Monday, August 3, 2009

Sinotel Technologies Ltd 30 minute analysis

Instead of spending hours searching for information, I decide to try analyzing companies within 30 minutes each. I will look through the IPO prospectus picking out the use of proceed, competitive strength, competition and the people. Then, I will just only list points I feel uncomfortable about the company.

Sinotel Technologies Ltd. is an investment holding company. Through its subsidiaries, the Company is engaged in the provision of wireless telecommunication network infrastructure solutions, hardware and software supports and distribution of telecommunication devices. The Company operates in two business segments: the distribution solutions and the wireless network solutions.

IPO Details:

Intended IPO price: $0.51
No. of shares available for public offer: 3m
No. of shares available for placement offer: 67m
Total post invitation share capital: Approx. 280m
Dividend policy: No fixed policy.

The net proceeds: S$31.7 million.
(a) S$2.0 million to commercialise our proprietary 3G CDMA EV (DO) Module;
(b) S$6.0 million to expand our presence in the mobile entertainment segment;
(c) S$4.0 million to expand our sales and distribution network and market
presence in the PRC;
(d) S$2.6 million to expand our research and product development activities; and
(e) S$17.1, balance for general corporate and working capital for our Group.

Competitive Strength:

  • Track record of innovation:
    We constantly keep ourselves updated and proficient in the changing technologies and consumer preferences in the PRC telecommunication industry.We are sensitive to the latest market trends and development, and have been researching and developing new wireless telecommunication applications and solutions before such solutions come into mainstream. For example, we believe our Group is one of the industry pioneers that offers Mobile Entertainment Enabling Solutions to the Telcos in the PRC and we were also the first distributor to introduce CDMA phone with video entertainment function in the PRC. We believe that our readiness to introduce new wireless telecommunication applications and solutions to our customers will place us in a good position with them as such innovative solutions help to increase the revenue of our customers. In addition, we have been introducing innovative marketing initiatives to our customers since our inception in 2002. We believe we were the first wireless telecommunication solution provider to introduce tripartite fee-sharing arrangements for the distribution of mobile handsets as well as revenue-sharing arrangements for the use of our Wisestreamer platform with China Unicom. We believe that this experience will give us an advantage as we continue to develop and introduce new initiatives to grow our business further.
  • Strong technical competence:
    We place a strong emphasis on our R&D capabilities.We have a team of dedicated software engineers who are able to conceptualise and develop our proprietary wireless telecommunication applications and solutions to meet the unique demands of our customers. As we retain the ownership of the intellectual property rights in our proprietary software, which we supply together with our wireless telecommunication applications and solutions, it gives us the flexibility of pricing our customised solutions competitively. In addition, our ownership of the intellectual property rights in such software also enables us to exploit and enhance the capabilities of our wireless telecommunication applications and solutions, develop or upgrade new solutions or customise to meet the specific needs or requirements of our customers. We believe our strong technical competence and our ability to conceptualise proprietary solutions set us apart from our competitors.
  • Established track records and business relationship with our business partners:
    We believe we have built up a good reputation and rapport in the PRC telecommunication industry, which is established through our quality solutions and services and the securing of large scale telecommunication projects. As at the Latest Practicable Date, we have implemented our wireless communication solutions on more than 400 buildings in Beijing, including key buildings such as Beijing Railway Station which is one of the biggest train stations in Asia and Beijing Hotel which is the first 5-star hotel in Beijing. We have also maintained good working relationships with our business partners such as Langchao LG, and customers such as China Unicom, China Mobile and China Netcom. As a testimony to our established business relationship with our business partners, we are the exclusive national distributor for certain models of high-end LG brand of mobile phones in the PRC and was invited to conduct trial run of our technology on the trial 3G networks of China Unicom (Tianjin branch). The exclusive distribution contracts do not specify any expiry dates as they are based on the handphone models and therefore the period of the exclusive distributorship depends on the life cycle of the handphone models.
  • Exclusive joint operation agreements with certain branches of China Unicom:
    We have entered into 3 exclusive joint operation agreements, ranging from 3 to 5 years, with China Unicom’s Jiangsu, Guangdong and Shanxi branches, to provide the necessary hardware and software for the implementation of our Wisestreamer platform in relation to our Mobile Entertainment Enabling Solutions. Our Wisestreamer platform enables online distribution of mobile media content and facilitates media content playback which allows Telcos and TSPs to offer mobile multimedia streaming services such as mobile video-on-demand, mobile television, live video and music, traffic and home monitoring.With such services, consumers can view live multimedia content through various mobile devices such as mobile phones and PDAs. Under the joint operation agreements, a portion of revenue derived by China Unicom from the use of our Wisestreamer platform will be shared with our Group. Our exclusive joint operation agreements with China Unicom create a strong barrier to entry for any potential competitors who wish to introduce multimedia streaming related solutions to China Unicom in the PRC. We are currently in discussion with 6 other branches of China Unicom in Sichuan, Hunan, Chongqing, Liaoning, Zhejiang and Shanghai for the implementation of our Wisestreamer platform.
  • Experienced and proven management team:
    Our Executive Directors and Executive Officers have been critical to the success of our operations. They have extensive experience in the PRC telecommunication industry and have good industry knowledge on the latest market trend and technology advancements. With our experienced management team, we are able to respond quickly and effectively to our customers’ demands for wireless telecommunication applications and solutions.


Competiton:

  • Hengxin
  • Longcheer
  • Ace Achieve
  • Comba Telecom System Holdings Ltd
  • Centron Telecom International Holding
  • Telestone Technologies Corp
  • China GrenTech Co. Ltd
  • Fiberhome Networks Co., Ltd
  • Wuhan Hongxin Telecommunication Technologies Co., Ltd
  • INTECH Cybernetics Group Co., Ltd
  • Shenzhen Tianyin Communication Development Co., Ltd


People:

Jia Yue Ting, Executive Chairman since 2007 joined 2002.
Directorship in 12 other companies
Previous Directorship:
- Shanxi Zhuoyue Industrial. Reasons for leaving unknown.

Gu Hao, Executive Director since 2007 joined 2004

Li Zhen Yu, Executive Director since 2007 joined 2003
Directorship in 1 other company

Pan Liang, Executive Director since 2007 joined 2004

Cao Gui Xing, Independent Director since 2007
Directorship in 4 other companies
Previous Directorship:
- Daxian Holdings Ltd. Reasons for leaving unknown.

Alfred Cheong, Independent Director since 2007
Directorship in 6 other companies
- Cosmic Petroleum Limited. Reasons for leaving unknown.
- First Trust Corporate Services. Reasons for leaving unknown.
- Protiviti Pte. Ltd. Reasons for leaving unknown.

Goh Chee Wee, Independent Director since 2007
Directorship in 21 other companies
Previous Directorship in 37 companies. Reasons for leaving each unknown

Board interlock
Jia Yue Ting and Li Zhen Yu hold directorship in Hongkong Joyful

Investment tips:

Why Not?
  • Exceutive Chairman, Jia Yue Ting holds many directorships in other companies. Will it affects his effort for Sinotel?
  • Competitive market requiring constant R&D that may be wasted
  • Small market cap
  • Testing unknown market, mobile entertainment segment
  • Able to continue to get exclusive agreements?
  • Pay little tax. Why and when will it stops?
  • Reclassified statement for 2007?
  • Negative net cash for 2008
  • Sudden huge capex during 2008
  • 79% of trade recv in 2008 held by just 2 major debtor
  • Around 46% of trade recv in 2008 past due and not impaired


References:

  1. IPO Prospectus
  2. Sinotel Technologies Ltd. (SITT.SI) Financial Statements | Stocks | Reuters.com
    4th August Analyst Report by Mark Chow

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