Semk (2250), the owner of Hong Kong's famous B Duck brand, starts trading next Monday after its initial public offering received a lukewarm response from the market, with the retail tranche of 12 million shares merely "??" times oversubscribed.
The creator of the 17-year-old yellow duckling and other 25 original characters expects to raise up to HK$414 million through the IPO, at a price range of HK$2.05 to HK$3.45 per share.
Semk claims to be the second-largest domestic character intellectual property firm in the mainland, and had a market share of around 2.4 percent in 2020, according to a Frost & Sullivan industry report commissioned by the company.
It has two business lines: character licensing, and e-commerce, though B Duck online stores on sites like Tmall, JD.com and HKTVmall.
The licensing business -- which includes licensing of merchandise, location-based entertainment, content and media, promotion, as well as design consultation of its B Duck family characters - contributed around 31 to 42 percent of Semk's revenue between 2018 and 2020. However, total revenues plateaued at HK$2 billion to HK$2.4 billion in the period.
Semk's lack of other popular characters could also prove a drag on growth, as over 70 percent of its character licensing revenue in recent years came from the iconic duckling.
This is Semk's third attempt to go public after its failed to get listed on the GEM board in 2019, and an IPO filing on the main board lapsed on November 4 last year.
Semk resubmitted its IPO application the following day in an effort to get listed by April 14 - the deadline set by its major investors including Wisdom Thinker, an investment holding company wholly-owned by Henderson Land Development's (0012) co-chairman Peter Lee Ka-kit.
Last July, Semk entered into an agreement with some of its major shareholders including state-owned theme park operator Overseas Chinese Town (Asia) (3366), Wong's International (0099) and Peter Lee, who hold 9.5 percent, 9.04 percent, and 2.66 percent stakes respectively in the company.
The agreement suggests that if Semk fails to list by the deadline, it may need to buy back shares from some investors including Peter Lee and Overseas Chinese Town at price based on an 8 percent annual return.
It also requires the company to guarantee net profits of no less than HK$75 million in 2021 and HK$85 million in 2022.
A fourth of the IPO proceeds will be used to enhance its brand image and awareness of its original characters, and another one-fourth for establishing a "fans platform" on WeChat. Seventeen percent will go to enhancing in-house design capabilities, 9 percent for repaying existing debts to improve the group's gearing ratio, and the remaining 10 percent will be reserved as general working capital.
Semk has also entered partnered with Overseas Chinese Town to explore the possibility of introducing its characters in the Nanjing Happy Valley theme park.
The yellow duckling is even paddling into the metaverse as Semk last month launched its first NFT collection, which will run into the first half of this year.
Founder and CEO Eddie Hui Ha-lam says Semk will launch more products retlated to the metaverse and NFTs to cater to its target market of consumers aged 15 to 24, while continuing its focus on character licensing.
