AutoNavi Holdings (AMAP). $99mm IPO Market cap of $524mm at price range mid-point of $15. Scheduled for Wednesday, June 30
A leading provider of digital map content and navigation and location-based solutions in China
SMMARY
. A good way to play the expected continued growth of the automobile market in China . Top line revenue mostly recurring because AMAP’s units are ‘designed in’ to 100 vehicle models sold in China
. IPO proceeds for growth, not debt repayment . Solid financials includes top line revenue growth, 60% plus gross margins, consistently profitable, low debt structure
Price range of $15 mid-point implies a 37 times P/E for the twelve months ended March 31, 2010 -- a relatively high P/E that requires AMAP to consistently increase sales & profits.
Looks expensive compare to Garmin & TeleNav
COMPARE & CONTRAST
Valuation ratios	Mrkt	Price /	Price /	Price /	Price /
last 4 qtrs, ending in March	Cap (mm)	Sales	Earnings	BookValue	TangibleBV
AutoNavi Hlds	$524	8.5	37	3.1	3.1
Garmin Ltd (GRMN)	$6,390	2	7	2.5	2.7
TeleNav (TNAV)	$359	2	9	4.0	4.0
BUSINESS
AutoNavi Holdings (AMAP) A leading provider of digital map content and navigation and location-based solutions in China
AMAP revenues are directly affected by the sales of products and services incorporating map data and solutions, which include vehicles with in-dash navigation systems, portable navigation devices, mobile phones and wireless location-based services offered by China Mobile. The quality, coverage and depth of AMAP’s digital map database directly affects the experience of the end-users.
At the core of the business is a comprehensive nationwide digital map database that covers approximately 2.8 million kilometers of roadway and over 12.5 million points of interest across China. . Almost all of China’s 1.3 billion people live within the area covered by AMAP’s digital map database. . In addition, AMAP has completed 3-D navigation maps of key areas in 19 major cities and photo-realistic 3-D models of 16 cities for public sector projects.
AMAP has also built a technology platform that enables them to develop tailored solutions.
IN-DASH NAVIGATION & MOBILE PHONE MARKET GROWTH
. According to the Analysys In-Dash Report, sales of in-dash navigation systems in China are projected to grow at a CAGR of 44.6% from 348,000 units in 2009 to 1.1 million units in 2012. . Sales of portable navigation devices in China are expected to increase from 1.5 million units in 2009 to 2.8 million units in 2012, representing a CAGR of 22.2%, according to the Analysys PND Report. . In addition, China has the largest number of mobile subscribers in the world, reaching 786.5 million as of the end of April 2010, according to the PRC Ministry of Industry and Information Technology. . Unit sales of GPS-enabled mobile phones in China are projected to grow at a CAGR of 128.6% from 7.4 million in 2009 to 88.4 million in 2012, according to Analysys International. . The introduction of 3G mobile services by all three mobile operators in China in 2009, coupled with the increasing adoption of GPS in mobile phones, presents significant opportunities for location-based service providers as their applications become increasingly available to users.
NAVIGATION CUSTOMERS
Automotive
. AMAP currently provides digital map data for use in over 100 vehicle models sold in China, including multiple Audi and BMW models and other international and domestic automobile models.
. The process of selecting the map data supplier for a new vehicle model and integrating the map data with the vehicle’s hardware and software environment is long, generally beginning two to four years before the new vehicle model is introduced in the market. . Because of system compatibility concerns, the switching costs are relatively high, and once a map data supplier is selected for a particular vehicle model, the automobile manufacturer rarely changes the map data supplier for that model. Portable
On the other hand, it is relatively easy for portable navigation device manufacturers to switch map data and solution providers.
COMPETITION
Faces competition in each line of location-based solutions. AMAP believes none of its competitors provides as broad a spectrum of solutions as AMAP
Automotive Navigation
. In the in-dash navigation systems market, the primary competitor is NavInfo Co., Ltd. The portable navigation device market for digital map solutions is highly competitive with multiple map data providers. . In addition, some competitors in these markets have formed joint venture or otherwise cooperated with the two major international digital map providers, NAVTEQ Corporation, a subsidiary of Nokia Corporation, and Tele Atlas N.V., a subsidiary of TomTom N.V. . The global reach of these two companies, their pre-existing relationships with some of AMAP’s key customers, their greater financial resources and their affiliation with large navigation hardware manufacturers may help competitors expand their respective businesses.
Public Sector and Enterprise Applications
. In the aerial photogrammetry and 3-D modeling applications businesses, AMAP faces competition primarily from state-owned enterprises that have aerial photogrammetry capabilities and companies with 3-D geographic modeling capabilities. . The competition is based primarily on technology capability, service capacity, customer relations and pricing. . In providing location-based municipal management and enterprise solutions, AMAP competes primarily with companies with digital map production capabilities as well as small, local service providers. The competition is primarily based on the ability to provide integrated solutions consisting of both map data and software applications.
Wireless/Internet Location-based Solutions
. In the wireless location-based solutions business, AMAP has been providing China Mobile with a nationwide digital map database to support its location-based services to individual mobile subscribers throughout its nationwide network, and has not faced significant competition with respect to this business. . In mobile navigation and user-end map applications, AMAP faces competition primarily from companies that offer similar solutions. The competition is primarily based on product design and marketing. . In providing map application solutions to Internet websites, AMAP competes primarily with Mapbar. The competition is primarily based on access to quality map data, richness of the content, ease of use, stability of solutions and technical support.
RECENT RESULTS
Three Months Ended March 31, 2010 vs March 31, 2009
Net Revenues
. Total net revenues increased by 42.7% from $11.6 million for the three months ended March 31, 2009 to $16.6 million for the three months ended March 31, 2010. . The increase resulted from increases in net revenues from our automotive navigation and wireless/Internet location-based solutions business lines, partially offset by a decrease in net revenues from public sector and enterprise applications business.
Automotive navigation
. Net revenues from the automotive navigation market increased by 76.6% from $6.9 million for the three months ended March 31, 2009 to $12.3 million for the three months ended March 31, 2010. . This increase was attributable to a 86.5% increase in revenues from the in-dash navigation systems market, partially offset by a 10.8% decrease in revenues from the portable navigation devices market.
. The increase in revenues from the in-dash navigation systems market was due mainly to an increase in the number of copies of digital map data licensed, partially offset by a small decrease in average unit license fees. . The decrease in revenues from the portable navigation devices market was mainly due to the fact that AMAP did not receive any license fees from one portable navigation device manufacturer with respect to which AMAP limits the amount of revenues recognized to the amount of cash received.
Public sector and enterprise applications
. Net revenues from the public sector and enterprise applications market decreased by 28.3% from $3.2 million for the three months ended March 31, 2009 to $2.3 million for the three months ended March 31, 2010. This decrease resulted from a decrease in revenues from the aerial photogrammetry business, partially offset by an increase in revenues from the enterprise solutions business. . The decrease in revenues from aerial photogrammetry was primarily attributable to a relatively high level of revenues in the first quarter of 2009, resulting from new contracts in connection with the second national land survey, and unfavorable weather conditions in the first quarter of 2010, which adversely affected AMAP’s ability to carry out flight missions. . The increase in revenues from our enterprise solutions was primarily due to a series of new contracts entered into in the second half of 2009, which started to generate revenues in the fourth quarter of 2009 and continued to generate revenues in the first quarter of 2010.
Wireless/Internet location-based services
. Net revenues from the wireless/Internet location-based services market increased by 95.1% from $911,000 for the three months ended March 31, 2009 to $1.8 million for the three months ended March 31, 2010. . This increase was primarily due to a 348.0% increase in revenues from pre- installing navigation solutions on certain mobile phone models, a 65.1% increase in revenues from Internet map application business and a 9.7% increase in revenues from the provision of a nationwide digital map database to support China Mobile’s location-based services.
R&D TO INCREASE
Anticipate that research and development expenses will increase as AMAP devotes more resources to developing new technologies and tools to enhance our database production capability and efficiency, improving existing and developing new solutions and improving analytical capability.
SELLING & MARKETING TO INCREASE
Going forward, AMAP expects selling and marketing expenses to continue to increase as it further expands the business, especially the wireless/Internet location-based solution business, which may require AMAP to develop our brand recognition among end-users.
TAX RATES
Under the PRC Enterprise Income Tax Law and the Transition Preferential Policy Circular, enterprises that were established before March 16, 2007 and already enjoyed preferential tax treatments will continue to enjoy them (i) in the case of preferential tax rates, for a period of five years from January 1, 2008; during the five-year period, the tax rate will gradually increase from 15% to 25%, or (ii) in the case of preferential tax exemption or reduction for a specified term, until the expiration of such term.
RISKS
If the PRC government finds that the agreements that establish the structure for operating AMAP’s businesses in China do not comply with PRC governmental restrictions on foreign investment in surveying and mapping, digital navigation map production, aerial photogrammetry and value-added telecommunication services, then AMAP could be subject to severe penalties.
INTELLECTUAL PROPERTY
. Intellectual property rights and confidentiality protection in China may not be as effective as in the United States or other developed countries . AMAP relies primarily on a combination of patent, copyright, software registration, trade secret, trademark and unfair competition laws and contractual rights to establish and protect intellectual property rights for database, software and related technologies
USE OF IPO PROCEEDS
$76mm from sales of 7.5 ADS from the company. Shareholders intend to sell 1.125mm shares . $20 million to $30 million to expand data processing facilities and build a research and development center . $10 million to $20 million to fund the capital expenditure for aerial photogrammetry business
Balance for general corporate purposes, including funding potential acquisitions of omplementary businesses, although currently negotiating any such transactions.
AutoNavi Hlds (AMAP)	AMAP, C+, 7					Post-IPO ADR equivalents: 46mm
Digital Maps, China
Haidian District, China	2007	2008	2009	March '09qtr	March '10qtr	IPO Mkt
Total Revenue ($mm)	$30	$46	$57	$12	$17	Cap (mm)
. Automotive	$21	$30	$36	$7	$12	$524
% Automtive	70%	65%	64%	59%	74%	@$11.5
. Public sector	$5	$11	$14	$3	$2
. Wireless/interent	$1	$3	$5	$0.6	$1.8
Gross profit %	59%	59%	65%	63%	66%
Profit (loss), continuing ops	$7.3	$5.9	$15.0	$2.4	$1.2
Profit (loss) % of revenue	24%	13%	26%	21%	7%
Quarterly performance	March 09	June 09	Sept 09	Dec 09	March 10
Total Revenue ($mm)	$12	$14	$16	$16	$17
. Automotive	$7	$7	$11	$11	$12
% Automtive	59%	54%	67%	70%	74%
. Public sector	$3	$5	$4	$3	$2
. Wireless/interent	$0.9	$1.1	$1.4	$1.8	$1.8
Gross profit %	63%	66%	70%	60%	66%
Profit (loss), continuing ops	$2.4	$2.8	$6.3	$3.6	$1.2
Profit (loss) % of revenue	21%	21%	39%	23%	7%
VALUATION RATIOS
	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
last 4 qtrs, ending in March	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	in IPO
AutoNavi Hlds	$524	8.5	37	3.1	3.1	19%
SCORECARD		Mgt	Market	Market Do-	Proprie-	Total
1-5, 5 is high			Growth	mination	tary	rating
20 is perfect		2	2	2	1	7
COMPARE & CONTRAST
Valuation ratios	Mrkt	Price /	Price /	Price /	Price /
last 4 qtrs, ending in March	Cap (mm)	Sales	Earnings	BookValue	TangibleBV
AutoNavi Hlds	$524	8.5	37	3.1	3.1
Garmin Ltd (GRMN)	$6,390	2	7	2.5	2.7
TeleNav (TNAV)	$359	2	9	4.0	4.0