Sinotel Technologies – Sales up 24.0%, PAT up 17.7%

Revenue in 1Q09 increased by RMB18.7m or 24.0% to RMB96.6m compared to 1Q08. This was mainly due to the increase in contribution from the Emergency Mobile Communication (EMCS) and sales of 3G cards.

Overall gross profit for 1Q09 was 41.2%, a marginal decrease of 0.9ppt compared to 1Q08.

General and admin expenses for 1Q09 increased by RMB1.4m or 25.0% to RMB7.2m due mainly to the increase in depreciation of RMB3.3m, arising from the fixed assets additions in the third and fourth quarters last year.

The bank facilities available to the Group as at 31 March 2009 were RMB65m, of which RMB33.7 m was utilized.

There are some positive developments for Sinotel during 1Q09, particularly (1) rapidly growing telecommunication industry in China, (2) swelling order book and (3) new credit facilities secured. China’s telecommunication industry is undergoing a rapid expansion and upgrading activities since the official issuance of 3G license in January 2009. As the industry is in its growth stage, there are a lot of business opportunities for Sinotel. The capex for wireless network enhancements in China is estimated to be RMB33-50 billion. Its order book, currently standing at RMB390m, is expected to swell. In addition, the new credit facilities secured by Sinotel recently ease our concern over lack of capital to finance its growth plan. On valuation front, we peg at 4x PER FY09 (previous 3x) to derive a target price of S$0.330. Maintain BUY.

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