Vmoto Limited (ASX: VMT) has received a major vote of confidence from the market in its focus to expand electric scooter sales in the Chinese market, and has received firm commitments for a placement to raise $5 million.
The oversubscribed placement was priced at $0.022 (£0.0127) per share, and will be in two tranches. Tranche 1 for $1.2 million is under the placement capacity, with Tranche 2 subject to shareholder approvals.
Charles Chen, managing director, "We are pleased with the reaction to Vmoto in Australia and the UK over recent weeks and welcome new high quality institutions and investors to our register.
"The growth opportunity we are seeing for electric scooters and electric vehicles in general in China and around the world is significant and these extra funds mean Vmoto is now fully funded for immediate operations, and will allow us to accelerate that growth over the next 24 months."
Just last month Vmoto opened its fourth electric scooter retail store in China, and significantly its first in Shanghai.
The new 410m2 retail store, which is currently the largest Vmoto retail store, is located in Jiading District. Shanghai is clearly a key market in the country.
Vmoto opened its first flagship retail store in China in June 2013 and is on pace to open 10 retail stores by the end of 2013. Since the opening of these retail stores, store sales have exceeded internal expectations.
New joint venture partner
Vmoto has also executed a 50/50 joint venture agreement with a private Chinese company known as Chinese Co, which focuses on the research, development and production of technology parts for the electric vehicle market.
These parts, amongst other things, convert DC battery power into AC used by the electric motor and is crucial to the operation of an electric vehicle.
Chen added, "The Joint Venture is an important deal for Vmoto and has the potential to provide the Company with several strategic benefits, including access to electric vehicle technologies central to the electric system.
"This in turn enhances Vmoto's IP and value add, enabling it to become a more integrated manufacturer.
"We also anticipate that the Joint Venture will increase both our revenues and profits and provide us with access to a more diverse base of electric vehicle products and markets."
Chinese Co currently has annual sales of RMB50m (A$9m or £5.4m) and annual production of 1 million units.
Its customers, of which Vmoto is one, include groups in China, Taiwan, Malaysia, Germany, South Korea and Australia. Such is the current production that their capacity is unable to keep up with demand.
The key terms of the joint venture include:
- Vmoto will invest A$1.35 million into the JV, consisting of an initial equity investment of A$350,000 and a further working capital loan of A$1million;
- Chinese Co will utilise Vmoto's manufacturing facility in Lishui District, Nanjing and gradually close its existing factory within 2 years of the commencement of the JV;
- Chinese Co will provide its technology and new product and market development plan for existing and future Vmoto customers;
- Vmoto has the right to appoint one director, one supervisor, the general manager and chief financial officer to the JV; and
- After 3 financial years of operation, Vmoto has the option to acquire the remaining 50% of the JV for consideration calculated at 50% of 5x the JVs average net profit post-tax, (average for the prior two financial years), plus half of the JV's net assets.
The joint venture is subject to formal execution of Chinese regulation agreements which are expected to be completed by the end of October 2013.
Vmoto's plans to expand electronic scooter sales in the Chinese market have met with approval from investors, who have expressed their confidence where it matters by supporting the company's $5 million placement.
In addition, its attracting of a Chinese joint venture partner further enhances its opportunities in the country and should enable Vmoto to roll out additional retail stores. This will accelerate cash flow, in turn move it toward strong cash flow positive generation from operations.
This is a rare early stage opportunity to catch a company with European design, a manufacturing base in China and a "green" product to leverage China's economic growth and policies to encourage less carbon intensive products.
Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX "Small and Mid-cap" stocks with distribution in Australia, UK, North America and Hong Kong / China.