Chill winds from the Chinese economy have caused Australian freight forwarder Wiseway to downgrade its anticipated China/Australia freight volumes and earnings.
Wiseway (ASX:WWG) downgraded its anticipated earnings before interest, taxation, depreciation and amortization for the year ended June 30, 2019 to A$3.0 million (US$2.07 million). That’s down 85.82 percent from the forecast of $8.5 million in its initial public offering prospectus. Wiseway was listed on the ASX in October last year.
“The earnings revision has primarily been driven as a result of volumes to China not growing as strongly as had been expected in the second half, following Chinese New Year,” the company said.
China’s economy slows down
It attributed the slow-down to efforts by Beijing to reduce China’s debt levels and to control lending. “This is turn has affected investment and domestic demand,” the company said. It added that the trade tensions between China and the US have “reportedly exacerbated the economic slowdown”.
The company said that it has also generated lower gross profit from lower revenues owing to higher direct cost of sales than forecast in the initial public offering. Margins have also been affected by lower than envisaged aircraft unit-loading devices packaging rates. Operational changes by airlines which led to the introduction of smaller pallets also had an effect, the company said.
Looking forward, the company remains “very confident” in its outlook. It expects an increase in earnings driven by a focus on operating margins; “strong inbound” growth associated with its customs business and growth in revenues from its New Zealand business. It adds that its new freight venture in Shanghai, which was setup to help develop business from China to Australia and New Zealand has “started well”. Its outbound from Australia perishable freight is trending in line with forecasts.
Wiseway anticipates 2019 full year revenues in the range of $93 million to $94 million. In the year to date it has shipped 60,500 tonnes by air to China and envisages shipping 70,000 to 72,000 tonnes by air by the end of the current Australian financial year.
Wiseway offers air and sea cargo freight forwarding together with reefer, customs clearances, warehousing and trucking services. It specialises in the bilateral Australia-China trade. At the time of the IPO Wiseway operated 75 trucks, eight warehouses and employed 120 people.
Wiseway had A$5.7 million in the bank at the end of April 30, down 69 percent from the end of 2018 from A$18.2 million. The company bought an 8,900 square meter warehouse in Sydney to handle outbound dry goods freight movements. This purchase cost A$11 million.
The company’s prospectus presented pro forma financial data. In the 2018 financial year (Australia’s financial year runs from July to June), the company generated revenues of A$82.25 million and net profit after tax of A$542,000. In the 2017 financial year the company generated A$64.85 million of revenues and A$195,000 of net profit after tax.
Australia-Chinese air freight market
Wiseway launched its IPO to take advantage of the China-Australia trading relationship, particularly in the air freight sector. Exports of Australian agri- and fisheries products rose from 0.75 million tonnes in 2007 to 8.9 million tonnes in 2017. In its prospectus, Wiseway commented that “air freight volumes between Australia and China have grown significantly faster than the global total.”
It pointed out that the total Australia-China air freight volumes in 2017 stood at 244,000 tonnes, which is 22 percent of the total air freight. China is Australia’s second-largest air freight destination market, after Europe. It is also the third-largest source of air-imports, after Europe and the Americas.
The company added that a “significant” market segment for Wiseway is handling product for the daigou trade. Australian residents buy products that are generally on sale in Australia and then ship them back to China, usually for resale at a profit. Australia-produced baby food, vitamins, nutritional supplements and skin care products are said to be “held in high regard” in China. Up to 400,000 daigous are active in Australia, Wiseway says, sending up to 200 parcels a day back to China.