Tuesday, 6 November 2007

Sinotel Technologies Ltd

I am travelling on business this week and has no chance to visit the IPO booth in Raffles Place (if there is one) to take the pictures. Sorry....if any kind soul can visit the IPO booth at Raffles Place and take a picture for me, do email the picture to me. hahaha.

Anyway, i have no time to do the analysis in detailed for Sinotel Technologies and here is my take after taking a very quick glance at the prospectus and my experience with such companies.

Public Shares: 3m shares at $0.51
Placement shares: 67m shares
Issue Manager: SAC Capital
Underwriter: UOB Kay Hian

The Company is in the business of providing wireless network solutions, handset distribution and mobile entertainment enabler. Personally my experience with such companies, especially those providing 3G network solutions is that:

(1) Revenue can be very volatile and lumpy because it depends on the capital expenditure of China telecommunications giants;

(2) 3G issuance. I have been hearing that the Chinese Govt will issue 3G license for the last 2 years because of the 2008 Olympics and as of today, it is still uncertain as to when the Chinese govt will issue the 3G licences and 2008 Olympics is just less than a year away. If the 3G licenses are not issued, the telcos are unwilling to spend more $ to implement the network.

(3) Margins are dropping. Due to centralized bidding process by China Mobile and China Unicom, the margins are getting thinner. 3G networks solutions providers in China inlcudes listed companies like Hua Wei, Comba (Hong Kong) and China Grentech (NASDAQ). These rivals are much bigger than Sinotel.

FY06:
Revenue - RMB 219m
Net profit - RMB 57.2m

I would caution about my projections as revenue and earnings can be rather volatile and difficult to predict for this industry. For convenience, i will project a 30% growth over FY 06 top and bottom line. My work would have been much easier if the prospectus include 1H07 results instead of 1Q07.

FY07 - Projections
Revenue - RMB 285m (or S$57m)
Net profit - RMB 75m ($15m)
No. of shares - 280m
EPS in Singapore cents for FY07 = 5.36 cents.

Assuming a PER of 10x-12x and the FY07 EPS, the fair value will be between 54 cents to 64 cents, representing some upside to the IPO price. The fair value will be higher if the following assumptions are true:

(1) We have more clarity on FY07 figures and we are able to use FY08 EPS projections

(2) 3G licenses are issued in late 2007 and early 2008. The issuance of 3G prior to 2008 Olympics will be a catalyst to this company.

(3) My market vibes report that besides Tan Kim Seng, ex-founder of KS Energy, the shares are placed out to "strong hands". We shall see if this 'market vibe' is true.

Happy balloting but it will be tough to get the shares from the public tranche.

8 comments:

Nelson said...

I would give it a pass even if it might do well on debut. Major telecom gear suppliers have been lagging behind the market and I don't think China 3G license will be awarded any time soon. There is simply not enough leadtime to place the network in time for 08 Olypmic.

2Y Capital said...

the grey market for sinotel is currently around 70 cents (FYI)

Nelson said...

I would not doubt it could do well so long world market is still holding up when it lists. Let me try to get some placement shares! Anyway, may I know how you find out the grey market price? Any information on Changtian?

2Y Capital said...

Usually those brokers that belong to the underwriters will ask their clients who receive placement shares (at least 50 lots) if they want to sell in the grey market. If you have less than 50 lots, you cannot sell in the grey market.

2Y Capital said...

Nelson, i already post the grey market price in the comments section of Changtian.

Nelson said...

Got it, thanks. Anyway, you find out from the broker or is there any website/exchange that will post the latest?

2Y Capital said...

I dont think there are any websites, mostly comes from either brokers or your trader friends directly or you read them in the forums.

Nelson said...

Thank you. Let's hope the market downturn will be reversed in time for tomorrow Changtian's debut.

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