AmFraser Securities maintains 93-cent fair value (yesterday's closing price: 61.5 cts)
Winston Peak, analyst, AmFraser Securities
Analyst – Winston Peak: We visited Shanxi job-site and Beijing office for update. Shanxi is Sinotel’s home province before they moved their corporate office to Beijing. Over the years, they have established a strong sales network and links with the local branches of the 3 telcos. They are also presumably close to the developers and building management companies.
• Seeing more requests for 3G projects. Since the issuing of 3G license in Jan 2009, competition among the 3 telcos for 3G supremacy has been heating up. Currently, China Unicom appears to be slightly ahead with a deal with Apple to provide the popular iPhone.
While the telcos battle with sleek marketing and promotion, they are fully aware that backend support like signal coverage is important. Hence, it does not surprise us that Management is reporting more urgent requests from the telcos for the installation of 3G wireless systems.
We maintain fair value at 93 SG cents and reiterate BUY.The site visit and Management interview strengthened our belief that Sinotel is in a sweet spot amidst a booming industry. As new competitors continue to face barriers-to-entry due to a lack of track record, the approximately 30 existing players will continue to face a ‘happy’ problem of having more projects that they can handle for the next 1 - 2 years.
However, since the Company will be announcing their FY2009 Q3 interim results soon, we shall await further visibility before making adjustments to our model and FV (fair value).
First time the timeline for work and revenue collection is given by Sinotel.
Westcomb Securities raises target price to 92 cents, highlights impending trading of ADRs
Analyst – Lee Kai Chian: The first day trading just around the corner: Since the first announcement about the proposed establishment of American Depository Receipt (“ADR”) made in August, much of the preparatory work has been done and the day of official trading of Sinotel’s ADR draws near.
Sinotel has appointed The Bank of New York Mellon (“BNY Mellon”) as the company’s depository bank which is tasked to issue Sinotel’s ADR, each represents 20 ordinary shares and trades on the over-the-counter (“OTC”).
The application for the ADR program has been approved by US Securities and Exchange Commission (“SEC”) and effected on 14 Sep 2009. Although the exact timeline cannot be ascertained, the official date of trading should be just around the corner, probably in just 1-2 weeks time.
The following link is OTC Company Search which can be used to track the Sinotel’s ADR price to spot any arbitrage opportunity.http://www.pinksheets.com/pink/companysearch/index.jsp
We continue to adopt relative earnings-multiple as the core methodology to derive the target price of the company. The establishment of ADR in US would make the comparison with Nasdaq-listed peers such as Telestone and Grentech more relevant.
We feel Sinotel should be trading at 10x PER on the heels of the potential robust growth and favorable macro outlook in China, particularly for the telecommunication industry. As such, we derive a target price of S$0.92.
Ben Ng, Sinotel's VP for corporate communications. Photo by Sim Kih
SIAS Research initiates coverage with 76-cent target price
Analyst – Ng Kian Teck: The recent development of China’s telecommunication sector restructuring and issuing of 3G licenses prompted the local telecommunication companies (telcos) to develop their wireless network rapidly in order to secure the potentially huge subscriber base.
Network coverage is one of the determining factors and this will greatly benefit Sinotel which specializes in wireless network infrastructure. In addition, the company is currently the market leader in Shanxi which is experiencing one of the fastest growth in property developments in China.
As most of the buildings, especially the new ones, will require 3G installations, we expect Sinotel to finish the game with one of the strongest hands in the game.
The prudent positioning of Sinotel to conduct market research and ensure sizeable market share allows it to enjoy a higher margin. Furthermore, its ability to provide value-added services to the Telcos further strengthens its ability to secure contracts from them. Hence, we initiated Sinotel with a buy call, at a target price of S$0.76, representing an upside of 26.6%.
We forecast a revenue growth of 46% from 2009F to 2013F due to the positive industry outlook. Our target price is arrived using a WACC of 11.4% to 11.9% and terminal growth of 2%. Our bear case scenario spells a slight downside of 3.5% and bull scenario represents a generous 66% upside.
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