The focus on China’s ongoing economic growth story has been mostly centered on the expansion of capitalism and opportunities for China’s growing middle class, but there is also a growing upper class in China with an appetite for luxury goods. Everything from luxury cars and high-end luggage to clothing has emerging market potential for these newly-affluent Chinese, along with an influx of goods and services for the burgeoning middle class. In the apparel area, one small company, Omnialuo (OTC: OLOU) is carving out a presence.
Omnialuo – headed by founder and CEO Zheng “Cindy” Luo, an award winning chief designer – designs, markets, distributes and sells women’s clothing in China. The company is based in China’s fashion capital, Shenzhen, and concentrates on fashionable business casual clothing manufactured by fifteen independent manufacturers, through its wholly owned subsidiary Shenzhen Oriental Fashion Co. Ltd. The company operates through a growing network of retail stores, and has grown from 84 stores in 2006 to 184 in 2007. Plans are set to expand to as many as 250 retail outlets by the end of this year.
Although the company had a predecessor in Wentworth II, which was formed in 2001, it changed its name and financial structure in a complex technical deal engineered over the last couple of years. Essentially, there was a $1 million reverse acquisition and share exchange, along with private placement of stock, which resulted in a $2.3 non-cash charge which effectively went against the earnings numbers. So Omnialuo’s 2007 net income, which would have been a positive $2.2 million in 2007, was recorded as a loss of just under $1.1 million. This was on $7.9 million in revenues. Before the charges were added in, the income would have been $0.10 per share, which was recorded as a loss of $0.05 per share when fully diluted. The complex financial re-structuring was intended to create a stronger company going forward.
For 2008, the company expects revenue to be in the $13-$14 million range, with net income of $4.3-$4.6 million, which would put EPS estimates at $0.19-$0.21. Growth estimates for 2009 put potential revenues as high as $20 million. Omnialuo has a market cap of $32 million, and has traded in the last year between $1.10 and $2.15 a share, with a recent close at $1.41. It is an over-the-counter stock which trades on an average volume of about 5,000 shares daily.
As you can see, with rapid expansion and its strategic position in China’s marketplace, Omnialuo has seeds planted for dynamic growth. Allowing for the accounting adjustments on 2007 income, Omnialuo is producing revenue increases and looks to be ready to produce income gains as well. With all stocks, but certainly with micro-caps, it is essential to keep an eye on earnings and their trajectory, and it’s good to remember – if you are more accustomed to trading or investing in larger-cap stocks – that the smaller floats and fewer shares traded in micro-cap stocks make trades less easily executed. Of course, it’s important to watch the larger percentage price swings even on relatively small moves, but there are caveats for every asset class, so simply know what you are buying, what to watch, and how to proceed.
Omnialuo represents the opportunity to look at a small, fast-growing company with a unique target market, as high-end, luxury goods make inroads in China. With fashion, cars, jewelry, rising social status, a greater desire for quality goods, and a new breed of consumer coming to the fore in China, this is a time of rapid change. Coach (NYSE: COH), BMW (XETRA: BMW:DE) and other upscale brands are now appearing in China, something inconceivable perhaps only a few years earlier. Chinese business markets are dynamic, uncertain, volatile, rife with opportunity and still poised for explosive growth. Cindy Luo’s stated goal for Omnialuo is to capture a large share of this burgeoning Chinese market seeking luxury clothing, and in doing so become the Chinese brand equivalent of Donna Karan or Liz Claiborne (NYSE: LIZ) in the near future.
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