99 Wuxian Limited (ASX: NNW) Initiating Coverage

Transcription

1 99 Wuxian Limited (ASX: NNW) Initiating Coverage April 2017

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3 Contents Tapping Into the China M-Commerce Market... 1 Key Points... 1 SWOT Analysis... 3 Company Overview... 4 Financial Position... 5 Business Model... 5 Historical Financial Performance... 7 M-Commerce Market in China... 8 Peer Comparison Investment Case Capital Structure...11 Risks...11 Board and Management... 12

4 99 Wuxian Limited (ASX: NNW) Initiating Coverage Investment Profile ASX Code: NNW Share price ($) as at 19 April Issued capital: CDIs (M) Hong Kong Shares Options (M) 0.0 Fully Diluted (M) 1,159.7 Market capitalisation ($M) month Low/High ($) 0.068/0.16 Board and Management Ross Benson: Non-Executive Chairman Amalisia Zhang: Chief Executive Officer/Executive Director Dr. Tao Wen: Chief Technology Officer/Executive Director Haoming Yu: Non-Executive Director Simon Green: Non-Executive Director Christopher Ryan: Non-Executive Director Henry Chen: Chief Financial Officer Major Shareholders % Grand Ease Holdings Limited 22.0 Caihui Investments Limited 12.7 Ace Ray Limited 7.4 Vtion Capital Investment 6.2 Nation Pride Investment Ltd 6.2 Share Price TAPPING INTO THE CHINA M-COMMERCE MARKET 99 Wuxian Limited (ASX: NNW) operates a mobile marketplace in China and a third party loyalty redemption platform and employee incentive redemption platform. The company has 64.3m registered users and a Gross Transactional Value (GTV) of in excess of RMB14b in Through its relationships with business partners, which includes the top 10 banks in China, the company has grown its registered user base 243.8% from 2012 to 2016 and this continues to grow. The company continues to convert the cash payment business partners onto the ICS and ibenefit platforms, which will further drive transaction growth. KEY POINTS 99 Marketplace Users Growing at a Rapid Pace: 99 Marketplace is an online marketplace with around 130 merchants and over 3,000 physical and virtual products for sale. The marketplace is the core business of the company with users primarily accessing the marketplace through the mobile apps of business partners of which there are over 250 at present. At 31 December 2016, the company had 64.3m registered users and generated in excess of RMB14b GTV for the year. The large majority of GTV is generated from customers purchasing goods and services with cash, with the remainder of GTV a result of customers using reward points and employee incentives. Third Party Loyalty and Incentive Redemption Platforms: In addition to the 99 Marketplace, the company operates two third party loyalty and incentive redemption platforms which facilitates the redemption of loyalty points and employee incentives: Incentive Cloud Service (ICS) - a third party rewards redemption platform that enables customers to exchange loyalty points for products and services from the 99 Marketplace. The Marketplace is accessed via the mobile applications of participating businesses. Business Partners currently include a number of Chinese banks, insurance companies and telecommunication companies. ibenefit - an employee benefit redemption platform, allowing employees to redeem incentives and benefits issued by employers from the 99 Marketplace. The ibenefit platform was officially launched in April 2016 and as such is in the early stages of growth. In FY16, the redemption platforms accounted for ~20% of GTV. Growth in the use of these platforms will drive transaction growth. $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Customer Acquisition a Key Differentiator: A key differentiator from competitors is how the company acquires customers. The company accesses users through the business partners by having access to the 99 Marketplace on business partner mobile apps. This model provides access to all of the business partners customer base resulting in significantly reduced customer acquisition costs compared to other online marketplace operators. Cashflow Position: The company has a significant operating cash outflow which continues to drain the companys resources, with the company having to raise capital in The working capital deficit is driven by the growth in trade receivables form the ICS platform growing at a faster pace than the trade payables. This will remain the case until the ibenefit platform grows to a position where it offsets the required working capital for the ICS platform. The company is seeking to secure a working capital facility which will relieve the current operating cash pressure and eliminate the need for the company to raise additional capital. Share Price Catalyst: While revenue growth has been strong, the share price has continued to decline on the back of low liquidity, the company raising capital at a discount to the share price diluting existing shareholders positions and operating cash outflow. We believe a catalyst for the stock will be a turnaround in the operating cashflow position of the company. This combined with continued growth in the underlying revenue metrics and improved liquidity will see a turnaround in the direction of the share price. 1

5 PROFIT & LOSS (RMBm) Y/E December 2013A 2014A 2015A 2016A Revenue Underlying EBITDA Underlying EBIT Interest Expense PBT Tax Expense NPAT BALANCE SHEET (RMBm) Y/E December 2013A 2014A 2015A 2016A Cash Receivables Inventories Other Total Current Assets Property Plant & Equipment Intangible Assets Investments Deferred Tax Assets Other Total Non-Current Assets Total Assets Trade and other payables Borrowings Current tax liabilities Provisions Other liabilities Current Liabilities Trade and other payables Borrowings Deferred tax Provisions Non-Current Liabilities Total Liabilities Net Assets Shareholders Equity CASHFLOW (RMBm) Y/E December 2013A 2014A 2015A 2016A PBT Profit After Adjustments Change in Working Capital Operating Cashflow Payments for entities and businesses, net of cash acquired Payments for property, plant and equipment Payments for intangible assets Payments for other assets Payments for acquisition of associates and other investments Advance to other entity Other Cashflow from Investments Proceeds from borrowings Repayments of borrowings Proceeds from share issue Interest Paid Advance from related party Dividends paid to ordinary shareholders Cashflow from Financing Cash at beginning of period Net change in cash FX effect Cash at end of period

6 SWOT ANALYSIS Strengths The company s founder and Chief Executive Officer, Amalisia Zhang, has a significant network in China providing the opportunity for the company to get in front of a number of companies. 99 marketplace offers goods and services at discounted prices, making it an attractive place for customers whether it be with cash or with reward points and employee incentives. The company has an exclusive 30-year partner agreement with Handpay, China s fifth largest third party mobile payment service provider. The key revenue metrics have grown strongly since listing in October The company has grown to 64.3m registered users with over RMB14b in GTV in FY16. Revenue has grown from RMB72.3m (AUD$13.4m) in 2013 to RMB302.3m (AUD$60.1m) in 2016 and we expect revenue to continue to grow. By partnering with businesses and being connected to their customer base, the company s customer acquisition costs are significantly reduced compared to other online marketplace operators. Included in the business partners is the top 10 banks in China. These relationships provide a strong base to access customers and reliable creditors for receivables. The company acts as an intermediary between merchants and customers/employees and as such is not required to hold large amounts of inventory. The ibenefit platform receives cash in advance from business partners, which will partially offset the working capital requirements of the ICS platform. Weaknesses There are a significant number of CDIs and Hong Kong shares on issue at 1.16b. The board holds 30.2% of CDIs and shares on issue. In September 2016, 747.4m CDIs were released from escrow, which equates to 82.3% of the total CDIs currently on issue. Given these shares are issued to executives and founders of the company we assume that the holders of these CDIs will be unlikely sellers, therefore we conclude that 17.7% of CDIs on issue are freely available for trade, resulting in a low level of liquidity. Further to this, the large number of CDIs on issue will mean earnings improvements will have to be significant to result in a meaningful EPS growth. The company has undertaken two equity raisings, both at a discount to the share price at the time, diluting shareholder value. Opportunities The rewards market in China is significant with the company expecting the market to grow to RMB600b by The ability of the company to grow its third party redemption platforms will significantly contribute to GTV and revenue growth. The m-commerce market in China has grown rapidly and is expected to grow to RMB1,608b in 2018, providing a significant opportunity for the company to capture the trend towards online consumption. With over 64m users, the company has a significant opportunity to take advantage of the data it collects to provide enhanced analysis for its business partners. Threats The company has significant working capital requirements with the temporary cash outlay to merchants until the company is paid by the participating businesses on the ICS platform. In the event a working capital facility cannot be secured, the company will likely have to raise addition capital to satisfy the working capital deficit. The company s revenue is highly concentrated with three business partners representing 81% of total revenue in In the event one of these company s ceases to partner the company, this will have a significant adverse impact on revenue. There have been a number of related party transactions that have taken place. The conflicts of interest that arise with related party transactions provide some concerns. 3

7 COMPANY OVERVIEW NNW operates an online marketplace in China, 99 Marketplace. The Marketplace offers virtual and physical good and services from around 130 merchants. The Marketplace can be accessed through the mobile apps of business partners and through Wechat accounts. The Marketplace has over 64m users and in FY16 had gross transactional value (GTV) of in excess of RMB14bn. At present, customers largely purchase products using cash, however, the introduction of the two third party redemption platforms allows customers and employees of participating business to use loyalty points and employee incentives to purchase goods and services from the Marketplace. The company has introduced two third party loyalty platforms since listing: (1) Incentive Cloud Service (ICS); and (2) ibenefit: (1) Incentive Cloud Service (ICS): a third party customer loyalty point redemption platform, whereby the customers of participating business can use their reward points to purchase goods and services from the 99 Marketplace. (2) ibenefit: a third party employee benefit redemption platform providing employees of participating companies employees the ability to use employee incentives to purchase goods and services from the Marketplace. The issue of reward points and gifts is common practice in China with employees of the majority of companies issued with reward points on a monthly basis in addition to their salary. The ibenefit platform is the latest addition to the company with the platform officially launched in April The company has over 250 business partners across the three platforms. This number grew from 71 business partners at the end of Business partner growth has been driven largely by the ibenefit platform. Partnership with Handpay The 99 Marketplace was established by Shanghai Handpay Information & Technology Co Ltd (Handpay) in 2011 before being spun out into NNW in The company has an exclusive 30 year partner agreement with Handpay, providing the company with stability regarding the payment provider. The partnership is important as Handpay are a licenced payment provider and the company is not. As such, the company would not be able to operate with the partnership, with licences difficult to obtain. In exchange for the partnership, NNW made two lump sum payments to Handpay of (1) RMB20m and (2) RMB30m. The company also pays an ongoing quarterly payment of 10% of the service fee income, payable at the end of every quarter. This fee has been negotiated down to 3%. Operating Structure Handpay Merchants Payment processing Incentive Scheme (ICS) 99 Marketplace ibenefit Customers Loyalty Points Business Partners Employee Incentives Employees 4

8 FINANCIAL POSITION At 31 December 2016, the company had RMB44m (AUD$8.8m) in cash and RMB139.6m (AUD$27.8m) in non-current borrowings, which was a loan from the CEO for the purchase of OfPay. The loan has been extinguished in the 2H CY16 with the company announcing the sale of the recently acquired 40% of Ofpay for RMB200m, a RMB40m increase to the purchase price of RMB160m. The sale consisted of: (i) the extinguishment of the RMB140m loan to the company from the CEO; (ii) a cash payment of RMB20m; and (iii) deferred cash payment of RMB40m secured by the NNW ordinary shares held by the CEO. The deferred cash payment will be subject to a maximum term of three years and accrue interest. The total RMB60m cash injection will be welcomed by the company given its current low level of cash and the operating cash outflow of RMB62.1m in the 1H CY16 as a result of the increase in trade receivables. We believe the operating cash outflow has been a drag on the share price and expect this to continue to be the case until the company can begin to generate positive operating cashflow to sustain business operations. BUSINESS MODEL NNW has adopted a B2B2C model, whereby the company connects merchants with its business partners and the company connects merchants with customers. The company connects the parties through the three platforms. The company generates revenue from every transaction that occurs on the 99 Marketplace. The amount of which is dependent on the product purchased with commissions ranging from 2% to 20% of the purchase. Customers are acquired through the business partners with the business partners offering the option to shop at the 99 Marketplace to their customers and employees via the three platforms. This model is a key differentiator from its competitors with customer acquisition costs significantly less than competitors using this model. The costs are largely the costs associated with the joint marketing campaigns done with business partners. The company currently has over 250 business partners across the three platforms. Business Partners includes the top 10 banks in China, insurance companies and telecommunication companies. Business Partners by Industry 60% 50% 40% 30% 20% 10% 0% Bank Insurance company Asset management company Human resource company Consulting firm Health consultancy firm Telecom Other industries Transaction Settlement 99 Marketplace: Cash payments on the 99 Marketplace are settled within one day. ICS platform: the company is responsible for settling the transaction with the merchant and then the business partners settles payment with NNW at a later date. Settlement by business partners is typically between 30 and 45 days and as a result the company has significant working capital requirements. 5

9 ibenefit platform: the structure of transaction settlements is the opposite to the ICS platform, whereby participating businesses using the ibenefit platform deposit the funds that are equivalent to the employee incentive points to NNW in advance. As a result, the company does not require working capital funding for this platform and can potentially benefit from any unused reward points by employees. Platform Access The bank-end system is the same across all three platforms, however the access points for users is different for each platform. 99 Marketplace: Users can purchase products from the Marketplace using cash. Access to the Marketplace is found on the mobile apps of the business partners, which are primarily banks for this platform. ICS platform: customers can use their loyalty points issued by companies through the mobile apps of the business partners. The app is different to the app entered into if users were looking to spend cash. The company historically has not previously offered the ability to use a combination of loyalty points and cash to purchase products, however two business partners have recently commenced a points plus cash offering. ibenefit platform: incentive points issued by employers can be accessed by logging on to a human resource (HR) service provider platform or via the ibenefit Wechat account in which the employee enters their username and password. In January 2017, the company announced they have entered into a sales partnership with HRPackage, a HR solutions company providing a cloud platform service to over 2,000 companies. HRPackage s offering includes online cloud platforms, HR affairs agents and payroll services. The sales partnership will see HRPackage introduce the ibenefit offering to its clients. The partnership opens up a significant sales point for the ibenefit offering. This partnership is in addition to the partnership with Blue Sea HR Solutions announced in December Blue Sea HR Solutions have 5,000 corporate clients across 20 industries. Key Revenue Metrics The company has a number of key metrics that drive revenue. These are (i) the number of users; (ii) total number of transactions; (iii) gross transaction value; (iv) average spend per transaction; and (v) commission. Number of Users The company gains access to users through its business partners. The greater the number of users the greater the revenue potential for the company. The number of users has grown consistently with the number of users increasing by double digit growth every year, as detailed in the below table. The company has signed up a number of business partners across all three platforms in 2016, and as such we expect the number of users to continue to grow. Number of Users Number of Users (m) Annual Growth na 49.2% 46.2% 33.6% 18.1% Total Number of Transactions The total number of transactions have increased at a greater rate than the number of users, meaning that the number of transactions per user is increasing. This is evident in the growing number of transactions per user, which has grown from 0.8 in 2012 to 2.42 in The ability of the company to improve the number of transactions translates into greater revenue in the event the company can maintain the spend per transaction. 6

10 Total Number of Transactions Number of Transactions (m) Annual Growth na 68.0% 32.1% 70.6% 174.1% Number of Transactions per User Gross Transaction Value (GTV) GTV refers to the total value of transactions for the year. GTV has grown strongly through to 2015, however slowed in 2016 with GTV only increasing 4.5%. Gross Transaction Value (GTV) GTV (RMBb) Annual Growth na 163.2% 64.0% 65.9% 4.5% Average Spend per Transaction Whilst the number of transactions and users increased substantially in 2016, the average amount spent per transaction declined 61.9%.This followed a small decline in the metric in This is attributed to the increased marketing campaigns which resulted in reduced prices to attract users. While transaction volumes and number of users continues to grow this will offset a decline in the average spend per transaction, however in the event growth in these other metrics slows or ceases, continued weakness in the average spend per transaction could become a concern for the company. Average Spend per Transaction Average Spend per Transaction (RMB) Annual Growth na 56.6% 24.1% -2.8% -61.9% Commission per Transaction The commission per transaction is an important metric as this reflects how much revenue the company is generating per transaction with the growth in this metric important to margin improvements in the business. Management has stated that the sale of higher commission products will be a focus moving forward. After increasing the average commission received in 2014, this metric declined in both 2015 and In 2016, the commission received pre transaction fell to its lowest level yet. This will be a figure of importance moving forward to determine if management are able to move customers to higher commission products. Average Commission per Transaction December-end Average Commission per Transaction 2.9% 4.6% 3.4% 1.9% Annual Growth na +1.7% -1.2% -1.5% HISTORICAL FINANCIAL PERFORMANCE The company was listed in October 2013 and as such has four years of financial history. The company reports its financials in RMB so we have provided both RMB and AUD results. The company has exhibited strong revenue growth since listing with revenue growing from RMB72.3m (AUD$13.4m) in 2013 to RMB302.3m (AUD$60.1m) in

11 The gross profit margin was severely impacted in 2016 as a result of a significant increase in the cost of sales. This increase was largely due to increased marketing costs with the company running a number of marketing campaigns with business partners throughout the year. The company reported it s first net loss in The result was impacted by the interest payment for the loan by the CEO for the acquisition of the interest in Ofpay. Without the interest payment, the company would have reported a net profit of RMB3.6m, a 56% decline on 2015 NPAT. The decline in NPAT was largely due to the reduced gross profit margin. Profit & Loss Year end December FY13A FY14A FY15A FY16A $m RMB AUD RMB AUD RMB AUD RMB AUD Revenue Revenue Growth na na 113.2% 127.0% 24.7% 33.7% 57.2% 48.4% Gross Profit Gross Profit Margin 36.8% 36.8% 51.8% 51.8% 66.7% 66.7% 34.6% 34.6% PBT PBT Growth na na 161.1% 177.9% 81.3% 94.3% na na PBT Margin 4.7% 4.7% 5.8% 5.8% 8.4% 8.4% na na NPAT NPAT Growth na na 160.3% 177.2% 46.1% 56.6% na na NPAT Margin 3.7% 3.7% 4.5% 4.5% 5.3% 5.3% na na AUD/RMB As previously mentioned, the company has significant working capital requirements associated with the ICS platform, given the company is required to settle payments with merchants prior to being paid by the business partner for the ICS platform with payments terms of up to 45 days from business partners. The working capital requirements restrict the ability of the company to grow the number of business partners on the ICS platform. Trade receivables and payables are important metrics to watch for the working capital position. In 2014, the significant increase in trade receivables resulted in the company reporting a significant operating cash outflow of RMB115.1m in The launch of the ibenefit platform in April 2016 (soft launch in 2015) has increased the trade payables position as a result of the receipts in advance position. As the platform grows, the receipts in advance position will increase. This will improve the free cashflow position of the company, however as it currently stands there is a significant difference between the trade receivables and trade payables position. Working Capital RMB Millions FY13A FY14A FY15A FY16A Operating Cashflow Increase in Trade & Other Receivables na % Increase in Trade & Other Receivables na 100% 21.5% 53.8% Increase in Trade & Other Payables na Increase in Receipts in Advance na na % Increase in Receipts in Advance na na 100% 58.2% M-COMMERCE MARKET IN CHINA M-commerce includes mobile shopping, mobile gaming, mobile payment and value added mobile services. The m-commerce market in China has grown strongly in recent years. According to iresearch Global Inc. m-commerce revenue increased 153% in 2015 to RMB434.4b and has increased exponentially from 2011 in which revenue was RMB1.19b. As shown in the below chart, iresearch expects the market to continue to grow at a strong pace through to 2018, with revenues of RMB1,608b. 8

12 M-Commerce Revenue in China 1, , , , , e 2017e 2018e % Change m-commerce revenue (RMB Billion) 180.0% 160.0% 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Source: iresearch Global Inc. The m-commerce market is being driven by the increased by use of mobile devices, the advancement in technology of mobile products and the safe and secure mobile payments technology. Over the past decade, the number of mobile phone subscriptions globally has grown significantly from 2.2b subscriptions in 2005 to an estimated 7.4b in As technology has advanced, the number of mobile internet subscriptions has grown, with the number of active global mobile internet subscriptions increasing 1,263%. from 2007 to Global Mobile and Mobile Broadband Subscriptions 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, * Mobile Phone Subscriptions Active Mobile Broadband Subscriptions Source: International Telecommunications Union China has the largest number of mobile phone users. In China, mobile phone subscriptions have grown at the same pace as the world, with mobile phone subscriptions in China increasing 228.4% from 2005 to 2015 in line with the world which has increased 227.2% over the period. According to Statistica, smartphones accounted for 50.9% of mobile phones in China in 2015 and this is expected to increase to over 60% by In 2015, 50% of people in China used the internet. This figure has increased from 8.5% in This is below developed countries such as Australia,where over 80% of people use the internet. Growth in internet usage has been largely attributed to the penetration of smartphones but can also be attributed to the investment in infrastructure, with the government targeting to connect 85% of the population to 3G or 4G by Given internet usage is still low compared to developed countries, it would appear there remains plenty of room for growth in the m-commerce market in China. 9

13 China Mobile Phone Subscriptions 1,400,000,000 1,200,000,000 1,000,000, ,000, ,000, ,000, ,000, Source: International Telecommunications Union PEER COMPARISON We have provided a comparison of the company s peers listed in the US, of which there are four. Given not all companies have released their 2016 results, we have based the below on 2015 reported financials. At 31 December 2015, NNW had the third largest user base amongst the below peers. Despite this, the company s revenue is substantially below that of its peers. All companies, with the exception of JD.com Inc, reported a net profit for their respective 2015 financial year. For FY15, NNW had the second highest EBITDA margin at 11.2%. However, all companys margins are dwarfed by Alibaba Group. A key difference is that all of the peer group have positive operating cashflow, an area in which NNW needs to rectify in order to change the direction of the share price. Peer Comparison Company Code Users (millions) Jumei International Holding Ltd Revenue CY15 (RMB millions) EBITDA CY15 (RMB millions) EBITDA Margin EV/ EBITDA NYSE: JMEI , % JD.com Inc NASDAQ: JD ,287.0 (7,114.9) -3.9% na na Alibaba Group Holdings Ltd Vipshop Holdings Ltd 99 Wuxian Limited *Based on share price at 13 March NYSE: BABA , , % NYSE: VIPS , , % ASX: NNW % 8.5 na PE* INVESTMENT CASE An investment in NNW offers investors access to the fast growing mobile commerce market in China. With China having the largest number of mobile phone users and with internet penetration at 50% of the population, there is still plenty of growth potential in the m-commerce market. We expect the company to continue to grow revenue at a strong pace as a result of continued growth in GTV, however we expect the company to continue to generate limited free cash flow in the near term as a result of the working capital requirements to cover the temporary cash outlay to merchants for the ICS platform. 10

14 The company continues to secure business partners for the ibenefit platform. The continued growth in this platform will be a positive for the business not only as it will contribute to GTV growth, but the company receives the cash for employee incentives in advance as opposed to in arrears. If the company can grow this platform to a sufficient size, the advanced cash payments will assist with covering the working capital requirements for the ICS platform. The large number of shares on issue is a drawback for the company, with significant improvements in profits having only a small impact on EPS. CAPITAL STRUCTURE The company currently has 904.4m Chess Depositary Interests (CDIs) on issue. There are no options in issue and no shares are held in escrow. In September 2016, 747.4m CDIs were released from escrow, which equates to 82.3% of the total CDIs currently on issue. Given these shares are issued to executives and founders of the company we assume that the holders of these CDIs will be unlikely sellers, therefore we conclude that 17.7% of CDIs on issue are freely available for trade. The CEO, Ms. Zhang, holds 255.3m shares through Grand Ease Holdings Limited. These holdings are not classified as CDIs and are therefore are in addition to the 904.4m CDIs on issue. If you include these shares to the CDIs on issue, the CEO has a 22% interest in the company. Directors, ex the CEO, currently hold 93.8m of the CDIs on issue either directly or indirectly. We note the below shareholders includes the shares held by the CEO which are not classified as CDIs and therefore not available for trade on the ASX. Top Five Shareholders Shareholder Number of Shares/CDIs (M) % of CDIs/Shares on Issue Grand Ease Holdings Limited % Caihui Investments Limited % Ace Ray Limited % Vtion Capital Investment % Nation Pride Investment Ltd % Source: NNW RISKS Cashflow Risk: The company has significant working capital requirements to temporarily fund customer purchases on the ICS platform. We expect the company to have a negative operating cashflow as a result of the working capital requirements in The ability of the company to manage the cashflow will be imperative to ensuring the success of the business. Loss of agreement with Handpay: The loss of the exclusive agreement with Handpay would be detrimental to the company given the company needs access to the third party payment licence to continue operations. Inability to Sell Higher Commission Products: The company may not be able to sell the higher commission products, the conversion to which is important to improve margins. Liquidity Risk: The company has had low levels of liquidity given the large percentage of CDIs on issue held by management and the board. Management and the Board will be required to release a parcel of shares to improve liquidity, however we note the importance of management and the board retaining an interest in the company. The continuation of a lack of liquidity will likely continue to be detrimental to the share price. 11

15 Loss of Participating Businesses: Business partners may exit the relationship with NNW. Growth in business partners is an important aspect of the business model as the business partners provide access to users. To date, only one company has exited from the platform. Customer Concentration Risk: In 2015, 47% of revenue was generated from one participating business. The loss of this business as a participant would have a significant adverse impact on revenue. Sovereign Risk: The business operations are located in China and as such the visibility with respect to the business is limited. BOARD AND MANAGEMENT Ross Benson: Non-Executive Chairman - Mr. Benson founded Investorlink Group Limited and has over 29 years experience in the Australian Financial Services Industry. Mr. Benson has extensive experience in securities, deal structuring and business strategy. Mr. Benson is lead negotiator for all medium to large enterprise divestment and acquisition in Australia and China for Investorlink. Prior to the formation of Investorlink Group in 1986, Mr. Benson established associated business units in wealth management, private equity, property syndication and structured financial products. Amalisia Zhang: Chief Executive Officer, Executive Director - Ms. Zhang founded 99 Wuxian in Ms. Zhang has extensive experience in Chinese e-commerce mobile payments. Prior to founding 99 Wuxian, Ms. Zhang was the President of Handpay. Ms. Zhang previously worked for PCCW,a Hong Kong telecommunications company and as part of the management team of Ctrip. Dr. Tao Wen: Chief Technology Officer, Executive Director - Dr. Wen holds a PhD in Science from Fudan University and has significant experience in the science and technology sectors. Prior to joining NNW, Mr. Wen worked as a Senior IT Specialist at IBM Global Business Services and was the Director of the Technology Department at Smartpay. Haoming Yu: Non-Executive Director - Mr. Yu has significant experience in the finance and banking industry. Mr. Yu was previously Executive Vice President of Zendai Group. Mr. Yu has held a number of senior positions throughout his career, including Executive Vice President of Shan Shan Co. Holing Ltd, Managing Director of Bear Sterns (Asia) Ltd, Executive Vice President in Shanghai International Trust & Investment Co. Ltd, and Deputy General Manager at the Bank of China Shanghai Branch. Simon Green: Non-Executive Director - Mr. Green is currently the Chief Operating Officer of Interactive, a privately held IT company based in Australia. Prior to working with Interactive, Mr. Green was the Senior Vice President and General Manager for Asia Pacific at NetApp. Christopher Ryan: Non-Executive Director - Mr. Ryan is an executive director of Investorlink Group Limited, a corporate finance and advisory firm. Mr. Ryan has experience and expertise in mergers and acquisitions and IPOs. Henry Chen: Chief Financial Officer - Mr. Chen was appointed CFO in January Prior to joining NNW, Mr. Chen held finance and accounting related positions with a number of companies including Vtion Wireless Technology AG, Vesta China and Arthur Andersen. 12

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