As the ongoing economic crisis drags on in Europe and the US, investors are increasingly looking to China’s domestic market for high-growth opportunities. Despite China’s recent decision to cut interest rates and its slowing economic output, the manufacturing giant is still growing at a healthy pace in comparison to its western peers.
For Canadian investors, the challenge is to find a junior company with high-growth potential that has access to China’s niche markets. This company has to include a strong management team, a sound business strategy and, most importantly, a successful product.
Asia Packaging Group. (APX: TSX.V) is a Vancouver-based company that offers a low-cost entry point into a high-growth market. The Company makes a variety of packaging products through its operating subsidiaries in China, servicing the $25 billion Chinese plastic packaging market. This market, which supplies everything from shopping bags to plastic wrap and food containers, has grown at an impressive 27% annual rate. The explosive growth of China’s domestic economy, which is becoming increasingly less reliant on the country’s export-heavy business model, has seen the rise in consumer goods - many of which are, of course, packaged.
APX produces a variety of polypropylene-based products through its subsidiaries in China. The Company operates a 38,000 square metre plant in Jiangxi Province, where it produces Cast Polypropylene (CPP) film, which is either sold in clear, plastic rolls or laminated for specific applications in the food or pharmaceutical industries. The Company also offers printing services, which have been an important part of APX’s initial focus as they are highly regulated and offer superior margins.
Examples of the Company’s products are as follows:
Polypropylene Containers
Multi-Colour Labeling Products
CPP & VMCPP Film Products
Having started operations in 2004, Asia Packaging has grown its customer base to bring in an annual revenue of approximately $40 million for the fiscal year ended March 31, 2011. The Company plans to expand through a combination of organic growth in new production lines as well as through acquisitions. This is apparent in the Company’s recent announcement, where it made public that it has entered into a Letter of Intent (LOI) relating to the potential acquisition of Yuanxing Holdings Ltd., a holding company that holds all of the share capital of Yuanxing Package (Suzhou) Co. Yuanxing Packaging manufactures and markets a variety of shopping bags and packaging products to the Chinese market, employing over 1,400 people to produce approximately 600 million retail and shopping bags per year.
As this transaction will provide a considerable opportunity for growth, representing a Reverse Takeover, Asia Packaging has been required to halt trading and will resume when the Company has met the requirements (This could be as late as October 12, 2012.). The Company must also obtain a sponsor as part of the proposed acquisition. Canccord Genuity Corp. has agreed to take this role in connection with the transaction and will also act as APX’s advisor.
APX’s stock has followed the encouraging news in 2012, which includes a change of Directors (May), the announcement of $2.3 million in earnings in Q3 (March), and now the LOI:
“The Company is very excited moving forward,” says Brian Birmingham, Vice President & Director. “We believe that the strong demand for packaging products in China, combined with China’s growing domestic market and Asia Packaging’s solid business strategy will lead to future success for the Company and its shareholders.”
With a $43 million market cap, a share price halted at 40 cents and plans to acquire Yuanxing and other future companies in China, APX represents a great opportunity for investors to get in on a China-focused producer. The Company claims to be dedicated to sustainable products and strict environmental standards, holding a government-approved license for its clean room facility. With revenues having increased 100% since 2009 and ongoing growth in its customer base and acquisition portfolio, APX is miles ahead of similarly priced companies. The Company’s strong foothold in China is, for now, accessible at a huge discount to Canadian investors who want to diversify their portfolio into the Asian market. And as additional production lines and plants are added, APX will reward those who get in early.