What happened
HC announced today that the company has entered into a Cornerstone Investment Agreement with Cogobuy and agreed to subscribe Cogobuy shares of up to US$20mn (~HK$155mn). Upon completion of Cogobuy's IPO, the investment is expected to represent <3.55% of Cogobuy's shares.
Comments
The investment is aimed at strategically capturing the electronic components vertical market. Cogobuy is a leading e-commerce firm specializing in the online sales of ICs & electronic components. HC currently has a similar vertical structure on its platform. We expect to see possible synergies between these two in the near future. Cogobuy has vertical know-hows and HC has a strong platform. Investing in Cogobuy is likely to lead to closer cooperation which will enhance HC's vertical capabilities in ICs & electronic components.
In addition to SMBs, HC's platform also attracts big supply chain service providers. Cogobuy is in fact a supply chain service provider. It procures and resells ICs & electronic components to SMBs with additional supply chain services. The deal shows that HC is also capable of providing services to big supply chain service providers. As the No.2 domestic B2B platform, HC has shown great effort in keeping up with other B2B giants. Instead of competing directly with other vertical B2B platforms, HC tends to ally itself with them to compete with the leading B2B platforms.
HC is likely to gain investment profits after Cogobuy's IPO is completed. Cogobuy has shown great growth over the past few years. The net profit growth rate in 2013 is 180%. This year, net profit may maintain >100% growth. HC might have investment gains after the IPO. However, the main reason for the investment is still to layout the strategic cooperation blueprint as the deal only represents <3.55% of Cogobuy's shares.