How to ride Alibaba’s plans to expand China’s e-commerce market
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Selling into the giant China market isn’t easy, as investors in the three ASX-listed China consumer spending plays have found, especially in the wake of the trade war which has broken out between the US and China.
All three – AuMake (ASX:AU8), Ecargo (ASX:ECG) and Wiseway (ASX:WWG) – have struggled. But with their share prices moving off their lows in recent trading, they could be worth a look, especially with the robust growth in Chinese consumer spending, which remains buoyant, irrespective of the trade dispute.
China’s internet retail giant Alibaba reinforced the continued surge in growth in Chinese household demand at its annual two day gabfest with analysts this week when it outlined its ambition to nearly double the gross value of transactions on its e-commerce website over the next five years.
And it intends lifting to more than 1 billion from the present 730 million its annual active customer numbers over the same time frame.
Its growth ambitions, when looked at in tandem with the recent moves by the Chinese authorities to give the economy a lift by easing monetary policy, may help underpin the confidence of those selling to and supplying the Chinese consumer.
Sentiment remains cautious for the time being, however, amid an uncertain regulatory environment.
The Chinese government changing regulations covering the infant milk formula market, for example, has also weighed on sentiment towards China-exposed exporters.
This, along with health supplements supplied by the likes of Blackmores has underwritten much of the optimism for investors and management in locally listed plays such as AuMake, eCargo and Wiseway, which all have a singular exposure to China.
All three have differing approaches to the China market, with AuMake focusing on so-called ‘daigou’, shoppers who buy locally and ship product to clients in China. It also sells to Chinese tourists. As well, it has an online sales arm which accounts for around a quarter of total revenues.
Ecargo offers online sales and fulfillment, with Wiseway a freight forwarder focusing solely on the China market.
AuMake has spent up big building its staffing and marketing, as it pushes for sales to top the $100m mark which, with improving margins, should move it closer to trading in the black, it claims.
It went public issuing shares at 8c, followed that up with a raising at 45c and earlier this year it came back for more money at 16c to fund an acquisition, with its shares still trading underwater from this most recent raising.
It is a similar earnings story at Ecargo, which has recently shown positive cashflow for the first time, with the hope that rising revenue will pull EBITDA (earnings before interest, tax, depreciation and amortisation) higher.
In late 2018 it bought the balance of Jessica’s Luggage from Jessica Rudd, former Prime Minister Kevin Rudd’s daughter, who is also a director of Ecargo. At the same time, it took control of the China arm of wholesaler Metcash, the local wholesaler to independent retailers such as IGA.
It has also signalled a move into other markets in the region, such as Vietnam and Cambodia.
Wiseway went public earlier this year, issuing shares at 50c each, with the shares sinking as soon as it listed. The chairman, former Australian ambassador to China Geoff Raby, quit soon after it hit the ASX.
The company has blamed the weaker than expected Chinese economy for some of its problems, as it has moved to put in place a nationwide network of depots to make it easier to ship freight into the China market.
Even so, the shares have moved off its lows of around 17c, to hold more recently at around 25c as it looks to build revenues flowing through its network of local logistics centres.