HK IPO: Analysis and Subscription Plan for Aukey's IPO
Aukey Technology is an online retailer specializing in high-quality furniture and home products, committed to providing consumers with a pleasant living experience through robust supply chain management and efficient logistics solutions. The company holds a significant position in the global B2C e-commerce market, ranking first among Chinese sellers in the overseas B2C e-commerce market for furniture and home products.
1. Company Overview
Company Profile: Aukey Technology is a cross-border e-commerce platform headquartered in China, primarily engaged in the online sales of furniture and home products. The company serves global consumers through multiple third-party e-commerce platforms such as Amazon, Walmart, and Wayfair.
Background: Founded in 2010, the company has grown over the years to become one of the key players in China's B2C e-commerce market.
Major Shareholders: As of the completion of the global offering, Mr. Lu and Mr. Ze hold 19.43% and 11.22% of the company's shares, respectively, and jointly control approximately 30.65% of the voting rights under a concerted action agreement. Following the global offering, they will hold about 28.44% of the company's shares.
2. Basic Information of the Offering
Number of Shares Offered: The global offering includes an initial offering of 2,989,500 H shares and 26,905,200 international offering shares.
Par Value: RMB 1.00 per share.
Offering Price: HKD 14.56 or HKD 15.60 per H share.
Offering Date: November 8, 2024.
Proposed Listing Exchange and Board: Main Board of The Stock Exchange of Hong Kong Limited.
Total Share Capital Post-Offering: 415,205,916 shares.
3. Core Business
Main Products or Business: The company primarily sells furniture and home products through third-party e-commerce platforms such as Amazon, Walmart, and Wayfair. Its product range includes power tools, home appliances, consumer electronics, sports and health products, etc.
Business Model: The company adopts an online sales model, mainly through platforms like Amazon, Walmart, and Wayfair. It also provides logistics solutions through Shenzhen Xiyou Smart Warehouse to ensure timely product delivery.
4. Industry and Market Position
Market Position: The company ranks fifth in the global B2C e-commerce market for furniture and home products and first among Chinese sellers in the overseas B2C e-commerce market for such products.
Competitive Advantages: The company boasts strong supply chain management capabilities and a diversified product portfolio, enabling it to respond quickly to market demands and deliver high-quality products and services.
5. Corporate Governance and Independence
Corporate Governance: The company's board of directors comprises executive directors, non-executive directors, and independent non-executive directors, with committees including the audit committee, remuneration and evaluation committee, nomination committee, and strategy committee.
Independence: The company maintains independence from its controlling shareholders and actual controllers, ensuring independent and objective decision-making.
6. Use of Proceeds
Business Expansion: Approximately 70.0% of the proceeds will be used for business expansion.
Digitalization: About 15.0% of the proceeds will be allocated to improving information systems.
Industry Chain Investments: Around 10.0% of the proceeds will be used for potential investments or acquisitions in the industry chain.
Working Capital and General Corporate Purposes: Approximately 5.0% of the proceeds will be used for working capital and general corporate purposes.
7. Risk Factors
Platform Dependency Risk: A significant portion of the company's revenue comes from a few third-party e-commerce platforms, and changes in platform policies could adversely affect its business.
Market Competition Risk: The global B2C e-commerce market is highly competitive, requiring continuous innovation to adapt to market changes.
Supply Chain Risk: The company relies on manufacturing partners, and disruptions or cost increases in the supply chain could impact operations.
Logistics Risk: The logistics costs for large and medium-sized products are high, and fluctuations in logistics solution prices could affect profitability.
Offering Information and Lottery Rate:
The company is offering 29.8947 million shares globally, with 300 shares per lot. As of the time of writing, the offering is oversubscribed by 1.76 times. Based on current margin financing, there will be no clawback. Groups A and B each have 4,982.45 lots, with an estimated 5K-9K participants. The lottery rate for one lot is around 50%, and applying for 6 lots guarantees one.
Pre-IPO and Cornerstone Investors:
The company was listed on the New Third Board on November 16, 2015, and delisted on April 16, 2019, to prepare for a listing on the STAR Market. At the time, its total market capitalization was RMB 3.6 billion. The company submitted an application for a STAR Market listing in August 2019 but withdrew due to a mismatch between its core business and the STAR Market's positioning. It then applied for a listing on the ChiNext board in May 2021 but withdrew the same month due to the Amazon incident. The company has now passed the hearing for a listing on the Hong Kong Stock Exchange. Pre-IPO investments and transfers include a December 2020 investment at RMB 26.23 per share (89.83% premium to the H share offering price) and a January 2022 investment at RMB 25.74 per share (86.25% premium to the H share offering price). A share transfer in April 2024 was priced at RMB 16.8 per share (21.58% premium to the H share offering price), with a 12-month lock-up period.
The company has introduced three cornerstone investors, accounting for 25.14% at the lower price, 24.27% at the mid-point, and 23.46% at the upper price. The cornerstone lock-up period is 6 months.
Sponsor:
Huatai Financial is the sole sponsor and stabilizing agent for this offering. Huatai Financial's track record as a sponsor is mediocre, occasionally producing surprises. As a stabilizing agent, its historical performance is underwhelming—simply put, it's lackluster.
Financial Performance:
Revenue:RMB 9.071 billion in 2021, RMB 7.1 billion in 2022,RMB 8.682 billion in 2023, and RMB 9.091 billion for the 12 months ending April 30, 2024.
Gross Profit/Loss:RMB 1.895 billion in 2021, RMB 2.479 billion in 2022, RMB 2.993 billion in 2023, and RMB 3.149 billion for the 12 months ending April 30, 2024.
Annual Loss/Profit:RMB -590 million in 2021, RMB 223 million in 2022, RMB 520 million in 2023, and RMB 613 million for the 12 months ending April 30, 2024.
Comprehensive Review:
Aukey's main revenue sources are product sales and logistics solutions. In 2023, product sales (furniture and home products, power tools, home appliances, consumer electronics, sports and health products, and other categories) accounted for RMB 7.030 billion (81% of revenue), while logistics solutions contributed RMB 1.652 billion (19%). For detailed revenue breakdowns, see the chart below:
The financial statements show declining sales across all product categories, with revenue maintained solely through price increases. The company's logistics solutions have grown rapidly, offsetting some of the decline in product sales.
Based on the current financial data, the offering valuation is neither cheap nor expensive. Furniture and home product companies typically trade at single-digit or low double-digit P/E ratios. The company's gross margin is around 34.5%, but its net margin is only about 6%, which is lower than peers.
Fundamentally, the company is unremarkable, with no standout data. Compared to Carote, which listed earlier, Aukey pales in comparison. Even Carote's data only benefited from sentiment-driven premiums, and Aukey's figures are clearly inferior. Sentiment-wise, the sponsor and stabilizing agent, Huatai Financial, have a poor track record—another negative. The traditional retail sector's conservative valuations add to the downside. In terms of funding, the offering size is HKD 6.045-6.477 billion, with proceeds of HKD 435-466 million. Cornerstone investors will lock up 25.14-23.46%, leaving a free float of HKD 325-356 million, which is not small.
Overall, this stock feels like a loom—utterly unappealing. Unlike Huahao Zhongtian Medicine-B, which has flaws but obvious volatility that attracts traders, this stock leaves me completely uninterested.
Subscription Plan:
I will pass.
$AUGROUP(02519.HK)
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