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Australian Companies Outlook on China

Australian Companies Outlook on China

By Bob Kohut 26.11.2018


On 26 November of 2018 investors around the world will turn their eyes to the G20 Summit in Argentina, hoping against hope for positive outcomes from an anticipated meeting between President Donald Trump of the United States and President Xi Jinping of China.

The threats of more US tariffs imposed on Chinese imports in addition to those already in place gnaws at the nerves of the investing community over the prospect of weakened global economic growth.  

The outlook appears grim, as the two countries failed to release a joint communique at the recent Asia-Pacific Economic Cooperation (APEC) summit fort the first time in history.

The International Monetary Fund (IMF) has already reduced its global growth forecast for this year and next by 0.2 percentage points to 3.7%. 

Given our dependence on trade with China, one would expect Aussie exporters to be spending some sleepless nights.  As yet, the opposite appears to be true.

One of the world’s Big Four auditing firms -- Netherlands based KPMG with operations here in Australia -- recently released the results of the second annual survey of Australian companies doing business in China.  

KPMG Australia polled executives from 165 Australian companies with a presence in China.  The survey was done with an impressive list of partnering organisations -- the China-Australia Chamber of Commerce (AustCham), the Australia China Business Council (ACBC), and the University of Melbourne.

The survey was conducted during the third quarter (Q3) of 2018 with concerns about tensions between the US and China already present.  Despite those concerns and a wave of negative media coverage here on the Sino-Australian relationship, the survey results overall showed, in the words of KPMG Australia, “an encouraging level of optimism.”

Key findings from the report included:

• 66% of the companies surveyed plan to increase their investments in their business in China;

• 60% anticipate increasing their headcount in the near term;

• 80% of companies have positive outlooks on profitability over the next two years;

• 66% of businesses believe that the China Australia Free Trade Agreement (ChAFTA) has had a positive impact on Australian businesses in China;

• The survey found the largest risk in the future was tensions in Sino-Australian relations;

• 72% of responding companies feel China remains a challenging place to do business.

The survey results showed three key growth opportunities in doing business in China:

1. A rising middle class;

2. The Belt and Road Initiative

3. Sustained economic growth.

The rising middle class may be the most important growth driver.  In 2016 HSBC Australia held its third annual Australia-China Conference in Sydney.  The CEO encouraged investors to look for opportunities in China’s exploding middle class, estimating that between 60 and 80 percent of the urban population in China will leap into middle class status by 2025.  By that year Australian non-resource exports to China are forecasted to increase to 41% of total exports, up from the 2016 level of 32%.

Opportunities abound in tourism, health, education, and agriculture according to HSBC.  It doesn’t take a degree in financial analysis to realize agricultural products are the most broadly exportable of any of the opportunity areas.

Regular followers of events in China know the country has been plagued by food scandals, propelling Australian agricultural products to the forefront of desirability from Chinese consumers.

Growth investors who believe in the maxim popularised by US investor Peter Lynch that big companies don’t make big stock moves normally look to micro and mid-cap stocks for opportunities.

The following table lists by market cap four ASX listed companies doing business in China with year over year share price appreciation exceeding 100%.


The Clover Corporation Limited (CLV) is engaged in the business of refining and sale of omega-3 and omega-6 oils used in infant formula, supplements, and medical foods.  The company listed on the ASX in 1999 with the stock price rising 363% since.  Over the last decade the share price is up 800%.


In 2014 the company committed to a strategy of developing “next generation” infant nutrition products, focusing primarily on novel fatty acids with health benefits in infant nutrition; microencapsulation technologies for Infant nutrition; and preterm infant and medical nutrition.

Clover has grown both revenue and profit in each of the last three fiscal years, with a stellar performance for FY 2018 when revenues were up 31.5% and net profit after tax (NPAT) rose 109%.  The company is the only stock in our table to pay a dividend, with a current yield of 1.3% and the only stock with analyst coverage, with a solo analyst rating the stock a BUY.

Its China business is growing and for Aussie investors concerned about the regulatory environment in China, Clover’s annual report stated the following:

Its China business is growing and for Aussie investors concerned about the regulatory environment in China, Clover’s annual report stated the following:

This (recent import regulations) appears to have improved the demand of many of Clover’s customers, whilst smaller brands have not achieved licensing or have lost favour with customers. Overall China demand has grown with manufacturers reporting significant growth rates across the year. 

Recent regulatory changes in the EU stand to benefit the company as well, as new legislation there will require all infant formula sold within the Union to contain a prescribed minimum level of Omega-3 by 2020.

Food Revolution Group (FOD) makes its own branded juices, fibres, infused fruits and waters, as well as supplying ingredients to other Aussie food producers.  The company listed on the ASX in 2015 through a reverse merger with gold miner Crest Minerals.  In business for twenty years as Langtech International, the new entry changed its name to Food Revolution Group.

Food Revolution Group has a patented processing system called Counter Current Extraction (CCE) that enables use of 100% of a piece of fruit through extraction of oil, pulp, juice, and peel for manufacture of its own products and resale as ingredients to other processors.

The newly named company reported revenues of $19.7 million and a loss of $6.2 million in its first full year of operation. Revenues grew to $32.3 million in FY 2017 and $34.3 million in FY 2018 while net profit rose to $1.7 million in 2017 and $2.7 million in 2018.

The company has products in Coles and Woolworths and recently signed a supply agreement with Aldi Australia.  Langtech had done business in China and it is those contacts and distribution channels Food Revolution is looking to expand.

In September of 2018 the company announced a strategic distribution agreement with Carelene Australia Pty Limited for the distribution of Food Revolution products to the Chinese market through Careline’s network of more than 10,000 affiliate marketers – daiguous where outside buyers procure products for Chinese customers.  

On 2 November Food Revolution Group delighted investors with the announcement the company had received China Inspection and Quarantine Certification (CIQ) for its Fruit Farm Orange Juice products. 


The company is committed to a major expansion into China, benefiting from the decline of US made products there over tariff threats. 

As its name obviously implies, Murray Cod Australia (MCA) is an aquaculture – think fish farmer – producer of Murray cod. The company claims a competitive advantage over tank-based producers, citing its open pond-based production in the species natural environment – the Murray-Darling Basin river system.  

The company’s Full Year 2018 Financials showed marked improvement, with revenues up 212% and while still posting a loss, it was down 96% over the previous fiscal year. 

Commercial fishing of once sought after Murray Cod is banned, with the company benefiting from reopening a formerly closed market for the prized fish.  The company’s Asian exports are limited due to production capacity, but expansion plans are underway. A successful capital raise was completed earlier in the year.

The company, formerly Timpestra Resources, listed on the ASX in January of 2017 combining Bidgee Fresh Pty Ltd. and the aquaculture businesses and assets of Riverina Aquaculture and Silverwater Native Fish into Murray Cod.

Investors appear to have bought in to the company’s growth story, as the stock price is up around 200% since listing.


In 2011 an ASX energy company named Jatoil changed its name to Jatenergy Limited (JAT) to reflect its expanding presence in coal.  The company has metamorphised yet again, using its Chinese contacts and experience in promoting clean coal technology to change its primary focus to becoming a China-Australia cross border specialist in Fast Moving Consumer Goods (FMCG) exports.

The company got out of the coal mining business following the Paris Peace Accords but still has a presence in coal via its Coal Plus technology.  The initial shift had the company using its China connections to assist client Australian companies wishing to export their brands to China.

Jatenergy has yet to change its name to reflect its new focus and is now adding its own branded goods to its Australian customers using JAT’s China expertise to get their products into the China market.

The company moved to add its own goods began in earnest after shareholder approval in March of 2018.  According to the company, relying exclusively on “other people’s goods” did not provide sufficient margins for the company to grow.

Jatenergy appears to be a company pursuing “diversification on steroids”, with fingers in multiple pies at the same time.  Investors rallied to the 17 December of 2017 announcement of a proposed infant formula acquisition, Golden Koala, with Chinese Food and Drug Administration (CFDA) approval to sell infant formula in China.   

On 26 March the company issued a correction, now stating Golden Koala only had the approval of the Certification and Accreditation Administration of the People’s Republic of China (CNCA).  The company attributed the error to a name change of accrediting agencies within China and assured investors Golden Koala products had approval and were selling in China.  The following day the company had to clarify yet again, stating the approval was issued not to Golden Koala, but to its manufacturer, Nutritional Choice Australia.  Investors were not impressed.  


The company has signed numerous MOU’s (memorandum of understanding) for strategic partnership arrangements with companies like Shanghai Bios Medical Nutrition Technology Ltd; Shanghai Dragon Corporation; Guangzhou Eastern Bridge Import & Export Company; and Ocker Products Pty Limited.  These may or may not bear fruit.

Another recently acquired subsidiary of JAT – Australia based wholesaler, distributor and exporter to Hong Kong and mainland China, Green Forest International Pty Ltd, recently signed a distribution agreement with Sinopharm (China National Pharmaceutical Group Corporation).

JAT has intriguing possibilities.  Investors with high risk tolerance might want to speculate here while others should consider adopting a “wait and see” attitude.  




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