they saw and the deal was already done in principle not long afterwards. However, if I hadn’t called into the factory that morning it might never have been, as they had four other caravan manufacturers on their shopping list.”

Following the acquisition, New Gonow launched its mainstream Snowy River brand a year later, while positioning Regent as a luxury brand. It added Newgen in 2019, aiming to attract younger buyers with that brand’s off-road capabilities. Snowy River currently accounts for about three-quarters of New Gonow’s sales by revenue, with Regent and Newgen each accounting for another 10%. Its models typically sell for between A$51,000 ($34,700) and A$85,000.

Geely Background

At 53 years old, company founder and Chairman Miao Xuezhong himself is a product of China’s recent car boom, which is another selling point for investors. His pedigree includes three years as a senior executive at Geely, now one of China’s leading private automakers, from 1999 to 2002, back when the company was just starting its climb to prominence. He later also worked in high-level positions at GAC, a leading state-owned carmaker whose joint venture partners include Honda and Toyota, from 2010 to 2016.

The company’s background and financials also tick many of the right boxes that should attract investors and ease concerns over any potential for falling victim to China-Western trade tensions. As a vehicle maker in a niche category like RVs, it seems unlikely that New Gonow could soon become subject to any protective import duties like the ones being levied in the U.S. and Europe on Chinese EVs.

The company currently gets nearly all of its revenue from Australia and New Zealand, where it sells through a network of 13 third-party dealers, two self-owned stores and four joint ventures with local partners. But it also says it plans to eventually enter the larger North American and European markets, without giving any specific dates. It’s also developing electric vehicle (EV)  models, and says it’s aiming to launch those in the first quarter of next year.

In terms of sales, the company’s unit sales roughly doubled over the last three years to 2,694 RVs delivered in 2023 from 1,330 in 2021. But its revenue grew by a much faster 140% over that time, from 300 million yuan in 2021 to 720 million yuan last year, showing it was able to generate more revenue per vehicle with its growing scale and brand awareness. Its cost of sales over that time fell from 83% of revenue to 75%, helping to raise its gross margin from 16.7% in 2021 to 25.1% last year. The bottom line was that New Gonow’s profit roughly tripled over the three-year period, reaching 78.8 million yuan last year from 25.1 million yuan in 2021.

The company is currently the second-largest RV seller in Australia and New Zealand with 6.8% of the market, meaning there’s plenty of room for growth. Though we should also note that it’s well behind the market leader’s 31.5% market share, and the third- to fifth-largest players are quite close behind, each with market share 5%.

Thor Industries and Winnebago both look like good comparisons from a valuation perspective, both with price-to-earnings (P/E) ratios of 22. A similar ratio would value New Gonow at about $275 million, though it’s likely to seek a premium due to its strong growth potential, which could value it at the $300 million to $500 million range we mentioned earlier. At the end of the day, the company looks well positioned by leveraging its China manufacturing base to sell to both young people and retirees in the West who are increasingly looking for this type of flexible outdoor recreational experience.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.