ASTV Report by Patagonia Capital Corp. Thetruthseekers past report on Patagonia Capital Corp: Patagonia Capital Corp. Initiates Coverage of 10% of stock holders equity. Flaunters of the SEC and the World's Worst Stockpickers thetruthseeker.com
Report by Patagonia Capital Corp.
ASIAN STAR DEVELOPMENT
Business: Diversified Internet E-Commerce
Listed: OTC Bulletin Board
Symbol Quote & 1 Yr. Chart: ASTV
Shares Outstanding: 17 million
Approx. Public Float: 1 million shares
ANALYST REPORT
Company Profile Asian Star Development, Inc. (OTC BB:ASTV) 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 the Asian Internet gambling market, as well as a company that manufactures a complete range of CD and DVD optical disc products.
ASTV's fundamentals are very strong. It's a profitable company with a very tight share structure (approximately 1 million share float). With the Harmonic Hall Optical Disc Co. 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 (1,000 stores planned for Beijing), as well as completing development of a number of commercial and residential real estate projects in China. Collectively, they believe that these ventures (including AsiaCasino.com) could potentially generate as much as US $100 million in additional annual revenues.
On this basis, they believe that compared to similar companies, ASTV's current share price is undervalued, and that the company represents an attractive investment opportunity.
The Harmonic Hall Acquisition On July 20th, Asian Star development 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.
Based in Hong Kong (and poised for a major expansion into China in the very near future), Harmonic Hall is one of the world's leading manufacturers of optical disc storage media (CD & DVD). The company's client base includes over 300 active customers, including fortune 500 companies such as Philips, BASF, ACER, IBM and Microsoft.
Harmonic Hall is projecting 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 per year for ASTV's accounts).
Why the Shift to CD-RW & DVD is so Important for ASTV & Harmonic Hall:
Harmonic Hall DVD is fast becoming the most important consumer-electronics product since the VCR. In the personal computer market, CD-RW (and, in a few years, DVD-RW) has become very popular, with an estimated 20 million units projected to be sold during 1999, increasing to 100 million units in 2002.
Harmonic Hall is well positioned to be a major player in this rapidly-growing market, and ASTV 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.
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. 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.
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 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 Development provide ASTV with invaluable financial and business credibility in its new and on-going business ventures in Hong Kong and China.
AsiaCasino.com -- ASTV's On-line Gambling Venture Asian Star Development recently launched AsiaCasino.com (http://www.AsiaCasino.com/), an interactive website offering more than 25 exciting casino games (including 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, it's a huge potential market, and ASTV is one of the first companies to target the Asian market. In terms of dollar amounts, 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.
Report by Patagonia Capital Corp.
July 29, 1999
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