AFR's Smart Investor - Trevor Hoey You may not have heard of the...

AFR's Smart Investor - Trevor Hoey

You may not have heard of the unusually-named company 99 Wuxian, but it is by no means an unknown in Asia, where the Shanghai-based group is a leading player in the burgeoning Chinese m-commerce industry.
99 Wuxian is new to Australia, having only listed on the ASX in October 2013, and is relatively unique in terms of its operations.
99 Wuxian chief executive Amalisia Zhang is no stranger to the top-tier IT and financial scene in China, having co-established and held the position of president of Handpay, the country’s leading third-party mobile payment service provider.
Don’t expect Zhang or 99 Wuxian to maintain a low profile for much longer, with analysts at Foster Stockbroking forecasting 2014 net profit of $6 million to more than treble in 2015 and increase twelve-fold by 2017.
Smart Investor met with the Zhang recently to discuss 99 Wuxian’s business model and the strategies she intends to employ in terms of positioning the company for growth in a market that in itself is expanding exponentially.
In terms of explaining 99 Wuxian’s model, it is worth drawing comparisons with similar and familiar technologies.
Rather than having consumer, business and financial e-commerce systems operating autonomously, 99 Wuxian has developed an integrated consumer accessible proprietary technology.
This creates a business-to-business-to-consumer model where financial institutions, merchants and consumers can complete transactions on mobile devices using one secure platform.
Through its Chinese m-commerce operations, 99 Wuxian, which was spun out of Handpay, is exposed to one of the fastest growing consumer markets in the world.
It is the only mobile market place embedded within mobile banking applications, representing a pool of more than 320 million customers.
Of these, about 30 million are registered users of 99 Wuxian, leaving substantial scope to grow its own customer base as the overall pool increases and the company embarks on a serious marketing and partnering campaign.
Assisted by Zhang’s previous corporate experience, 99 Wuxian has established relationships with 50 leading banks including eight of China’s top 10.
In terms of establishing a product sought after by merchants and consumers alike, having strong relationships with financial institutions is essential as they are the cash vehicle behind the consumer accessing funds to purchase goods and facilitating merchant/bank monetary transactions.
It would be fair to say that Australia, compared with other large markets, is just latching on to the m-commerce trend.
Analysts Foster’s initiated coverage of 99 Wuxian at the start of the month with a buy recommendation and a 12-month share price target of 90¢, more than double the company’s share price at that point.
The broker said described the appetite in the US for exposure to the Chinese m-commerce industry as “intense”.
This was illustrated by the success of a recent IPO, JD, the Chinese equivalent of Amazon which raised $US1.78 billion ($2 billion).
The float was 19 times oversubscribed and listed with a market valuation of $US28 billion.
This will be further overshadowed by the listing of Alibaba, with an expected valuation of between $US120 billion and $US180 billion.
99 Wuxian is the third-largest player by gross transaction value in the Chinese m-commerce market and has quickly become the leader in the business to business to consumer segment.
While IT-speak, new technologies and multiple partnerships perhaps make the company seem a little complex, the business model is relatively simple.
99 Wuxian is a value-added service to a bank or telecommunications mobile customer.
Secondly, it is a secure gateway for customers to transact online with merchants, critical in China where only 10.6 million point-of-sale machines and 500,000 ATMs can’t keep up with the fast accelerating 4.3 billion bankcards on issue.
This leads to the other main factor integral to the success of 99 Wuxian’s model in that it is a cost-effective channel for merchants to reach the customers of banks/telco’s to sell their products and services.
In terms of functionality, users simply have an application on their mobile phone or tablet which provides a secure link to their financial institution and accessibility to more than 150 merchants.
For each transaction, 9 9Wuxian receives a commission which can vary in percentage depending on the value and type of product or service being purchased.
As a guide, in the seven months to December, 99 Wuxian’s commission averaged 3 per cent of transactional value.
The group’s merchants cover a broad range of industries generating revenue from consumers recharging phones, paying utility bills, purchasing transport tickets, as well as traditional consumer products.
Unlike eBay or Amazon that deal with large volumes of inventory and physical items, 93 per cent of 99 Wuxian’s sales are non-physical products or financial transactions requiring minimal infrastructure and distribution capability.