Retech is a leading Chinese e-Learning technology provider listed on the ASX. They have a number of high profile clients including Mercedes-Benz, McDonald’s, Bank of China and Huawei

Retech was unable to seek a mainland Chinese listing because it is more than 30 per cent non-Chinese owned, and it did not qualify for the main boards in Hong Kong and Singapore, where minimum profit and revenue requirements are much higher than those of the ASX. However, to list anywhere outside mainland China, it had to be incorporated outside of it, so it chose Hong Kong, with a holding company there controlling subsidiaries that contain the company's operations and intellectual property.

The company operates 3 key verticals:

• Corporate: e-learning courseware and platforms (LMS) to Chinese corporate and government organisations across the auto, financial, retail, and technology industries. This also consists of Environment, Social and Governance (ESG) contents as one of Retech’s off-the-shelf common IPs provided through their subsidy Prosage. In 2019, Retech launched Prosage Sustainability Development Limited (“Prosage”), a new company based in Hong Kong focused on ESG compliance
• Vocational education focused on digital media studies. On 22 January 2020 RTE executed a Sale and Purchase Agreement to acquire
  the issued share capital of Pantosoft International Limited. It has developed software systems to
  provide digital solutions to support education management in secondary and
  vocational schools in China. In FY19 Pantosoft generated revenues of RMB23m and earnings before tax of almost RMB6m
• Language Education. In June 2019. Retech acquired a 51% stake in Aushen Group Pty. Ltd, owner of the well regarded XJS Coaching School in Melbourne. Late FY19 saw the launch of its Ai English brand, under which it provides live-streamed English tuition to students in China through its partnership with primary and secondary schools, kindergartens and training institutes

Retech has strong financials at Dec end FY19 with revenue and earnings growing consistently around 30% YoY for the past 5 years. The company has low debt ratio and high cash flow which has allowed the aquisitions mentioned above and payout of a small dividend.

H1 numbers released this week were down on H1 last year with revenue down 3% and net profit down 11%, though still ~$3M. The increased costs were primarily due to standing up the new businesses. Revenue is down in language learning however it is expected to provide good ongoing growth and the industry is opptomistic about the ongoing Covid e-learning opportunities.

Despite the long term strong financials, the market has not responded well with the share price slowly trending down from it's float at $0.50 to $0.32 today. Current P/E is < 7. It seems Australian investors traditionally don't react well to Chinese based companies, with an ongoing concern of transparency. Retech, however, has so far been consistent with their ASX releases. The company also has very high inside ownership possibly resulting in small trades affecting the price.

Overall I am bullish about Retech. They have a great history of financials and provide consistent services to some of China's biggest businesses. There is also a huge market opportunity for online learning which can be expanded locally and throughout APAC. Hopefully the aquisition of Aushen and ongoing development of English language learning relationships with Australia can build market confidence

References:

https://static1.squarespace.com/static/5af533a312b13fb602fe7d7b/t/5d9edfa07bdd8046dbff65cb/1570693037937/Retech+initiating+coverage+11+10+19.pdf

https://static1.squarespace.com/static/5af533a312b13fb602fe7d7b/t/5ee2c1890cc4073ea592bc3e/1591918989500/Retech+update+report+12+June+2020.pdf

https://www.afr.com/companies/chinas-retech-lists-on-asx-chair-blasts-lack-of-australian-investors-20170622-gww7d7