30th Apr 2015 08:45
LONDON (Alliance News) - Shares in Chinese business-to-business e-commerce platform JQW PLC fell Thursday after it confirmed the strong growth in 2014 revenue it had flagged back in February, but said profits grew by less as margins fell due to a higher proportion of sales being made through agents.
The company, which aims to link small- and medium-sized businesses in China with trading partners also warned that its market has become tougher due to the slowing growth in the country's economy, although it said it has so far been able to react positively and said trading so far in 2015 has been positive.
JQW reported a pretax profit of CNY213.2 million for 2014, up 24% from CNY171.4 million in 2013, underperforming the 59% increase in revenue to CNY 783.8 million that it had already flagged in February. The revenue increase was driven by a 22% increase in fee-paying members.
The company also increased the number of sales agencies it has to 44, from 30 at the end of 2013, and an increase in the proportion of sales made through agents weighed on its margins, with gross margin down to 40%, from 50%, as it paid out increased commission. Some 84% of revenue was made through agents rather than the company's direct sales team in 2014, up from 78% in 2013.
It was also hit by higher advertising fees as its client base trade up to more expensive packages, with the cost of buying advertising rights on different media channels to support its advertorial services rising to CNY58.0 million in 2014, from CNY9.8 million.
Chairman Cai Yongde said he was happy with the performance in 2014, but warned about the slowdown in its markets.
"Nevertheless, 2014 has also been a challenging year for the group with the effects of a slowing Chinese economy and government policies making an impact on the group's end market of small and medium sized enterprises. In order for JQW to sustain the group's growth in this more challenging business environment, it has been paramount for the JQW team to continue to focus its efforts on adapting and responding quickly to this evolving marketplace. The team has reacted positively by introducing innovative technologies and additional value-add services to JQW's members, which the board believes will place the group in a strong competitive position," he said.
"The board believes that some of the negative factors in the macro-environment may lead to a slow-down in the growth of e-commerce enterprises in China, including JQW. However, this is a transitional period that the group will navigate carefully after the rapid growth seen in recent years. With JQW's early awareness of the potential risk and its depth of skills and financial resources, the group is well positioned and prepared to overcome these challenges," the company added in its outlook statement.
It added that the rapid changes in technology means it is having to accelerate investment to upgrade its products and services.
JQW shares were down 18.4% at 15.30 pence Thursday morning, making it one of the worst-performing stocks in the AIM All-Share index. The stock had risen strongly in the run-up to the results.
By Steve McGrath; [email protected]; @stevemcgrath1
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