Institutions drawn to Cogobuy's HK IPO

The Shenzhen-based e-commerce company's IPO has been well received among institutions but is another Chinese deal relying on cornerstone support.

Demand for shares in Cogobuy, a Shenzhen-based e-commerce company, is robust leading up to its Hong Kong initial public offering, according to a source familiar with the deal, which prices later this week.

Cogobuy aims to raise up to HK$1.54 billion ($199 million) by selling 343.8 million shares at between HK$3.20 and HK$4.48 per unit — a figure that could rise by a further HK$231 million once a greenshoe option is exercised.

The shares on offer are all primary and, pre-greenshoe, represent 25% of the company's enlarged share capital, according to a termsheet seen by FinanceAsia.

Cogobuy specialises in online sales of electronic components and bankers close to its IPO tell FinanceAsia that the institutional orderbook is already covered across the targeted price range.

Three cornerstone investors have together pledged to buy $50 million worth of shares, once they price on July 10 — investment firms Hong Kong Huicong International and Unique Golden (Digital China), and family office Blueberry Capital.

Cogobuy is being marketed at 9.5 times to 13.3 times its projected 2015 earnings, which values the company at $794 million pre-greenshoe.

UBS is acting as the sole sponsor, while taking on joint coordinating responsibilities alongside Jefferies.


Cogobuy is currently being marketed at a large discount to Hong Kong-listed HC International, a vertically-integrated e-commerce company that is trading at 35.60 times its estimated 2014 earnings and its shares are up 61% so far this year., the Chinese online retailer whose shares have climbed 45% since its $1.8 billion May listing, has been mentioned by the company as a potential peer. Cogobuy also references Global Sources and Alibaba Group in its prospectus.

But bankers say Cogobuy’s unique business model makes it difficult to find any true comparables. The company’s customers tend to be small-to-medium-sized enterprises and the integrated-circuit products it helps to sell are highly specialised.

Global Sources, an international trade platform that provides overseas buyers with product information and Chinese suppliers with marketing and promotional services, primarily focuses on large enterprises and offline services. The company's shares are up 4% in the year-to-date period and are priced at about 12 times current earnings.

Meanwhile Alibaba Group — whose highly-anticipated debut on the New York Stock Exchange in August could be one of the largest-ever IPOs — is too large with too many business segments to be considered a direct peer, bankers argue.

Industry outlook

Cogobuy is operating in a sector with tremendous potential. All electronics products require a substantial amount of integrated-circuit products. And China’s IC procurement market — worth Rmb2 trillion in 2013 and already the largest in the world — is still growing. According to consultant firm Analysys International, the mainland’s IC procurement market will reach Rmb2.2 trillion in 2014, Rmb2.5 trillion in 2015 and Rmb3.4 trillion in 2016, representing a compound annual growth rate of 19% over the three-year period.

Of the 3 million electronics manufacturers — the buyers of components — only 3,000 are large, blue-chip companies. The remainder are SMEs. And as the market evolves and more new products are introduced, such as home automation products, SMEs will continue to play a key role in the industry, Cogobuy said in its prospectus.

One trend that should benefit Cogobuy is the shift by SMEs towards online purchases. Some 4,500 SME manufacturers purchased IC products online in 2011, a number that increased to 97,000 in 2013, according to Analysys International. While these online purchases represented a small chunk of the Rmb2 trillion IC market last year, the consultancy expects more growth in the coming years.

Financials, fundamentals

A quick glance at its financial results show that Cogobuy has been successful in exploiting China’s booming IC market. Revenues skyrocketed to Rmb2.4 billion in 2013 from Rmb199 million in 2012, while profits jumped by 192% to Rmb86.6 million, according to the prospectus.

The company’s recent quarterly results have also been impressive, with the company reporting a net profit of Rmb28.9 million in the first three months of 2014 compared with Rmb6.9 million in the same prior-year quarter.

Cogobuy acts as a one-stop shop for SMEs, which can place orders on the platform. Cogobuy then provides the order information to its upstream IC component suppliers. It’s a similar model used by and Amazon, the only difference being that Cogobuy’s customers are SMEs and not individuals.

There is also a third-party element to the business — on its marketplace platform, third-party merchants sell IC and other electronic components to customers and pay Cogobuy a commission. This lowers inventory risks for the company.  

Cogobuy will use proceeds to expand its e-commerce platform among SMEs and third-party suppliers via increased marketing and promotion. It also aims to hire additional sales and marketing personnel and invest in its technology, research and development activities. Future acquisitions are on Cogobuy’s radar as well, according to its prospectus.   

One area for future growth is the mobile phone market, with company executives saying they will make a push to try to get makers of mobile phones to place orders online.

Other IPOs

Last week a number of other Chinese companies successfully completed floatations in Hong Kong, all of them relying on cornerstone investor support in order to complete the deals.

Both Luye Pharma Group and social video platform operator Tian Ge Interactive Holdings priced shares at the top of their indicative ranges.

Beijing Digital Telecom, one of China’s largest mobile handset and digital product store chains, and Beijing Urban Construction Design & Development Group, priced at the bottom end of their targeted ranges.

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