Vmoto Limited (ASX: VMT) is expanding its global reach by entering into Indonesia, the second largest market for petrol motor scooters and potentially the third largest Asia Pacific electric scooter market.
This is after Vmoto raised $5.3 million through a share placement which should allow it to execute on its business plan.
This has been achieved through an exclusive distribution agreement with PT. Garansindo Technologies to distribute, stock and market its electric scooters in the country.
PT. Garansindo Technologies is a subsidiary of PT. Garansindo Inter Gobal, Indonesia's sole general distributor for Chrysler, Jeep, Dodge and Fiat vehicles since 2008.
"We are delighted to have secured what we believe to be the first electric scooter distribution agreement in Indonesia. Discussions have been ongoing with Garansindo and their representatives for many months and the signing of this agreement is the start of what we hope will be a long and fruitful relationship with them," managing director Charles Chen said.
"The calibre of Garansindo speaks for itself and we are in no doubt they are the best distribution group for us to be selling our products.
"The Indonesian scooter market is potentially a huge additional revenue and profit stream for Vmoto and we look forward to reporting on the developments in Indonesia as and when they occur."
Under the terms of the agreement, which has an initial term of 10 years, the minimum order quantities of electric scooters Garansindo will order is 17,500 units over the first 5 years. Garansindo will be placing their first order in the very near future.
Despite having 77.76 million registered motorcycles/scooters (or 82.5% of all motor vehicles) on the roads as of 2012, up 12% from the 69.2 million in 2011, there is still considerable room for this market to grow.
The Indonesian Motorcycle Industry Association (AISI) noted that the ratio of motorcycle owners to residents in Indonesia is one unit per seven people, lower than the one to three people ratio in neighbouring counties.
AISI also expects that 7.5 million new motorcycles will be sold this year with its chairman Gunadi Sindhuwinata saying the motorcycle remained the most affordable mainstay for Indonesians.
Market sales projections from Pikes Research for the period 2012-2018, indicates that the Indonesian electric scooter market will become the third largest in Asia Pacific after China and India.
This represents a significant sales opportunity for Vmoto to provide its European-styled quality products in this growing market over the coming years.
Global electric scooter sales are expected to grow from 12 million vehicles this year to 18 million in 2020.
Vmoto steady growth in China's electric scooter market has already set the company on the road towards making its maiden annual profit for the financial year ending 31 December 2013 of between A$300,000 and A$600,000.
Now, the distribution agreement with Garansindo - an established player in Indonesia's motor vehicle sector - paves the way for the company to begin selling electric scooters into what is potentially the third largest market in the world, generating "huge additional revenue and profit".
Given that Indonesia had in June this year increased petrol prices by about 44% to ease crippling fuel subsidies, this could well be another reason for Indonesians to consider electric scooters rather than petrol-powered versions.
Vmoto has the ability to scale up operations at its wholly-owned 30,000 square metre manufacturing facility in Nanjing, China, allowing Indonesian sales to improve its economies of scale.
This is after raising $5.3 million toward fast tracking growth in Asian markets. We view the deal and ability to leverage off Garansindo as share price accretive.
Proactive Investors maintains its target share price (set in February 2013) of $0.035 within 6 months based on our estimates of earnings growth.
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