Cash in on Alibaba float frenzy with JQW

JQW has already garnered over 10 million users and 227,000 paying members, and has 840,000 stores set up on its eponymous website. And it has plenty of room to grow as there are 49 million small manufacturing enterprises (SMEs) in China and the national B2B market is forecast to grow double-digits this year and next. It should also benefit from the rapid spread of broadband and mobile connectivity - less than half the Chinese population is online yet there are now over 840 mobile users nationwide.

Rising demand from small agriculture, manufacturing and domestic service companies helped JQW increase its fee-paying members by 40 per cent last half. That growth drove a 91 per cent rise in sales and sent its pre-tax profits up by nearly half to RMB105m (£10.5m). And its gains look set to continue with broker Argento forecasting cash-profit growth of 17 per cent this year to RMB203m, then a further 24 per cent in 2015. JQW also generates plenty of cash that it is using to fund new ventures and to pay a special dividend this year.

For anyone with a bit of faith in JQW's rich prospects, it may seem shocking that its shares trade at a paltry 8 times forecast earnings, falling to 7 times in 2015. But that undoubtedly reflects investors' concerns about state intervention and opaque corporate governance in China.

Some comfort may be take from the fact that JQW has ties to over 1,300 mass media networks, including Yahoo and Tencent. But more significantly, market qualms may dissipate if the upcoming IPO of Chinese e-commerce giant Alibaba - which could be valued upwards of $155bn (£95.7bn) - is a success. JQW is second only to Alibaba in Chinese B2B e-commerce by web traffic and trades at a much lower rating, so its shares potentially stand to see a flood of interest after the headliner's float.

JQW is currently using the proceeds from its listing in December to invest in advertising, improve its platform and expand its services. For instance, it is offering start-up financing to franchisee sales agencies in return for them taking a smaller sales commission, typically 50 rather than 60 per cent. That should accelerate both its domestic expansion and its top-line growth - JQW's revenues from sales agents soared 88 per cent to nearly four-fifths of total sales last year, while its direct sales rose 29 per cent. The group plans to grow from 40 sales agencies to at least 60 by the end of 2015.

JQW is also driving member growth through a new English-language platform that widens its users' addressable market and allows purchasers to place orders and make payments internationally. It has also implemented a B2B search engine and plans to connect capital-hungry businesses with banks in exchange for a cut of approved loans. And it is developing feature-rich smartphone apps to tap into China’s emerging mobile population and diversify its revenues.