Shi Zifu, Bay Harbor Business Observer

On November 8, Aukey Technology (02519.HK) officially listed on the Hong Kong Stock Exchange with an issue price of HK$15.60 per share. However, at the close of trading on its first day, the share price fell by 11.41%, marking a disappointing debut.

It is understood that Aukey Technology has introduced three cornerstone investors, who collectively subscribed for approximately HK$109.4 million worth of shares. Among them, Huacheng Cloud Commerce Technology, an indirectly wholly-owned subsidiary of Globalegrow (301381.SZ), subscribed for US$7 million (approximately HK$54.41 million), while Lucky Ocean Logistics (02490.HK) subscribed for HK$25 million, and Huang Jiahui, a director of Zhongzhou Real Estate, subscribed for HK$30 million.

Aukey Technology's domestic operating entity is Aukey (Shenzhen) Cross-border Commerce Co., Ltd. Looking back at Aukey Technology's path to listing, it has been quite bumpy. After being delisted from the New Third Board, the company tried to submit listing applications to the Shanghai Stock Exchange STAR Market and the Shenzhen Stock Exchange ChiNext, but both attempts failed. In April this year, Aukey Technology submitted a listing application to the Hong Kong Stock Exchange, with Huatai International as the sole sponsor.

01

Revenues have not recovered to 2021 levels

Founded in 2010, Aukey Technology focuses on providing high-quality furniture and household products. It primarily engages in cross-border B2C business through third-party online platforms such as Amazon, offering a range of branded products including furniture, power tools, home appliances, consumer electronics, and sports and health products.

Aukey Technology's revenues mainly come from product sales and the provision of logistics solutions. From 2021 to 2023, Aukey Technology's revenues from furniture and household products increased from RMB 3.516 billion to RMB 5.337 billion, with the proportion increasing from 41.0% to 75.9%, making it the highest contributor to revenues.

In 2021, affected by Amazon's account suspensions, Aukey Technology's product sales revenues decreased by 26.3% year-on-year. Although the company subsequently recovered and expanded its furniture and household product offerings, it still faced significant challenges in revenue generation.

Overall, from 2021 to 2023 and from January to April 2024 (hereinafter referred to as the reporting period), Aukey Technology achieved revenues of RMB 9.071 billion, RMB 7.1 billion, RMB 8.683 billion, and RMB 2.834 billion, respectively. In 2022, Aukey Technology's revenues declined by 21.7% year-on-year. Although revenues increased year-on-year in 2023, they were still not at the 2021 level.

In terms of sales channels, Aukey Technology primarily relies on third-party e-commerce platforms (including Amazon, Walmart, Wayfair, etc.) in overseas markets such as the United States and Europe to provide products to consumers.

During the reporting period, Aukey Technology generated revenues of RMB 8.233 billion, RMB 5.878 billion, RMB 6.657 billion, and RMB 2.105 billion, respectively, from third-party e-commerce platforms, accounting for 90.8%, 82.8%, 76.7%, and 74.3% of total revenues for the respective periods. Among them, revenues generated through Amazon were RMB 7.612 billion, RMB 4.527 billion, RMB 4.671 billion, and RMB 1.507 billion, accounting for 83.9%, 63.8%, 53.8%, and 53.2% of total revenues for the same periods, respectively.

Also affected by the Amazon incident, Aukey Technology's product sales revenues declined in 2021, and inventory write-downs for that year impacted net profit and cash flow performance. During the reporting period, the company's net profits were RMB -590 million, RMB 223 million, RMB 500 million, and RMB 189 million, with net profit margins of -6.5%, 3.1%, 6.0%, and 6.7%, respectively. The net cash flow from operating activities was RMB -1.193 billion, RMB 610 million, RMB 586 million, and RMB 287 million, respectively.

Overall, Aukey Technology's dependence on Amazon has weakened in recent years but still accounts for a significant portion of its business.

02

Sales and marketing expenses exceed 20%, and the path to listing has been tortuous

With the growth of its business, Aukey Technology's own sales and marketing expenses have also remained high. The company's sales expenses primarily include platform service fees, business promotion fees, overseas warehouse rental expenses related to sales on third-party e-commerce platforms, and employee expenses incurred from sales and marketing activities.

During the reporting period, Aukey Technology's sales expenses were RMB 2.517 billion, RMB 1.757 billion, RMB 1.831 billion, and RMB 604 million, accounting for 27.8%, 24.7%, 21.1%, and 21.3% of revenues for the respective periods.

Regarding other performance indicators, at the end of each period of the reporting period, Aukey Technology's inventories (net of provisions) were RMB 1.38 billion, RMB 1.027 billion, RMB 1.046 billion, and RMB 1.196 billion, with inventory provisions of RMB 1.07 billion, RMB 305 million, RMB 39.5 million, and RMB 44.8 million, respectively. Inventory turnover days were 118.5 days, 170.5 days, 101.3 days, and 101 days, respectively.

During the same period, Aukey Technology's trade receivables were RMB 469 million, RMB 467 million, RMB 808 million, and RMB 676 million, with credit loss provisions of RMB 47.7 million, RMB 33.8 million, RMB 68.9 million, and RMB 69.3 million, respectively. Trade payables and notes payable turnover days were 80 days, 80.8 days, 62.2 days, and 66.5 days, respectively.

At the end of each period of the reporting period, Aukey Technology's total current liabilities were RMB 2.474 billion, RMB 2.204 billion, RMB 1.804 billion, and RMB 1.968 billion, with net current assets of RMB 538 million, RMB 527 million, RMB 1.342 billion, and RMB 1.592 billion, respectively.

According to the latest data, as of the end of August 2024, Aukey Technology recorded cash and cash equivalents of RMB 838 million, pledged/restricted bank deposits of RMB 297 million, total current liabilities of RMB 2.517 billion, and net current assets of RMB 1.592 billion, indicating some pressure on the company's liquidity.

Looking back at Aukey Technology's capitalization journey, in February 2012 and from March 2012 to November 2014, Aukey Technology completed two capital increases. In May 2015, Aukey Technology was transformed into a joint-stock limited liability company and listed on the New Third Board in November of the same year.

From July to December 2018, Aukey Technology completed three equity transfers. In January 2019, considering the low trading volume on the New Third Board and preparations for listing on the Shanghai Stock Exchange STAR Market, Aukey Technology voluntarily delisted from the New Third Board. In August of the same year, the company submitted a listing application to the Shanghai Stock Exchange STAR Market.

In April 2020, Aukey Technology voluntarily withdrew its A-share listing application on the STAR Market. In May 2021, Aukey Technology submitted an A-share listing application to the Shenzhen Stock Exchange ChiNext. In the same month, affected by the Amazon incident, the company submitted an application to withdraw its A-share listing.

Public information indicates that the "Amazon account suspension incident" refers to the suspension of Amazon e-commerce accounts in September 2021, which affected approximately 1,000 enterprises and over 50,000 accounts, with estimated losses exceeding RMB 100 billion. The amount of frozen e-commerce accounts ranged from tens of millions to hundreds of millions of US dollars. Among them, sales permissions for approximately 600 Chinese brands were revoked, affecting about 3,000 seller accounts associated with these brands, including consumer electronics, daily necessities, home furnishings, and sports goods.

While share prices have come under pressure, the industry in which Aukey Technology operates has always been highly competitive. It is understood that the global furniture and household B2C e-commerce market is relatively fragmented, with over 200,000 market participants. Based on GMV in 2023, the combined market share of the top five sellers was only 5.1%. Among them, Aukey is the world's fifth-largest furniture and household B2C e-commerce seller, with a market share of 0.2%, and only 0.7% among Chinese sellers.

How Aukey Technology will address investors' skepticism and maintain stable performance amidst global competition after listing may only be the beginning of its challenges. (Produced by Bay Harbor Finance)