On May 4, Beijing time, the listing application materials of KK Group, the parent company of THE COLORIST, on the Hong Kong Stock Exchange have been “invalid” and cannot be viewed or downloaded, resulting in the process of Hong Kong stock IPOs. The longest time spent on Hong Kong stock IPOs is the stage of submitting the table to the hearing, generally needing to wait for March to June. Therefore, if the company fails to complete the hearing or go public within 6 months, the company’s prospectus will automatically expire.
On May 4, Beijing time, the official website of the Hong Kong Stock Exchange showed that the listing application materials of KK Group on the Hong Kong Stock Exchange had been “invalid” and could not be viewed or downloaded. This also means that the KK Group’s first try on the Hong Kong Stock Exchange temporarily declared defeat.
According to public information, KK Group is a Chinese enterprise focusing on trendy retail stores, with four self-incubated retail chain brands of KKV, THE COLORIST, X11 and KK, with its product portfolio covering major categories such as beauty and art toys. According to the prospectus, by covering 31 provinces in China and Indonesia, the total number of retail stores owned by KK Group has reached 680.
According to the prospectus, KK Group achieved $28 million, $99 million and $341 million respectively in the GMV from 2018 to 2020, with a compound annual growth rate of GMV of 246.2%. In addition, the revenue sales were $23 million, $70 million and $249 million respectively for the same period.
KK Group quoted the report from the FROST & SULLIVAN, saying that the competition in China’s trendy retail market is fierce and fragmented. In terms of GMV, the total market size of the top five players in 2020 is over $4.62 billion, accounting for about 15.6% of the GMV in China’s trendy retail market. In terms of GMV, KK Group is the third-largest trendy retail market participant in China in 2020. In addition, based on the compound annual growth rate of GMV from 2018 to 2020, KK Group is also the fastest-growing among the top five trendy retail market players in China.
However, while maintaining high revenue growth, KK Group has experienced a trend of continuous expansion of losses. According to the prospectus, from 2018 to the first half of 2021, KK Group’s net losses were $12 million, $78 million, $305 million and $665 million respectively, while the corresponding adjusted net losses were $6 million, $12 million, $26 million and $6 million respectively.
KK Group explained, “Due to the continuous investment in the development of retail brand portfolios and the expansion of the store network, the company has been in a persistent loss of money. But the company’s profitability is improving and the adjusted net loss ratio is gradually decreasing.” The Company expects to further improve its financial performance and achieve profitability in the future through continued revenue growth and cost-effectiveness, in particular by further expanding and optimizing its physical store network.”
According to the composition of KK Group in the brand sales revenue, its performance is mainly driven by KKV and THE COLORIST. Among them, KKV has 315 physical stores, which increased from $12 million in 2019 to $159 million in the first half of 2021 in sales revenue, soaring by more than 10 times in just three years. From 2019 to the first half of 2021, THE COLORIST achieved sales revenue of $3 million, $67 million and $70 million respectively, covering more than 5,500 SKUs in 12 categories such as skincare and makeup and covering 185 Chinese brands (including private labels) and 246 overseas brands from Japan, South Korea, Thailand and the United States.
And why did KK Group’s prospectus suddenly invalidate this time?
This is due to the process of Hong Kong IPO. “The process of listing a company is relatively complicated due to the financial, legal and other compliance requirements. Taking Hong Kong IPOs as an example, they generally include the submission of the form, the hearings, roadshows, public offerings, public offering results, grey market transactions and listings. The time required for each link is different, and the longest time spent is from the submission of the form to the hearing, which usually takes 3 to 6 months. Therefore, if the company fails to complete the hearing or go public within 6 months, the company’s prospectus will automatically expire, which is a normal mechanism. ” The relevant senior Chinese source said.
So, after the prospectus expires, can’t KK Group continue to list? The above-mentioned senior person said that the invalidity of the prospectus does not mean that the company’s IPO on the Hong Kong stocks is terminated, nor does it mean that the Hong Kong Stock Exchange has a negative opinion of the company. If the company can supplement the new financial data within 3 months, it can continue to be listed.