Patagonia Capital Corp. Initiates Investment Coverage Of:
Asian Star Development, Inc. (“ASTV” on OTC-BB)
Suite 930, East Wing, Block B - New World Office Building
Salisbury Road, Tsimshatsui, Kowloon, Hong Kong
USA Office Telephone: (415) 566 - 2503
Website: asianstardev.com
Asian Star Developments recently acquired one of the world's largest manufacturers of CD-RW and DVD-ROM; ASTV's 64% interest in Harmonic Holdings will result in US$11 million in net earnings for ASTV's accounts over the next 12 months !!
ASTV has also just launched AsiaCasino.com, a state-of-the art Internet casino website, offering gamblers in China and Hong Kong over 25 interactive games, plus a worldwide sportsbook with access to real-time Las Vegas betting lines !
A significantly undervalued company, ASTV is recommended to investors seeking strong capital appreciation over the medium to longer term!!
COMPANY PROFILE
Asian Star Development, Inc. (“ASTV” on OTC-BB) is a rapidly growing business with significant investments and operations in Hong Kong and mainland China. Incorporated in 1997 as a real estate development concern, ASTV has recently expanded into Asian-based Internet gambling services, as well as the manufacture of complete range of CD and DVD optical disc products. Last week's acquisition of the Harmonic Hall Optical Disc Co. represents a major strategic shift in ASTV's core business focus from real-estate into high tech. Asian Star Development intends to use the Harmonic Hall acquisition as the basic for rapid growth and expansion of its high-tech and e-commerce ventures throughout Asia.
The ASTV discussion threads on Silicon Investor and Raging Bull can be accessed at: www3.techstocks.com and ragingbull.com. , respectively.
CAPITAL STRUCTURE & TRADING RANGE (as of July 21, 1999)
Issued & Outstanding: ~ 13 million shares
Est'd Float: ~ 1 million shares
1999 Trading Range: US$0.50 (low) by US$3.25 (high)
Current Bid & Ask: US$2.00 by US$2.38
Last Trade (July 21, 1999): US$2.25
THE HARMONIC HALL ACQUISITION
On July 20th, Asian Star Developments announced that it had entered into an agreement to acquire 64% of Harmonic Hall Optical Disc Co. (“Harmonic Hall”) for approximately 3.9 million restricted shares of ASTV. The acquisition followed receipt of a comprehensive due diligence report prepared for ASTV by PriceWaterhouseCoopers.
Based in Hong Kong (and poised for a major expansion into China in the very near future), Harmonic Hall is a leading manufacturing of rewritable media - products include CD-RW, DVD, CD, CD-ROM, VCD, LD, Stampers, Water Mark CD, Cassette and VHS. The company's client base includes over 300 active customers, including Philips, BASF, ACER, IBM, MicroSoft, Mattel Toys, Polygram, Warner Music, BMG and EMI. Harmonic Hall is currently gearing up for DVD production, and expects to begin shipping product to customers in late 1999.
Over the past few years, Harmonic Hall has shifted its business focus from replicating audio CD's to CD-ROM, and is only now beginning to shift production towards higher-margin DVD products. During this transitional period, the company has been profitable, with annual net income on the order of US$5 to US$11 million (projections for the current fiscal year are revenues of US$37 million and net income of US$11 million).
Looking ahead, with the emphasis on DVD products, Harmonic Hall projects net income of US$11 million in the fiscal year ending June 30, 2000 (US$7 million to ASTV), increasing to over US$19 million in FY 2001 and 2002 (US$12.2 million for ASTV's accounts).
WHY THE SHIFT TO CD-RW & DVD IS SO IMPORTANT FOR ASTV & HARMONIC HALL
Economist Magazine recently reported that DVD is fast becoming the most important consumer-electronics product since the VCR. InfoTech, Inc. reports that DVD sales are on a tear, projected to double this year, to just over 2 million units, and reach 5.6 million by 2002.
In the personal computer market, CD-RW (and, in a few years, DVD-RW) has become a very popular OEM product, with an estimated 20 million units projected to be sold during 1999, increasing to 100 million units in 2002; all industry forecasts predict continued strong growth in recordable storage media through at least 2004.
Harmonic Hall is well positioned to be a major player in this rapidly-growing market, and management's strategy of developing new blank recordable media appears to be in line with the emerging market direction. Gross profit margins are much greater on DVD's (they cost about 2x as much as CD's to make, but sell for 5x comparable CD-based products. More importantly, Harmonic Hall enjoys significant cost advantages over their competitors, chiefly the result of extremely high productivity rates. A planned move to expand production into China during late 1999 and 2000 should produce further cost savings, which we believe will be reflected on the company's bottom line. Lastly, all of Harmonic Hall's production lines can be quickly and cheaply switched over to produce higher margin DVD products as market demand evolves.
EXPERIENCED & CAPABLE MANAGEMENT
The Company's founder, Chairman, President & CEO, Stephen Chow, has spent his entire career building and operating successful companies throughout North America and Asia. He has the experience, networks and connections to successfully and profitably operate in China.
Mr. Chow is very well connected in both Hong Kong and mainland China, and currently serves as the Advisor of Economic Affairs in the City of Taishan, Guandong Province, China. Mr. Chow has also been appointed an Honorable Citizen of Shilong, Dongguan, Guandong Province, China. Other notable community service positions held by Stephen Chow include: Director - Community Redevelopment Agency of the City of Los Angeles; Director of Windsor Builders Association of Ontario, Canada; and, Director, Multi-Cultural Council of Canada.
SIGNIFICANT MAJOR SHAREHOLDER - NEW WORLD DEVELOPMENT CO. LTD.
New World Development Co. Ltd. (“New World Development”), a company with a US$6.5 billion market capitalization that is also a constituent stock of the Hang Seng Index (Hong Kong Stock Exchange), is one of ASTV's largest shareholders.
Asian Star's close ties with New World provide ASTV with invaluable financial and business credibility in its new and on-going business ventures in Hong Kong and China.
New World Development controls a number of public companies, including China.com, listed on the NASDAQ. Their core businesses include infrastructure, transportation, construction and building services, and telecommunications – principally in Hong Kong and China. New World Development is the largest Hong Kong investor in China, with investments totaling over US$4 billion.
AsiaCasino.com – ASTV's ON-LINE GAMBLING VENTURE
Asian Star Development recently launched AsiaCasino.com (http://www.AsiaCasino.com/), the first project arising out of a strategic alliance between VentureTech, Inc. and ASTV to provide Internet-related gambling services.
Under the terms of the alliance, ASTV will utilize its presence and reputation in Hong Kong, Asia and mainland China to assist in the marketing and exposure of the interactive gaming web site while VentureTech will operate and maintain the website. Asian Star and VentureTech will share net operating revenues.
AsiaCasino.com offers more than 25 exciting casino games (including blackjack, poker, roulette, baccarat and craps) plus exotic games such as Pai Gow, Sic Bo and Caribbean Poker. The Asia Casino Sportsbook allows betting on all of the major leagues plus other worldwide sporting events, in addition to providing Asian residents with access to real time betting lines from Las Vegas.
Asian Star Development's management has not made any projections of revenues or earnings from its Internet gambling venture. However, there are a number of independent, third-party studies on the potential size of the market that ASTV is now a part of.
First of all, Christensen/Cummings estimates that there currently are about 25 million Internet gamblers; by 2001, upwards of 40 million people are expected to be gambling online. In terms of dollar amounts, Christensen/Cummings and DataMonitor estimate total worldwide Internet gambling revenues of US$811 million this year, increasing to US$1.52 billion in 2000 and US$10.2 billion in 2002. To put these numbers into perspective, last year Americans spent about US$600 billion on baseball, movies and Disney products.
The Asian gambling market is believed to be "an untapped gold mine" for online gaming, and that Internet-based gambling has yet to even break the surface of the prospective demand for at-home wagering in that part of the world. Much of the probable future growth will be in China; Computer Economics, Inc. reports that while there are presently about five million Internet users in China, this total will grow to 37.3 million by 2005, second only in usage to the United States. More importantly, total gambling turnover in Asia is the highest in the world, surpassing US$600 billion in 1997.
What Asian Star Development brings to the AsiaCasino.com deal is immediate credibility and understanding of the local culture through is regional business experience and connections. We believe that their involvement will go a long way toward assuring Asian players that when they visit AsiaCasino.com, that they are gambling in a legitimate, enjoyable and honorable casino environment.
Together, Asian Star Development and Venture Tech are confident of gaining a significant share of the as-yet untapped online gambling market in China and other parts of Asia.
FUTURE GROWTH TO COME FROM SEVERAL NEW BUSINESS VENTURES IN CHINA
Over the longer term, Asian Star Development will likely realize significant revenues (potentially upwards of US$100 million annually) from a number of projects currently under development in China. The 6-12 convenience stores, Dragon Villa Entertainment Center, Shilong City Hall Plaza and Honstar Entertainment Center (Maple City) projects are all part of ASTV's strategy to develop high-quality retail shopping and entertainment / recreation / sports complexes throughout China (with an emphasis on Guandong Province, the wealthiest and most developed province in China and is situated adjacent to Hong Kong.).
The 6-12 convenience stores (75% ASTV) are going to be the first convenience store chain in China. Each 8 ft by 10 ft kiosk-type store will be situated on a busy street corner, and be equipped with air conditioning, water and electricity. In addition to carrying a range of popular items, every store will offer computer services (including Internet access), faxing and copying. ASTV projects initial revenues of US$50,000 per store per year.
Right now, through its nominess, Asian Star Development has received all necessary licenses and approvals for 1,000 stores in Beijing (the capital of China) and an undetermined number of 6-12 stores in the city of Sanya (Hainan Province). Longer-term, ASTV is developing plans to install 6-12 convenience stores in other regions of China. More importantly, these stores will provide Asian Star Development with an established distribution network (think Wal-Mart) within China for some exciting e-commerce plans that are currently under development.
WHY YOU SHOULD CONSIDER ADDING ASTV TO YOUR PORTFOLIO !!
ASTV has a solid future, and we recommend the company based on its strong potential for capital appreciation over the next six to eighteen months.
The fundamentals of this company are very strong. Right now, ASTV is profitable and has a very tight share structure (~ 1 million share float). The company is blessed with a financially strong and well-known major shareholder: New World Development Company, a multi-national company with a US$6.5 billion market cap. ASTV's management is extremely well qualified, focused on building a strong, profitable and diverse company, and intent on moving Asian Star Development up to a full NASDAQ listing in 2000. In the near term, we believe that several brokerage houses will be getting behind ASTV just as soon as the SEC approves its application to become a fully-reporting company (expected in August 1999).
With the Harmonic Hall acquisition, ASTV will be generating some impressive earnings figures in the current fiscal year from its Fortune 500 clientele. Asian Star Development's share of the current year's earnings will be about US$7 million; with an estimated 17 million shares outstanding (post-acquisition), that's about US$0.41 per share in earnings for the current year (increasing to US$0.72 in FY 2001 and 2002).
These figures suggest to us that the equity markets are currently valuing ASTV at about 5x current earnings, and that the company is not getting any value for either the Internet casino or its extensive real estate portfolio.
Over the longer term, Asian Star Development will be bringing the 6-12 convenience stores on line, as well as completing development of a number of commercial and residential real estate projects in China. Collectively, we believe that these various ventures (including AsiaCasino.com) could potentially generate as much as US$100 million in additional annual revenues. On this basis, we believe that compared to similar companies, the current valuations of ASTV are relatively low and that the company represents an attractive investment opportunity.
For more information, please contact:
Donald Loucks - Investor Relations
Phone: (604) 878 - 7600 E-mail: falconwest@sympatico.ca
Stephen Chow - President, Asian Star Development
Phone: 011 - 852 - 2721 - 0936 E-mail: info@AsianStarDev.com
DISCLAIMER
Patagonia Capital Corp. (“Patagonia Capital”) is not a Registered Investment Advisor or a Broker / Dealer. Patagonia Capital has independently prepared this report, drawing upon a range of public news and information sources. This report reflects opinions from Asian Star Development, Inc. (the “Company”). Readers are advised that this report is issued solely for information purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy. The opinions and analysis included herein are based on sources believed to be reliable and in good faith but no representation or warranty, expressed or implied, is made as to their accuracy, completeness or correctness. This information is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. The foregoing discussion contains forward-looking statements that are based on current expectations and differences can be expected. The information contained herein has been provided by the Company to Patagonia Capital for information purposes only; in addition, the information contained in this report is not intended to be a complete discussion of information regarding some of the current and/or intended business activities of the Company. Readers are urged to consult with independent financial advisors with respect to an investment in the shares mentioned herein. Investors should review a complete information package on the Company which should include, but not be limited to, the Company's annual report, quarterly report, press releases, as well as all regulatory filings. All information contained in this report should be independently verified with the Company mentioned herein. Any opinions expressed in this report are statements of judgment as of the date of publication (21 July 1999) and are subject to change without further notice, and may not necessarily be reprinted in future publications or elsewhere. Neither Patagonia Capital nor its officers, directors, partners or employees / consultants accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. In order to be in full compliance with the Securities Act of 1933, Section 17(b), Patagonia Capital advises the readers of this document that it has received a fee of 1,000 free-trading common shares of ASTV from an unrelated third party as compensation for its efforts in researching, writing and presenting the information contained herein. Prior to Patagonia Capital issuing this report, the Company reviewed and approved the contents hereof. Patagonia Capital, its officers, directors, partners and employees / consultants may profit in the event the shares of the Company increase in value. These positions may be liquidated from time to time even after Patagonia Capital, its officers, directors, partners and employees / consultants have made positive comments on the Company.
THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. We encourage U.S. readers to review the investing information available with the Securities and Exchange Commission ("SEC") at sec.gov and/or the National Association of Securities Dealers ("NASD") at nasdr.com The NASD has published information on how to invest carefully at its website. Asian Star Development is not yet a fully-reporting company with the SEC. ASTV filed a Form 10-SB with the SEC on May 11,1999 (see: sec.gov and a response comment letter was issued by the SEC on June 11th. ASTV anticipates receiving full SEC approvals in August, at which point it will become a fully-reporting company. |
