Shares in microcap stock Merchant House (ASX:MHI) nearly tripled after a US$20 million asset sale.

The Hong Kong domiciled company has textile and footwear factories in the USA and China.

While textiles in China was a good market for Merchant House – reaping over $40 million in sales in the 12 months to 31 March 2020, COVID-19 turned things sour for the company.

It revealed in its half yearly report sales had nearly halved as COVID-19 forced many of its customers to cancel or cut back orders.

Today Merchant House revealed it had found a local buyer to sell its Chinese textile manufacturing assets to. Foshan XiongYing Logistics has agreed to buy Carsen for US$20 million ($25.8 million).

This is multiple times its ASX market cap even with today’s rise of nearly 200 per cent. That made it the ASX’s biggest winner this morning.

Merchant House (ASX:MHI) share price chart


A better future for the company?

Merchant House is one of the very few Chinese domiciled stocks left on the ASX.

There was a flurry of Chinese IPOs on the ASX in the mid 2010s but many ended up delisted after various irregularities including board turnover (and inability to replace members), trouble getting money out of China or other accounting issues.

The most notable downfall of a Chinese IPO was Dongfang (ASX:DFM) which ran fruit farms. It once reached a market cap over $300 million before a mass exodus of the board which hinted at local irregularities.

But Merchant House has a far longer history, going back over 10 years on the ASX and over 30 years in business generally.

While the company has not made any other comments since its half yearly report (lodged with the ASX last November) it said it was refocusing to America and it was “proving to be the right direction for the business”.

Nonetheless, it was noteworthy that Merchant House saw a need to explicitly state in its ASX release this morning that none of its directors were in any way associated with XiongYing – the buyer of its textile factory.