JQW (LSE: JQW) has had a rough 12 months. The company — which provides a B2B e-commerce platform focused on connecting Chinese buyers with Chinese sellers — has seen its share price slump by nearly 80% since April last year.
But while the market has turned its back on JQW, the company’s business seems to have only improved.
During February, JQW released a trading update reporting that revenues for the period were “ahead of market expectations“. Unaudited management accounts showed revenues reaching approximately RMB 784 million (RMB stands for renminbi, the official currency of the People’s Republic of China) at the end of June, up 60% year-on-year.
Moreover, according to the figures supplied by the company, JQW had around RMB 425 million in cash, roughly £45m at the end of June last year.
This indicates that, at present levels, JQW is trading for less than the value of cash on its balance sheet. Furthermore, figures from City analysts suggest that the company is trading at a historic P/E of only 2.8.
These figures make JQW look to be one of the cheapest companies in London. However, while JQW’s figures do seem to stack up, there’s an elephant in the room…
Trust issues
Certain Chinese companies have gained a reputation over the past few decades for falsifying accounts, misleading investors and poor corporate government controls.
And you don’t have to look far to find evidence that supports this claim.
Last year, Germany-listed Chinese shoemaker Ultrasonic reported that its CEO and COO had disappeared, taking with them all of the company’s cash. A few months earlier, shares of menswear maker Fujian Nuoqi fell by 30% for no apparent reason. It later emerged that the company’s chairman had disappeared.
Another Chinese group, Hydoo International Holding, also lost its chairman and failed to find him again, while Youbisheng Green Paper was forced into liquidation after its CEO went absent. All of these cases happened within the space of a few months.
There’s no indication that JQW will disappoint investors in the same way. Nevertheless, based on past events, it’s easy to see why the market remains cautious about the company’s outlook. It seems to be that JQW’s valuation may be likely to remain depressed until such time as trust in Chinese corporate governance has been rebuilt.
The bottom line
All in all, JQW is growing rapidly, has a cash-rich balance sheet and is currently one of the cheapest companies trading in London. Unfortunately, JQW is being tarred with the same brush as some of its peers.
However, if JQW proves that it can be trusted, there’s no reason why it can’t return to 40p. As the father of value investing, Benjamin Graham, said: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
