IPO analysis : iLink Holdings Limited (8107)
Mar 07, 2001 - 09:16:28 HKT
QuamResearch
iLink Holdings Limited (8107), a spin-off from the venture capital investment arm of main-board listed Pacific Century CyberWorks (0008), will list on GEM by way of a share placing of 110 million shares at an offer price of HK$1.28 each, raising about HK$121 million. Trading will commence on Friday, March 9.
48%-owned by Pacific Century CyberWorks
Formed in June 1999, iLink was founded by Chief Executive Officer Billy Tam and a group of experienced Internet professionals. Capitalizing the positive market expectation for Internet ventures, iLink was quick in securing capital injection from investors after its formation. In September 1999, main-board listed Pacific Century CyberWorks ("PCCW") acquired 80% of iLink for HK$70 million. Dell Ventures, the venture capital investment arm of Dell and main-board listed Henderson Investment invested in iLink in last year. Subsequent to a disposal of shares, PCCW will own 48% of iLink at the time of listing on a fully diluted basis.
A provider of Internet connectivity and server hosting
Currently, iLink operates a data center in Central and one in Shatin, with a total area of 40,000 square feet and a hosting capacity of about 1,100 racks. About 85% of the space in the data center in Central have been leased and the Shatin data center is about 10% leased. The core service of iLink is the provision of Internet connectivity and server hosting and co-location. iLink also provides ASP services and a range of value-added services, such as bandwidth management and media streaming that complement its core service. Income from Internet connectivity and server hosting and co-location services make up of 60%, while value-added services contributed 30%, of iLink's total turnover, for the 10 months ended 31 October, 2000.
Revenue model based on one-time and recurrent income
The revenue model of iLink is based on (1) one-off income from installation and connection charges and (2) monthly recurrent income from Internet connectivity, server hosting and co-location services and a range of value-added services such as ASP. Currently, iLink offers 4 core ASP applications : (1) Desktop Microsoft Office, (2) Unified Messaging, (3) web-based e-mail with WAP interface and (4) Customer Relationship Management. A number of new ASP applications, such as Enterprise Resource Planning, are on the pipeline for launching, which is expected to expand iLink's revenue source.
Facilities lend support for the provision of ASP
ASP providers require a reliable and scalable infrastructure, which includes data centers, network connections and bandwidth, in order to provide a secure network that offers adequate storage capabilities and fast service deliveries. We believe iLink has met this criteria based on a range of facilities that were built to facilitate the distribution of ASP services. To name a few, iLink's network is built on switch routers, such as CISCO routers, which have high delivery capacity and fault tolerant connections. iLink's facilities are equipped with a two-tier security control for access to the servers, an un-interruptible power supply with batter backup and a diesel generator, a centralized control room monitoring the operations of the network and facilities.
Growth underpinned by the opening of new data centers
Growth of iLink will be underpinned by the opening of new data centers, which increases the subscriber base and market coverage. Currently, iLink is serving 262 customers including Pacific Convergence Corporation, a subsidiary of PCCW, main-board listed Dickson Cyber Concepts, GEM-listed techpacific.com and Radio Television Hong Kong. Pacific Convergence Corporation accounted for about 35% of iLink's total turnover for the 10 months ended 30 October, 2001. From 2001 to 2002, iLink is planning to open up to 7 new data centers in Hong Kong, Shenzhen, Shanghai, Beijing, Singapore, Taiwan and India.
Gross profit margin a tame 9.6%
iLink's data center business carries a high cost of revenues, which make up of Internet connectivity leased line charges, depreciation expense and rental expense. For the 10 months ended 30 October, 2001, total cost of revenues accounted for 90.4% of iLink's total revenue, representing a gross profit margin of 9.6%. iLink's gross profit margin will remain under pressure, as the management indicates a possible escalation of cost of revenues due to the opening of new data centers. While this may be the case, we believe the sale of ASP applications and other value-added services will generate more recurrent income that will help to mitigate the impact of the high cost of revenues.
As Hong Kong's web economy develops, the reliability of websites will become more critical than previously when the Internet was used only for entertainment and information. iLink has solid fundamentals that will help the company to build its presence in the web economy. We believe iLink is well positioned to tap into the data center business in the region based on its well-built data center facilities, close relationship with PCCW and a strong technical team.
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