Sinotel

 

another announcement today

SINOTEL INKS HISTORIC DEAL WITH CHINA TELECOM TO PROMOTE FIXED-LINE, BROADBAND AND IPTV SERVICES ON INCOME SHARING BASIS

http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_6BCB1324A969C827482577D800385921/$file/ChinaTelecomFibreOpticInfrastructure.pdf?openelement

SINOTEL WINS RMB27.8 MILLION CONTRACT FROM CHINA UNICOM TO PROVIDE NETWORK OPTIMIZATION SOLUTIONS

• The Group’s total current order book stands at approximately RMB290 million

http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_5F9A07503A98C540482577D70019A156/$file/ChinaUnicomNetworkOptimization.pdf?openelement

 

2 good news but price still drop by half a cent

SINOTEL QUALIFIED AS VENDOR TO SUPPLY AND BUILD THE CHINA MOBILE MULTIMEDIA BOARDCAST NETWORK ("CMMB")

http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_B596FFEDE308539B482577D60019DA56/$file/CMMBVendorQualification.pdf?openelement

 

SINOTEL’S THIRD QUARTER NET PROFIT UP 19.2% TO RMB49.8 MILLION DRIVEN BY STRONG DEMAND FOR WIRELESS EQUIPMENT AND INSTALLATION SERVICES

http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_E8246441EB01E68F482577D500396A30/$file/NewsRelease-3Q2010.pdf?openelement

My 2 cents worth: Suggest not to short this counter as company started to do plant visits last 2 weeks. Mgmt should be coming down this week for results briefing. It may be organising another plant visit in mid Nov.

Kindly refer to ernestlim15 blog for writeups on companies. I can be contacted at c r c l k y a h o o c o m s g

All the best.

starlene      ( Date: 27-Oct-2010 14:30) Posted: Sinotel Technologies Limited It all boils down to execution STEL SP Price@ 26/10/10: S$0.335 NOT RATED 52-week range (SGD) : 0.29-0.64 Mkt cap – S$141.3m Journey to the east • company visit last week, and were introduced to the company’s new growth plans as well as progress on existing projects. Though the trip left us feeling upbeat about Sinotel’s growth going forward, we believe it all boils down to execution for Sinotel’s growth plans to materialise. We went, we saw, we concurred. We met management on a • consensus estimated P/E and around 0.78x P/BV as of 2Q10. The company’s ROE (16.9%) is also on par to a simple peer average of 16.2%. Sinotel appears to be relatively cheap when compared to its regional peers. Attractive valuations? Sinotel is currently trading around 4x Peer comparison table Bloomberg Market cap P/E P/BV ROE Company ticker (in US$ m) (x) (x) (%) Comba Telecom Systems 2342 HK 1,597 15.2 4.8 25 Xi An Haitain Antenna 8227 HK 25 n.m. 1.3 n.m. 8Telecom International 8TEL SP 69 4.8 1.5 25 Ace Achieve Infocom ACE SP 19 7.16 0.5 7.3 Telestone technologies TSTC US 135 13.3 2 21.3 China Grentech Group GRRF US 53 n.m. 0.24 2.3 Simple average 10.1 1.7 16.2 Sinotel Technologies STEL SP 111 4.1 0.75 16.9 Source: Bloomberg, CIMB Research Growth plans • the three main Chinese telecos. The company is known for its quality and reputation in providing booster functions to mobile telecommunication signals indoors as well as extending network coverage in service areas. Although Sinotel has operations across China, the company derives 70% of its revenues from the company’s birthplace in Shanxi, where Sinotel is the market leader and preferred partner of choice of Chinese telcos. Existing business. Sinotel is a wireless network solutions provider to • industry was ruled by two telcos - mobile phone provider China Mobile which controlled Northern China, and fixed line infrastructure provider China Telecom in the South. China Unicom was set up in 1994 to provide competition to a monopoly market dominated by China Mobile. Today, China Mobile remains as the largest mobile phone service provider, followed by China Unicom and China Telecom, which only ventured into mobile phone service provision in the past few years. Like Singapore, the country is also moving into the integration of television, internet and mobile phone networks to allow consumers to enjoy the services through one single device. This requires upgrading of China’s telecommunication infrastructure, which involves transition from copper cables to high speed optic fibre cables. In our view, we believe the infrastructure change could benefit China Telecom, which is strong in telecommunication infrastructure. Industry background. Historically, China’s telecommunication • change in China. The firm has been providing installation services to China Mobile, China Unicom and China Telecom. On 26 August 2010, Sinotel announced intentions to provide telecommunication services to end users through co-operation with the three Chinese Telcos. This includes the installation of fibre optic networks in commercial and residential areas as well as sales and distribution of network services. Growth plans. Sinotel plans to ride on the wave of infrastructure • successful rights issue, from which the company raised around S$23m. According to its prospectus, approximately 55% (S$13m) will be used for capex purposes to expand its new business. We believe it is highly likely that Sinotel has secured a sizeable contract in the enduser telecommunication business. In addition, it also planned to set aside S$5.4m for corporate development purposes related to its new business expansion. We suspect that there could be an acquisition in the near term. Raising capital to fund expansion. Sinotel recently concluded a What we think • business as a wireless network solutions provider to the telcos, its new business expansion entails a business model change from B2B to B2C. Positives from this change include i) improvement in cash management cycle as consumers tend to be prompt on payment; ii) improvement in earnings quality as Sinotel will receive long term recurring income from consumers as compared to one time contributions from ad-hoc project executions. Change in business model. Though Sinotel intends to retain its core • telecommunication service provider, Sinotel has to enter into a strategic partnership with one of the telcos with end-user service capabilities. Strategic ally required. In order to be an end-user • Shanxi, successful acquisition of a strong installation service provider in a neighbouring city could give a boost to Sinotel’s strength and capabilities in Northern China. This could accelerate securing of a strategic partner and bestow Sinotel with a larger bargaining power for a favourable partnership. Quality near term acquisition. As Sinotel has a strong presence in • management, we believe that Sinotel is actively searching for strategic partners and potential acquisition targets to complement its expansion plans. Sinotel’s growth can only be materialised upon smooth execution of the aforementioned. It all boils down to execution. From our discussions with Risks • Larger capex could impact earnings and balance sheet quality. Currently, Sinotel requires minimal capex as an infrastructure installation service provider, as most of the materials (optic fibre cables etc) are provided by the telcos. However, should Sinotel successfully enter into a strategic partnership with the telcos, the company will see higher capex from investments in the materials required for the installation. This could result in i) drawdown on existing credit lines which increases borrowing; ii) potentially another round of capital raising from investors which could result in ownership dilution and iii) poor take up after installation of the infrastructure could severely impact the firm’s return on investment. Financial analysis FYE Dec (RMB m) 2007 2008 2009 1H09 1H10 Revenue 266 362 533 239 287 Gross profit 119 147 203 109 96 Operating profit 96 106 134 79 72 Net profit 85 107 139 71 70 Net profit yoy growth 52% 26% 29% - 9.9% EPS (RMB cts) 37 36 46 21.5 25.1 Gross DPS (RMB cts) 0 0 0 0 0 Net cash/(gearing) 91 3 (0.45) (23.7) 51.4 Source :Company Annual Report, Bloomberg, CIMB Research starlene      ( Date: 26-Oct-2010 13:17) Posted: Written by Leong Chan Teik Monday, 25 October 2010 00:15   At a condo currently being built in Shanxi, a Sinotel worker sets up infrastructure that will boost mobile phone signals on that floor. Three sets of equipment (for 3 different telcos) are installed on every floor and in the lifts. This method requires more labour but eliminates blind spots which can be found in buildings in Singapore where the booster equipment is set up on roof tops only. Photo by Leong Chan Teik ON OUR TRIP to Sinotel Technologies last week, an analyst new to the company’s business asked about its bulging trade receivables – the amount of money owed by its customers. Before I left for the trip, a reader had emailed me to seek clarity on this too. Sinotel, to begin with, has enjoyed a ramp-up in business in recent years, thanks to the surging growth in China’s telecommunications industry, especially the mobile phone sector which Sinotel is in. Despite that, the market has not accorded Sinotel a generous valuation. Its current PE, based on a stock price of 35 cents, is about 4X. And the stock is down from 60.16 cents (adjusted for the recent rights issue) at the start of this year. This is the new 5-block condo in Shanxi province which Sinotel is wiring up and which Singapore analysts and media visited last week. Shanxi is where Sinotel has derived about 70% of its revenue. Given its property development prospects, it will continue to generate demand for Sinotel's wireless network solutions. Photo: Leong Chan Teik Sinotel indeed has significant trade receivables - about RMB422 million as at end-June this year, up from RMB386 million six months earlier. Sinotel had revenue of RMB287 million in the first half of this year. What I learnt is, briefly, as follows: 1. Sinotel recognizes revenue in full when it has completed its projects and its customers accept that the work is completed. Sinotel then invoices between 50% and 90% of the contract amount. The balance is invoiced 6 to 12 months after the initial acceptance of the project completion. For some projects, 5-10% is retained during product warranty period. 2. Sinotel has only two key customers – China Unicom and China Mobile, which are state-owned telcos. The credit worthiness of the telcos does not appear to be in doubt though they pay over extended periods of time. That is why in 2009, Sinotel considered 44% of its trade receivables of RMB 386 m to be past due but not impaired. Given its trade receivables and the payment pattern of its clients, and to support its new businesses, Sinotel has raised funds from the equity market. In Sept 2009 and Feb 2010, Sinotel raised net proceeds totaling S$28.9 million through selling new shares. Last week, it completed a rights issue, raising S$23 million. In a neighbourhood in Tianjin, a growing number of households subscribe to a China Telecom service which charges at least RMB68 a month for Internet, wi-fi, cable TV and fixed line telephone services. The revenue is shared between China Telecom and the company that laid the fibre optic infrastructure within the residential buildings - a business model that Sinotel aims to adopt. Photo: Leong Chan Teik New money, new business The latest fund raising is placing Sinotel in a position to change its business model. It is exploring opportunities to a) Install telecommunications infrastructure, including fibre optic cables, in commercial and residential buildings; and   b) market and provide telco services to end-users so they can make phone calls, surf the Internet, etc; and c) charge the end-users a monthly fee. To appreciate this business model better, we were taken to a telco control centre in a neighbourhood in Tianjin where China Telecom's services were recently made available via fibre optic cables (that transmit information by sending pulses of light) installed within the residential buildings by a company.  More on this business prospect for Sinotel in an upcoming Part 2 of our report. Recent report: SINOTEL wins RMB25.3 m services contract with monthly cashflow