SmartTrans chief executive Bryan Carr is the first to admit the company has been through “many iterations”.
After starting life as a goldminer and morphing into an Australian-based transport and logistics company, SmartTrans is now tapping into China’s more than 300 million smartphone users, distributing and providing a payment service for applications.
It has been a “stop-start” past five years, says Carr. But finally he believes he has a compelling story to tell as the ASX-listed firm has been adding more than 1500 customers a day since August. For believers in the China story, SmartTrans ticks a lot of boxes.
It is one of the few foreign companies that has managed to secure a business relationship with state-owned telecommunications giant China Mobile, its board is chaired by former Australian Ambassador Geoff Raby and it has a toehold in an industry that is servicing the biggest and one of the fastest-growing smartphone markets in the world.
But investors have struggled to understand this stock. For much of the year it bounced around half a cent before starting to rise in September when its revenue picked up. It last traded at just above 2¢, down from a high of 4.5¢ in October, valuing the company at $37.4 million.
DIVERSIFIED SERVICES One of its biggest problems is that it has too many stories to tell.
In Australia, it provides logistics services for clients including Austral Bricks and Fairfax Media. In China, it sells games, anti-virus and training apps to mobile phone customers and facilitates payments via bank card or phone bill. It also earns royalties for providing a payment gateway for other app providers operating outside China to sell into the market. More recently, it signed an agreement with Chinese company 123 Education Development to provide online and mobile billing services as well as application development and marketing.And in late November, SmartTrans jumped on the Bitcoin bandwagon.
The company it owns in partnership with Perth-based multi-millionaire Zhenya Tsvetnenko, Digi8, bought a “mining contract” for the virtual currency from a separate Tsvetnenko company. Any revenue from this business will be shared.
Meanwhile, SmartTrans is also in talks with government officials in Brazil to provide logistics services for the 2014 World Cup. Apart from being varied, most of these business lines require a complicated explanation.
But Carr says SmartTrans has opted for a diversified business because of the uncertain regulatory environment in China. It’s never clear whether one revenue channel might be shut down.
“Even though we’ve been here for about five or six years, we have had many stop-starts and gone down different paths,” he told The Australian Financial Review in a bustling cafe in downtown Shanghai. “But over the past four months, we’ve seen good consistent growth in paying customers.”
EYE-CATCHING SHARE REGISTER Another reason SmartTrans is an eye-catching stock is its share register. Dymocks is the major shareholder with just over a third of the company and Tsvetnenko, a regular young rich lister, who made much of his $60 million fortune out of micro-payments generated by Google advertisements owns a minority stake. More recently, Chinese entrepreneur Ian Tang, best known in Australia for his controversial support of former Prime Minister Kevin Rudd, recently joined the register via a million dollar capital injection. In 2008 Tang’s company Beijing AustChina Technology emerged as one of Australia’s biggest political donors. Then prime minister, Mr Rudd, and former senior Labor ministers including Wayne Swan and Tony Burke were forced to defend a number of all-expenses paid trips to China while in opposition, hosted by Mr Tang.
SmartTrans reported a $2.1 million loss last financial year but Carr, who used to be based in Beijing and now lives in Melbourne, travelling to the Chinese capital and Shanghai regularly, believes the company is at a turning point.
“I think we’re at a launch pad now for something that could be very big. I’m seeing our methods are being successful. I see that we’re touching a very small part of the market and I suspect that it’s highly scaleable. I can’t see why it wouldn’t be. I see a huge growth area.”
At the same time, he is acutely aware of the regulatory uncertainty for foreign companies operating in China.
“Over time the experience is that you can ask in China – is there anything else we need in order to operate? The answer might be ‘it’s all fine’ but often there’s a government department somewhere that has another requirement.
“The test for us was developing some consistency,” he says. “We’ve been very steady and circumspect in our growth, controlling it and managing it, and making sure there are no other issues.”
COUP RELATIONSHIP WITH CHINA MOBILE SmartTrans, which provided location and transportation services for athletes’ families during the Sydney Olympics in 2000, came to China before the Beijing Games in 2008, hoping to pick up a role. While not securing an official gig, it did end up doing some work for Australian companies hosting guests by developing an app that helped non-Mandarin speakers navigate their way around the city. But its biggest coup was striking up a relationship with China Mobile.
At the time, the phone company was preparing to roll out its 3G network and they were looking for content. SmartTrans started working with provincial China Mobile groups by developing an early version of app stores. Unlike the United States, Europe and Australia, the Chinese market isn’t dominated by Google Play or iTunes but is much more fragmented, allowing smaller, innovative players like SmartTrans to win market share.
The company started developing and acquiring apps, covering everything from anti-virus to business training apps, lottery products and games. It was granted an internet content providers licence in China, which Carr says is a “time-consuming and expensive” process, giving it an edge over foreign competitors looking to break into the market. It also developed a billing platform, setting up agreements with companies including UnionPay, China Mobile and China Merchants Bank.
“We started as an app company but now see ourselves as a billing company,” says Carr. “We are our primary and first customer but it’s a module that’s available to anyone in the world who has a product they want to sell in China.”
SMA Price at posting:
2.7¢ Sentiment: None Disclosure: Held
(20min delay)