IPO Report: Leju Holdings Limited (LEJU)

Francis Gaskins |

Leju Holdings Limited (LEJU) is a leading O2O real estate services provider headquartered in Guangqu Home, Dongcheng District, Beijing.

Eightother new IPO companies are scheduled for the week of April 14, 2014.  The full IPO calendar is available at IPOpremium.

The manager and joint managers and Credit Suisse, J.P. Morgan.  The co-managers areChina Renaissance Securities (Hong Kong) Limited, Macquarie Capital, China Merchant Securities.

LEJU scheduled a $195 million IPO with a market capitalization of $1.55 billion at a price range midpoint of $11 for Thursday, April 17, 2014 on the NYSE.  SEC Filings

Overview
LEJU is a leading O2O real estate services provider in China.

LEJU is a subsidiary of E-House (China) Holdings Limited (EJ) which has a market cap of $1.56 billion.  LEJU also recently sold 16% of itself to Tencent Holdings Ltd, (HKG:0700), $948 billion HK$ market cap.

Valuation

Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

Annualizing Dec qtr*

Cap (mm)

Sls

Erngs

BkVlue

TanBV

in IPO

Leju Holdings Limited (LEJU)

$1,554

3.1

14.1

3.3

5.1

13%

Dec 12 mos*

         

Leju Holdings Limited (LEJU)

$1,554

4.6

24.5

3.3

5.1

13%

*Using adj  net income, because that's probably what the analyts will use

 
             

Conclusion
Buy LEJU on the IPO.

Top line revenue grew 96% in 2013 vs 2012 to $335 million.  Adjusted net income grew from a $10 million 2012 loss to a $63 million profit for 2013.

At the price range  mid-point of $11 LEJU priced at 24.5 times 2013 earnings, 4.6 times sales and 3.3 times book.

LEJU recently stuck a strategic partnership with Tencent, that included selling Tencent  16% of the LEJU.  Tencent has expressed interest in buying enough stock on the IPO to maintain a 15% ownership interest in LEJU.

Business

LEJU is a leading O2O real estate services provider in China. O2O real estate services integrate online information and promotion with offline promotion and transaction services, which is attractive to both prospective buyers and real estate industry players.

LEJU offers real estate e-commerce, online advertising and online listing services through its online platform, which comprises local websites covering over 250 cities and various mobile applications.

LEJU integrates its online platform with complementary offline services to facilitate residential property transactions. In addition to its own websites, LEJU also operates various real estate and home furnishing websites of SINA (SINA) and Baidu (BIDU) .

LEJU offers e-commerce services primarily in connection with new residential property sales.

LEJU’s O2O services for new residential properties include selling discount coupons and facilitating online property viewing, physical property visits and pre-sale customer support.

LEJU earns revenue primarily from the sale of discount coupons used for property purchases.

E-commerce growth

LEJU’s revenues from e-commerce services in 2011, 2012 and 2013 were nil, $27.0 million and $170.2 million, respectively, representing nil, 15.8% and 50.7%, respectively, of its total revenues for those periods.

Tencent  strategic relationship
Tencent Holdings Ltd, (HKG:0700), $948 billion HK$ valuation.

On March 10, 2014, LEJU entered into a strategic cooperation agreement with Tencent, a provider of comprehensive internet services serving the largest online community in China.

LEJU and Tencent have agreed to jointly develop software and tools for use on Tencent's social communication platform, Weixin, to facilitate LEJU's opening of Weixin public accounts associated with real estate projects, which LEJU believes will provide real estate information to Weixin users, enable LEJU to better connect with users through such accounts and expand payment solutions provided to users.

LEJU has agreed to adopt Weixin payment solutions as the default payment method for real estate O2O e-commerce transactions conducted by LEJU users on Weixin.

LEJU and Tencent have also agreed to explore and pursue additional opportunities for potential cooperation, including but not limited to cooperation involving Tencent's social communications platform, including Weixin, "QQ" and "mobile QQ;" the social media service, "Tencent Weibo;" the social networking service, "Qzone;" and/or certain other Tencent wholly-owned internet properties in China.

SINA & Baidu

LEJU sells advertising primarily on the SINA and Baidu new residential properties and home furnishing websites, each of which is operated by LEJU.

In addition, LEJU is the exclusive advertising agent for the SINA home page and non-real estate websites with respect to advertising sold to real estate and home furnishing advertisers.

LEJU also has the exclusive right to sell Baidu's Brand-Link product within the real estate industry. LEJU’s revenues from online advertising services in 2011, 2012 and 2013 were $132.1 million, $138.8 million and $145.4 million, respectively, representing 96.3%, 81.0% and 43.4%, respectively, of its total revenues for those periods.

LEJU offers fee-based online property listing services to real estate agents and free services to individual property sellers.

LEJU operates the SINA and Baidu real estate websites for listings of existing residential properties for sale or lease. LEJU’s revenues from listing services in 2011, 2012 and 2013 were $5.0 million, $5.5 million and $19.8 million, respectively, representing 3.7%, 3.2% and 5.9%, respectively, of its total revenues for those periods.

Recent growth

LEJU has experienced substantial growth in recent years.

LEJU’s total revenues have increased from $137.1 million in 2011 to $171.3 million in 2012 to $335.4 million in 2013.

LEJU incurred net losses of $438.3 million in 2011 and $43.8 million in 2012 and its net income was $42.7 million in 2013. LEJU had adjusted net income of $11.6 million in 2011, adjusted net loss of $9.6 million in 2012 and adjusted net income of $63.4 million in 2013.

Substantially all of LEJU’s operations are in China.

Seasonality
The real estate sector in China is characterized by seasonal fluctuations, which may cause LEJU's revenues to fluctuate significantly from quarter to quarter.

The first quarter of each year generally contributes the smallest portion of LEJU's annual revenues due to reduced real estate transactions, advertising and marketing activities of  customers in the PRC real estate industry during and around the Chinese Lunar New Year holiday, which generally occurs in January or February of each year and due to the cold winter weather in northern China.

In contrast, the third and fourth quarters of each year generally contribute a larger portion of  annual revenues due to increased real estate transaction, advertising and marketing activity during the months of September and October

Dividend Policy

No dividends are planned.

Intellectual Property

As of December 31, 2013, LEJU owned 50 registered copyrights, owned or licensed 69 registered trademarks in China, had 17 trademark applications in various industry categories pending with the China Trademark Office and owned or licensed 25 registered domain names.

Competition

LEJU faces competition from other companies in each of its primary business activities.

LEJU competes with these companies primarily on its ability to attract consumers to its websites. LEJU  competes for consumers principally on the basis of the quality and quantity of real estate listings and other information content and services.

LEJU also competes for developers' business on the basis on website traffic volume, consumer loyalty, geographic coverage and service offerings.

LEJU competes for qualified employees with skills and experience related to sales, real estate services, advertising, technology and the internet industry.

LEJU’s primary competitor at the national level is soufun.com. Other competitors at the national level include Sohu.com Inc.'s subsidiary, focus.cn.

In addition, LEJU has faced and may continue to face competition from regionally focused websites providing regional real estate listings together with localized services. LEJU has various regional competitors, such as house365.com in the Nanjing market, and LEJU  competes with various providers in the market for online paid property listings, including anjuke.com.

LEJU’s competitors may have more established brand names, larger visitor numbers and more extensive distribution channels than LEJU does, either overall, or in specific regions in which LEJU operates.

LEJU also competes with traditional advertising media such as general-purpose and real estate-focused newspapers, magazines, television and outdoor advertising that compete for spending on real estate advertising and listings.

5% stockholders

E-House (China) Holdings Limited   84%

Tencent Holding Limited         16%                

Use of proceeds

LEJU expects to net $176 million from its IPO. Proceeds are allocated as follows:

$40 million to enhance its technology infrastructure and develop new products and services for its online platform;

$30 million for geographic expansion, including adding new business lines in existing cities and converting outsourced operations to direct operations in approximately 30 smaller cities in various provinces in China; and the balance for general corporate purposes, including funding potential acquisitions of complementary businesses and strategic investments, although LEJU is not currently negotiating any such transactions.  

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
BIDU Baidu Inc. 170.82 3.07 1.83 2,375,819
SINA Sina Corporation 72.16 -0.18 -0.25 934,684
LEJU Leju Holdings Limited American Depositary Shares e 3.75 0.07 1.90 60,626
HOCPF Hoya Corp 37.85 0.00 0.00 0

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