BJCORP ... Mar11

BJCorp owns 67% stake in Cosway Corp Ltd and is listed in HK.

Speculating that Cosway is unlikely to be privatized. Rather it could soon commence ground operations in China. The group may start with Guangzhou, which is geographically close to HK where Cosway already has a successful business.

Cosway’s management has been tightlipped in the company’s progress in China with HKSE or communication to shareholders on the status of its plan to set up shop in the mainland. However, the company had mentioned a plan to enter China is in the pipeline.

It is probably in relation to this that busloads of potential Chinese dealers have been visiting Wismas Cosway for introductory courses on the Cosway business model. Meanwhile, the group’s China website has been going all out to woo dealers, or better known as business partners. In the mainland with a list of frequently asked questions and information on Cosway.

In March 2010, Cosway (China) Daily Consumerables Ltd had been successfully registered in Guangzhou. A posting said this entity would allow Cosway to leap from its current web presence to commence ground marketing and selling activities in China within 12 months.

Cosway China is believed to be the vehicle of the Cosway group to commence ground operations in China. Cunrrently, purchases of Cosway products by China residents are made thorough the e-cosway online shopping website in HK/Macau and then shipped to China.

These transactions are booked as part of the revenue derived from HK, Macau and Taiwan, which are categorized as one geographical segment in Cosway’s financial statement. The two special administrative regions and Taiwan contributed 38.8% to Cosway’s revenue in the first six months of FY2011.

There are two other entities registered in Guangzhou – Guangzhou Cosway Comestic Products Mfg Ltd and Guangzhou Cosway Commerical Services Ltd. The former’s principal activity is the manufacture of personal care products while the latter provides support services.

These three entities are, however are not listed subsidiaries of Cosway in its FY2010 annual report.

Market observers may want to get everything ready before making a big bang in the China.

A big push into China may boost Cosway’s stock price, which lacks a China Story to justify its high valuation. Even at 80 sen, Cosway’s total market cap – taking into account the number of new shares to be issued via the conversion of the remaining ICULS – stands at HK$9.6 billion. This 41 times the group’s annualized net profit for FY2011.

To justify such a high valuation and to attract investors, market observers say Cosway needs to grow its earnings at a faster pace. This means coming up with a solid plan to penetrate and expand in China. At thus stage, the group has yet to commence operations China except to sell though the online channel, which is not creating as much growth as physical presence world.

As Cosway prepares to enter new market, especially China, its total expense have escalated 57% from 2010, outpacing the 47% growth in revenue in the first nine months of FY2011.

But it us possible that one the group commences ground operations in China, and with the pre launch expenses tapering off, earnings could grew in tandem with revenue expansion.