IPO Watch: The latest China retail exporter is planning to list on the NSX
The China export theme has been a consistent winner for ASX investors and continues to attract stockmarket hopefuls.
The latest prospectus is from D-Full Holding Group, an operation that runs skin and beauty products distributor Dkrevs Shanghai.
D-Full lodged a prospectus this week to raise $550,000, selling 5.5 million shares at 10c each to list not on the ASX but the smaller National Stock Exchange (NSX).
The NSX is Australia’s second stock market and has 83 listed companies. The overall market capitalisation of the exchange is $4.8 billion, a small slice of the ASX’s $1.9 trillion.
In the March quarter, the NSX banked $144,000 from customers and burned $838,000.
>> Scroll down for a list of ASX China-focused exporters
The NSX index has a number of industrial stocks (20 out of the full list) and has five mining and energy stocks.
The last two companies to list on the exchange have a retail focus: A2A (NSX:A2A) operates an online sales platform where users can convert loyalty points to cash. Actcelerate (NSX:ACT), which listed on Monday, is a diverse investor with holdings including smart vending machine company Trendy County.
NSX head of admissions John Williams tells Stockhead while there have been a couple of consumer-focused stocks in recent times, the index is not seeing any trends towards particular new industries.
Companies come to the NSX because “they see the ASX as not appropriate for them at this time”.
Reasons for this appeal include the absence of a profits or assets test for NSX listings and the reduced number of shareholders typically involved in NSX companies.
The exchange instead has tests including a “two-year minimum track record” provision and requires 50 or more security holders in order fora. company to list.
Dkrevs Shanghai is hoping to list on the exchange to grow its reach as a supplier of skin and beauty goods across mainland China, including upping the number of Australian products it can distribute through its bricks-and-mortar partners by establishing a formula Australian product import business.
At the moment, the company has eight Chinese product suppliers delivering everything from toothpaste to face masks into more than 7,000 bricks-and-mortar outlets.
In 2017, Dkrevs Shanghai generated $1.7 million in revenue but came out of the year with a loss of more than $4 million after costs including a one-off assets impairment $390,000.
The company is looking to tap into growing spending across China in beauty categories — a market the company puts at $67 billion annually by 2020.
It sees growth in online revenues, too, which only make up 20 per cent of its current sales. A report from research house Forrester this year predicted online retail spend in China will hit $1 trillion annually by 2022.
Stockhead has contacted Dkrevs Shanghai for further comment.
In a report published in May, Morgan Stanley predicted private consumption in China’s smaller cities “could be on track to triple between 2017 and 2030”.
That presents a big opportunity for ASX-listed China focused retail stocks, with daigou seller AuMake (ASX:AU8) previously predicting the market of shoppers bringing Australian products back to China is worth $1 billion annually alone.
AuMake’s share price is up 193 per cent over the past year to $10.45, while fellow ASX-listed China retail plays JATEnergy (ASX:JAT) is up more than 400 per cent to 7.3c and infant formula producer Clover Corp (ASX:CLV) is up 207 per cent to $1.35.
Here’s a list of ASX China-focused exporters:
Another China prospectus – but it’s not listing
Another recent prospectus on the cards is Australia and New Zealand Heath Products, a public unlisted company that released a pitch last week to raise $2 million capital selling 2.5 million shares.
The operation has developed a range of partnerships with Chinese pharmacy networks, marketing groups and online sales platforms as well as local Australian skincare brands to sell a variety of Australia and New Zealand-produced product into China.
Cash from the raise will go towards increasing the company’s inventory of Australian products and spending $200,000 on developing JD.Com and TMall stores.
As “lower tier” Chinese cities up their retail spend, it will be smaller-scale purchases like beauty that will fly off shelves, according to Morgan Stanley.
“Lower-tier city households are spending more for high-frequency, low-ticket products such as beauty supplies, makeup, snacks, beverages and online groceries,” analysts said in their May report.