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VODone CFO Mr. Hendrick Sin. Photo: Andrew Vanburen

VODONE LTD (HK: 82) sees its state-owned enterprise (SOE) status as helping the media firm open doors in an industry that sometimes sports arcane regulations as its major entry barrier.

The leading new media firm in China (www.vodone.com) believes it is also well-positioned to capitalize on a wave of activity in news production, internet-video production, and broadcasting, online advertising, online gaming and mobile games/lottery.

The Hong Kong listed firm’s CFO recently met with NextInsight, Aries Consulting and a group of Greater China fund managers to explain how the firm had improved monetization across a wide variety of new media services.

VODone also stood to benefit from some recent bargain-basement acquisitions, having angled for a 70% stake in Dragon Joyce Group, a software developer of mobile phone games.

The value of the targeted asset was estimated at around 168 mln yuan, with total consideration to be negotiated by VODone with 40 mln hkd in cash and through the issuance of some 100 mln consideration shares.

One brokerage estimated that based on the agreed terms of profit guarantee and an assumed 15% income tax rate, the final price paid by VODone for Dragon Joyce will be “considerably low.”

It added that post-merger synergies are expected to be “significant,” and that Dragon Joyce allows VODone enables the latter to enter into the fast-growing mobile gaming industry and the target company’s performance commitments for the future will maintain VODone’s cash flow in healthy status and facilitate the new media business as well as 3G value-added services.

Shortly thereafter, VODone confirmed in October of this year that it acquired 70% in Dragon Joyce for 168 mln yuan, funded by 40 mln hkd in cash and 100.8 mln consideration shares at 1.50 hkd/share.

“This all makes strategic sense for us because our main clients are in the online news, Internet TV, online ads and online games categories,” CFO Mr. Hendrick Sin said in a recent interview.

  
VODone Ltd20082009E2010E
Operating income (hkd)65.9 mln334.3 mln811.0 mln
Net profit (loss)(-122.5 mln)202.7 mln508.6 mln
EPS(-0.07)0.10.25
  
He said this would guarantee a profit of 13.75 mln yuan for the October-December quarter this year, 71.5 mln for full-year 2010, and 85.8 mln for full-year 2011.

Mr. Sin said VODone benefitted from its status as a large-scale state-owned new media company supported by the central government in Beijing.

“This is a unique positioning for an Internet video new media firm, and we own a full set of qualifications and licenses in China’s Internet video industry.”

Being one of China’s largest Internet video news platforms was also something to write home about.

“We are also the only PRC Internet video firm listed in Hong Kong, and we benefit from being an integrated new media group which provides ‘upscale lifestyle information’ as well as serves as a web medium and web community,” he said.

He added that VODone’s full array of online mobile gaming services was fully accessible in four provinces, and that this number was expected to rise.
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Homepage of www.vodone.com

Rolling the dice

Given the company’s healthy financials and bargain pick-ups, it was not necessarily prone to gambling with its profits. But that didn’t mean it wasn’t keen to tap the gambler somewhere out there in Cyberspace willing to wager their own money.

“We also are tapping the online wagering sector, and have become a leading high-tech service provider for the Welfare Lottery Services in China, and still maintain a strong balance sheet with net cash of above 400 mln yuan,” he said.

Mr. Sin, who has 12 years of investment banking experience after getting his M.S. from Stanford University, has specialized in advising SOEs in China, making VODone a perfect match for him.

“We are very confident of our fundamental monetization of various new media services. Our major revenue sources are from online advertising in various formats, as well as commission income generated from each transaction of mobile lottery services, and revenue from online gaming as well as e-commerce fees,” he said.

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VODone's Chairman and CEO Mr. Zhang Lijun has pressed flesh with national leaders from Japan, the Philippines and here with former US President George W. Bush. Photo: VODone

But the company was not content to rest on its laurels, which would be very inadvisable in such a dynamic and quickly-evolving industry as The New Media.

“We are very keen to boost revenue contribution from the provision of 3G mobile TV content,” he said.

And where better to put ones eggs in these baskets than China, a country that leads the world in online users (flirting with 350 mln) and handset subscribers (nearly 750 mln)!

But for the meantime, VODone was keeping someone 24-7 at the virtual poker table, so to speak.

“In April, we became one of the first batch of authorized service providers of mobile lottery betting services for mobile end users by the Heilongjiang Welfare Lottery Center,” Mr. Sin said.

He said the group is entitled to a certain percentage of commission income generated from each transaction.

“By providing One-Stop Mobile Lottery Services (http://ssc.vodone.com), players can make their purchasing decisions whenever and wherever Lady Luck may summon.”

He said the “Mobile Lottery” has become what VODone calls the “Constant Lottery.”

“Our aim is to raise more funds for the national public welfare through high frequency games,” he said.

Despite so many plans to move into new media, he said traditional players need not worry … at least not yet.

“The market is big enough to accommodate traditional TV, Internet TV and cell-phone makers and service providers for now. I see no major conflicts at this time,” Mr. Sin said.


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