Leju Holdings IPO Promising, Chinese Regulatory Environment Less So

Apr.16.14 | About: Leju Holdings (LEJU)

Summary

LEJU, a Chinese online-to-offline real estate services firm, plans to raise $194.7 million in its upcoming IPO.

LEJU has strong underwriters, has seen massive profits, and is aligned with powerful Chinese firms SINA and Baidu.

Despite promising fundamentals, investors should take some caution with this IPO, given the Chinese government’s shaky history with online services.

Leju Holdings Ltd (NYSE:LEJU), a Chinese online-to-offline real estate services firm, plans to raise $194.7 million in its upcoming IPO.

The Beijing, China-based firm will offer 17.7 million shares at an expected price range of $10-$12 per share. If the IPO can reach the midpoint of that range at $11 per share, LEJU will command a market value of $1.6 billion.

LEJU filed on March 12, 2014.
Lead Underwriters: Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC
Underwriters: China Merchants Securities (HK) Co Limited, China Renaissance Securities (Hong Kong) Limited, Macquarie Capital Inc

A "Screenshot" of LEGU
LEJU is an online-to-offline real estate services provider in China, meaning that it offers real estate e-commerce and online listings integrated with offline services to facilitate property transactions.

The firm's platform includes websites covering over 250 cities along with mobile applications, and LEJU also operates real estate websites for Chinese web giants SINA and Baidu.

The firm generates revenues through the sale of discount coupons for property transactions, along with fees charged for listings and online advertising.

Valuation
LEJU offers the following figures in its F-1 balance sheet for the year ended December 31, 2013:

Revenue: $335,421,516.00
Net Income: $42,650,028.00
Total Assets: $402,938,245.00
Total Liabilities: $151,148,210.00
Stockholders' Equity: $248,705,937.00

LEJU has seen massive revenue growth in recent years, posting total revenues of $137.1 million, $171.3 million, and $335.4 million in 2011, 2012, and 2013, respectively. The firm has simultaneously reversed a massive loss of $438.3 million in 2011 to a net income of $42.7 million in 2013.

Competitors With Similar Models
LEJU competes with other providers of similar real estate services in China, some of which have greater financial resources or brand recognition than LEJU. The firm identifies its primary national competitor as soufun.com; other competitors include focus.cn, house365.com, and many others.

The relatively low barriers to entry and increasing popularity of online real estate services in China will likely lead to greater competition in the future.

Management With Strong Background in Chinese Real Estate
Executive Chairman Xin Zhou has served in his current position since LEJU's inception, and co-founded the firm's parent company, E-House, where he serves as co-chairman. He previously served as E-House's CEO and as co-chairman and CEO of E-House's subsidiary, China Real Estate Information Corporation. Mr. Zhou has over 20 years of experience in Chinese real estate. Mr. Zhou holds a bachelor degree from Shanghai Industrial University in China.

Despite LEJU's Impressive Gains, Investors Should Be Cautious
We are positive on this IPO in the proposed range despite it being a China based company.

LEJU has accomplished an impressive feat in turning the massive losses of 2011 into large profits in 2013, while simultaneously more than doubling its revenues.

The firm is aligned with powerful Chinese firms SINA and Baidu, and its services are increasing in popularity alongside the development of Chinese interest in online real estate services.

The firm's leadership is also highly experienced in Chinese real estate.

Given that the Chinese regime hardly has a strong history in its relationship to online services, investors should be cautious in approaching LEJU; however, with such strong underwriters and fundamentals, LEJU may well be worth the risk.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in LEJU over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.