Bottled water firm Tianmei steers clear of bicycle pumps...

Bottled water firm Tianmei steers clear of bicycle pumps

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by Simon EvansSeptember 7 2017
The chairman of an ASX-listed Chinese bottled water firm says he's not in the business of taking a "bicycle pump" to the share price, but he expects to see a revaluation of the company soon as investors fully grasp the upside of its strategy.

Tianmei Beverage Corporation, which listed on the ASX in early 2017 after a $10 million raising at an issue price of 20¢ per share, is trading just below that mark at around 17¢. But the company says its profit margins are rising after it acquired a large water processing plant in Hunan province in February and put in place expansion plans to keep up with demand in China for high-quality bottled water.

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Tianmei chairman Tony Sherlock says business on the ground in China is brisk with bottled water in strong demand from the middle class. Photo: Dominic Lorrimer
The ASX last week sent a query letter to 50 Chinese companies listed on the ASX asking whether they were experiencing any problems transferring capital into or out of China, with Tianmei Beverage among them. It responded on September 6 to the ASX saying it was having no issues.

Tianmei chairman Tony Sherlock said on Thursday that economic activity was very brisk in China and the fast expansion in the numbers of middle class Chinese meant demand continued to rise.

"It's business as usual for us as far as we're concerned," Mr Sherlock said. He said the Chinese economy was growing at about 6.5 per cent annually, but middle class spending was even more brisk.

The acquisition of the Qianlifeng water processing plant had been an important strategic move. Tianmei announced in May it would be expanding output further.

"It's given us access to a significantly increased supply of water," Mr Sherlock said on Thursday. "Our costs have gone down and our gross margins have gone up," he said, referring to the better economics now that it didn't have to buy in the water itself. "It's been a big plus".

Expanded distribution
Tianmei had a strong net cash position of $41 million for the six months ended May 31, 2017, and had also expanded its distribution beyond 900 supermarkets and retailers in Guangdong province.

"I'm not in the business of taking a bicycle pump to the share price," Mr Sherlock said.

"I expect to see a revaluation of the company once shareholders become aware of where we are." Tianmei shares went as low as 8¢ on May 10.

On bigger picture issues, Mr Sherlock said there was no restriction on converting Chinese yuan into foreign currencies for the trade of goods and services.

But it was understandable given the strength of the Chinese economy and the substantial amounts of funds heading out of China to various countries that the issue was under the spotlight.

"The authorities have obviously been concerned about the the amount of funds leaving the country," he said.

Mr Sherlock, a former chairman of the Australian Wool Corporation and a co-founder of corporate advisory firm Bennelong Capital, said a $2 million share placement in July had been made to two wealthy individuals in China.

"Our Chinese directors thought it would be appropriate that a placement be made," he said.