[CXGEF] COMPUTER & TECHNGIES HLDGS LTD FOREIGN - NEWS
Systems Integration: C&T Moves Into Value Added Services
Hong Kong, June 30 /SHfn/ As the technology wave continues to wash over Hong Kong, Computer and Technologies Holdings [46] is not joining the rush of companies attempting to dotcom themselves. Instead, it is relying on its traditional systems integration business to build an e-commerce services business that could show real profits for some time to come.
Established in 1991, Computer and Technologies Holdings [46] is one of Hong Kong's few genuine technology companies, as opposed to other hastily assembled technology plays, that have been spun-off by looking to catch the recent tech craze.
The company was founded as a systems integrator and hardware distributor. As such, most of its business has come from the mainland's fast growing telecommunications sector. The company has enjoyed a growth rate of 69 percent year on year since 1991. In 1999 revenue was HK$353.48 million, with net profit of HK$13.8 million.
In the past, its role as an old-style systems integrator has often caused Computer and Technologies [46] to be overlooked, but a new focus on e-commerce services is forcing a revaluation of the company. When it launched its coverage of the company in April, Merrill Lynch said: "C&T is at the verge of becoming an industry 'gorilla'."
The company is moving towards placing more emphasis on e-commerce services. This includes establishing an ASP (Application Service Provider) arm and partnerships with Hutchison Whampoa [13] and US business-to-business software company, Ariba [ARBA].
Steve Yeung, C&T's vice president of corporate development and communications, explains the company has established two new business units this year. G-be, or Global e-Business enabler, is the e-business enabler within the group, providing application development and project management services to large corporations.
Go-business, or Global e-business services; it is C&T's ASP business arm. The company is already involved in two large-scale ASP projects for the Hong Kong Government.
ESD (Electronic Service Delivery) is a project to allow public access to government services by electronic means such as the Internet. For this project, C&T will build and transfer the applications to the government at a fixed priced.
The company is implementing a usage based revenue model for the ETS (Electronic Tendering Service) project, which will allow the online submission of tenders for government projects. Merrill Lynch notes this usage based revenue model will mean potentially better profitability for the company, since revenue will grow faster than costs.
In a recent report, the US brokerage noted the success of these contracts is solid evidence of its [C&T's] execution capabilities. It said: "We believe C&T is far ahead of other systems integrators in terms of securing beachheads in the e-commerce space.
For the future, Merrill predicts C&T's revenue will grow at a rate of 52 percent year on year for the next five years. However, the brokerage also predicts the company will see greater profitability as a result of the move away from the resource intensive system integration business, and into more value-added areas.
It said: "We believe in the long run, C&T's e-commerce operations (which should account for almost 50 percent of sales by FY03E) should produce 20 percent in net margins versus 20 percent in gross margins by the systems integration division."
When Merrill launched its coverage of Computer and Technologies [46] in April, it issued both intermediate and long-term buy recommendations on the stock It also set a 12 month target price of HK$46 per share, representing a 571.4 percent premium to its HK$8.05 closing price on Thursday.
In a recent report, the brokerage said: "We believe C&T will emerge as a winner in the Internet and e-commerce arena."
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