China's Qingke trades up on debut after smaller than expected IPO
Q&K International Group, operator of China-based long-term apartment rentals platform Qingke, posted a marginal gain on its US trading debut after raising $45.9 million in an IPO priced at the bottom end of the indicative range.
The company, which is backed by the likes of Crescent Point, Morgan Stanley Private Equity Asia (MSPEA), and SAIF Partners, is the first Chinese business of its kind to test the international capital markets. Industry peer Danke has also filed for an IPO.
Q&K sold 2.7 million American Depository Shares (ADS) for $17.00 apiece, having set a range of $17.00-19.00, according to a filing. The stock closed at $19.64 on November 5, a gain of 3.8%. It has since posted further gains, closing at $19.00 on November 7.
Launched in 2012, Qingke leases apartments from individual landlords and transforms them into furnished rooms under a standardized model. It typically adds an additional bedroom to apartments and rents them separately to individuals. The average monthly rent is around RMB1,000 ($140) per unit. By emphasizing affordability, the company achieved an average month-end occupancy rate of 92.4% in 2018, which it claims is the highest in its peer group.
Starting with 940 rental units in Shanghai in 2012, Qingke had 91,234 units across six cities by the end of 2018. It ranks third among branded long-term apartment operators in China.
The business model involves substantial capital outlay including apartment renovation and rental prepayment to landlords. The company therefore offers a 5% discount to tenants who pay at least six months' rent upfront. These prepayments are typically financed by third parties, with Qingke paying interest on the loans.
Since February 2019, Qingke has sourced decorated and furnished apartments from landlords to reduce upfront capital outlays. It has also cut the average renovation cost per unit from RMB20,069 in 2017 to RMB14,747 in 2019. Meanwhile, expansion has slowed. The number of contracted apartments rose 99% year-on-year through September 2018; for the 12 months ended June 2019, it was 16%.
Qingke’s revenue rose 70% year-on-year to RMB889.9 million ($124.5) in the 2018 financial year. For the nine months ended June 2019, it came to RMB897.9 million, up 51%. The share of revenue from value-added services - such as maintenance services - was 11.7%, compared to 2.6% in 2017.
The company has yet to turn a profit. Its net loss more than doubled in 2018 to RMB499.9 million. For the nine months ended June 2019, it was up 15% year-on-year to RMB373.2 million.
No existing investors sold any shares in the offering, which means Crescent Point’s interest has been diluted to 28.9%. Newsion Venture Capital has 8.8%, while MSPEA and SAIF each hold 8.4%. MSPEA and Crescent Point jointly led a Series C round for Qingke in 2018, which took the company’s total funding to $100 million. Other investors include Fortune Capital.
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