RLG targets a cash-flow positive June quarter after explosive revenue growth

RLG’s record growth has set it up for a solid June quarter as product sales in China continue to rise.

The company had a record quarter for sales in March and predicts another record quarter for June.

When you’re talking about the size of the Chinese market, you’re always going to be talking about large numbers. And when it comes to shopping online, no one is as big as China with 925 million online shoppers growing over 10 per cent per year.

It’s a market where Australian e-commerce and digital marketing company, RLG (ASX:RLG) is experiencing explosive growth.

The China-focused company has just recorded its best ever quarter, delivering preliminary revenues of $3.4 million in Q3 – more than all of financial year 2020 and up 340% on the previous corresponding period. And the company expects another serious uplift in the June quarter as its systems and processes gain traction.

The record revenues were driven by Chinese consumers’ insatiable and continuing appetite for health and well-being products, especially for international brands that are produced in the West.

China’s online shopping market size is estimated to be worth a whopping $2.2 trillion, almost double the entire Australian GDP.

“Revenue last quarter amounted to $3.4 million, which is more than double the December quarter, so we are really beginning to see our existing brands perform very well and we expect that growth to continue,” CEO Bryan Carr told Stockhead.

“Some of the revenue from last quarter will spill into cash inflows in the current June quarter. As we explained in our quarterly report, we already expect about $4.1 million in cash inflows associated with carry over items but this obviously doesn’t include new sales for the 3 months to June 30.

“Continued revenue growth and a cash flow positive quarter will be a milestone for our company, and we would be surprised if the market doesn’t stand up and take notice and re-rate our share price”.

RLG has exclusive Chinese distribution arrangements with its clients and can sell their brand’s products on consignment or provide an end-to-end sales and distribution service for its brands seeking exposure to the $2.2 trillion e-commerce market.

The China expert

RLG saw these opportunities early, and was founded in 2017 by Carr, who had lived and worked in China for 10 years.

Speaking exclusively with Stockhead, Carr said he noticed the growing number of international brands who wanted to access the Chinese market, but were unsure on how to go about it.

“Every business that I’ve spoken to wants to sell in China, but they just don’t know how, and are very cautious about how they would enter the market,” Carr explained.

“As a Western-listed company, we provide credibility and trust to the international brands seeking to enter that market,” he added.

RLG currently works with some of the top Western brands from Australia, NZ, UK, Europe, US, South America.

But the company is not just another run-of-the-mill marketing company.

It has developed a proprietary, profiling system which analyses the behavior of Chinese consumers – allowing brands to effectively drive sales based on consumer profiles and purchasing behaviors.

Combined with its expert team of online marketers sitting in Guangzhou, China, the company has been driving product sales for international brands through some of China’s biggest online marketplaces like TMall, Taobao, and JD.com. And the company was recently featured in Forbes magazine with Alibaba for its Nuria Tmall store launch.

Collectively, all these platforms attract 6 billion daily screen hours from Chinese users.

Carr explained that the company’s differentiation is in its ability to attract and match the right products and brands with the right Chinese consumers.

“The most important part is how you market and attract online shoppers in the Chinese market. The buying decision and the way that you promote to people is different in the West to that in China,” Carr said.

“Our know-how in relation to this unique marketing is the opportunity we provide our clients.”

The company is currently focusing on a narrow, but high-selling range products which it has identified as food products, healthcare, wellness, and cosmetics – mainly targeting Chinese women between the ages of 20-40 years old.

Tailwinds, cash flow and growth

Carr tells us that any worries over geopolitical tensions have not adversely affected the company’s performance and foreign brands continue to flourish in the Chinese consumer market.

If COVID has taught us anything it’s the joy and ease of shopping online. Nowhere in the world is this phenomenon more prevalent than in China. And the appetite for premium Western brands is increasingly desirable.

The absence of daigous in Australia (Chinese buyers in Australia who sell to consumers back in China) due to travel restrictions and regulations also plays directly in to RLG’s hands.

“Brands are now formalising the way they are entering China in light of both regulatory and travel restrictions which have impacted daigou trading, and that formalisation plays to our strength,” he said.

RLG expects its strong sales performance will continue to the next quarter, and into the foreseeable future.

The company has so far under-promised and over-delivered, but it now has confidently predicted that higher revenues will translate into its first quarter of positive operating cashflows in the current June quarter of financial year 2021.

Revenue is already at $5.75 million for the unfinished 2021 financial year, up 70 per cent with another quarter to run.

Asked if it’s now a good time to invest in RLG, Carr said the stock provides a good investment opportunity compared to other similar companies that are delivering similar or even less growth.

“We have 10 clients at the moment and we of course tend to favour working with brands that we believe will be most suited to Chinese consumers,” he said.

“We have an active pipeline of brands and companies that we’re exploring opportunities with and expect our client list to grow.

“If you look at multiples, we are very cheap in terms of revenue multiples compared to our market cap. When you look at our growth trajectory, we feel as if our company is compelling.

“From that perspective, we do represent an extremely cheap stock that is growing fast.”

Carr also expects that the company will have more opportunities to communicate with the market through ASX announcements.

“We’re looking at again providing guidance on the revenue range that we expect for three months to June 30. This will happen when we have clearer visibility over those figures – perhaps in the first half of June.”

RLG has 580 million shares on issue for a market capitalisation of $18 million and is currently well capitalised after a $5.5 million in a capital raising program conducted at 3c in October last year.

This article was developed in collaboration with RLG, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.