Jatenergy increases sales to over $10 million

Published at Oct 17, 2018, in Juniors

In releasing its September quarter result, a notable takeaway from Jatenergy (ASX:JAT) was the strong revenue growth generated during the period.

Furthermore, there appears to be more good news to come with management believing the pieces are now in place to become a significant exporter of Australian consumer goods to China.

The company is focusing on maximising opportunities created by recent acquisitions and emerging distribution opportunities.

The figures did the talking for the last quarter with sales increasing from $320,000 in the previous quarter to $10,680,000 in the September quarter.

As previously foreshadowed revenue in the prior year was low as management focused their efforts on putting in place the elements necessary to drive sales, particularly of in-house branded products.

Delivers above guidance result

These efforts are now flowing into revenue and this is expected to increase over the current financial year as the business benefits from the transformative efforts undertaken over the previous year.

The above result is pleasingly even higher than the $8.7 million estimate provided to the market on August 15 as synergies between JAT’s recent acquisitions start to prove themselves.

A net operating outflow for the quarter of $5,544,000 reflects the company’s rapid growth, with debtors at quarter end totaling $2.4 million.

Related income is expected to be realised within a 15 to 30 day period and inventories exceeding $3 million are expected to be converted into sales within approximately 30-45 days.

Management highlighted the fact that the businesses are integrating impressively with executive director, Wilton Yao saying, “Sunnya management has become involved in the development of new Golden Koala products, and Green Forest is delighted to have new, in-demand brands to distribute, including Golden Koala milk powders and Sunnya’s Neurio.

“Within a single day of JAT launching Golden Koala’s new formula on Wechat, the promotion attracted over 65,000 visits from daigou groups,” Mr Yao said, “and on Xiaohongshu, Neurio has become the top ranking Lactoferrin brand searched for.”

As part of the Green Forest purchase agreement there was a working capital injection of $4 million which is being used to fund the expansion of the group’s operations.

This has assisted the company in laying a strong platform since the acquisition which should see robust growth unfold in the near term.

Multiple growth drivers

Golden Koala’s new infant, follow-on and toddler formula range is now in production, and distribution has commenced with product offered to daigou groups, Australian shops and pharmacies, and Chinese cross-border platforms.

Golden Koala’s new high calcium Full Cream Instant Milk Powder will be ready for shelves soon and further products are in development in response to demand from JAT’s expanding portfolio of distribution channels.

Looking across the other divisions, Sunnya’s Neurio Lactoferrin is proving to be very popular with Chinese consumers, driving both immediate sales and consumer awareness of the brand, which also includes DHA algae oil, D3 Mushroom Drops and NEURIO Probiotic Drops.

More products are currently in development and are expected to be introduced to the market during the current financial year.

JAT’s first Maternal and Infant Boutique will open in the current quarter, within the 18,000 square metre ‘Hui Yue Kid’s City’, the largest indoor children’s themed shopping centre in Zhengzhou.

The boutique will utilise a combination of traditional (inventory-based) retail and ‘new retail’, offering exceptional Chinese retail exposure to JAT’s in-house and client products.

Of course, JAT’s reference to new retail refers to the e-commerce market, and with China now being the world’s largest e-commerce market and home to 784 million smart phone users, addressing this market is an important part of the group’s strategy.

JAT is currently evaluating additional sites for JAT Maternal and Infant Boutiques but will evaluate the initial success of the first boutique before opening at additional locations.

Changing retail landscape

According to PWC’s 2018 Global Consumer Insights survey, 50% of Chinese consumers buy products online weekly compared with 22% of global consumers and 86% have used mobile payments to make purchases (24% globally).

Looking at the trendlines from 2013 to 2018, PWC concludes that the e-commerce growth trend is coming to an end and being replaced by what it refers to as China’s next retail disruption, end-to-end value chain digitisation.

In 2016, Alibaba founder Jack Ma called it “New Retail”. Tencent calls it “Smart Retail” and JD describes it as “Borderless Retail”.

From a consumer perspective the most striking change is the emergence of online-to-offline shopping, or “O2O” integrated with social media promotion, primarily Wechat, via micro-channel public numbers.

The best of online and off-line

O2O offers consumers the best of online and offline. Local retail stores provide consumers with the opportunity to familiarise themselves with products which are not available domestically.

They then scan the product’s QR code to make the purchase and order home delivery, paying via mobile gateway.

Behind the scenes, distributors use business-to-business (“B2B”) systems to facilitate the sales and fulfil the orders.

From a regulatory perspective these are cross-border sales, akin to a purchase from a foreign website.

In addition to its own Maternal and Infant Boutiques, JAT is collaborating with Chinese business partners, assisting them with regard to the B2B fulfilment that facilitates their O2O rollout.

Sinopharm, the world’s sixth largest pharmaceutical company, is rolling O2O out nationally to approximately 5,000 stores.

Shanghai Dragon Corporation, a large state controlled, publicly listed business is implementing O2O across approximately 3,000 of its new ‘Modern Living’ stores.

Both Sinopharm and Shanghai Dragon Corporation have commenced O2O fulfilment orders from JAT.

In the next five years, China expects to import products and services valued at over US$10 trillion, providing massive opportunities for enterprises across the world.

This information is general financial product advice only and you should consider seeking professional advice before making any investment decision. All indications of performance returns are historical and cannot be relied upon as an indicator for future performance.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

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