SW, XNET AMENDED REPORT: more profitable than IMOT: about $450,000 for 1998,...
if my figures are correct. They also have income from their Telephony and voice over IP operations. See amended report below:
short report on one of my Chinese triplets: XNET...
Outstanding: 14.2 Millions shares + + + Float: 4 to 5 Millions
(not 8.5 Mil. outstanding and 2 to 2.5 Mil. float as previously reported)
Disclaimer: this information is what I understood of my review of an investor's package sent to me by Mr Cheung, Director of XNET. I wish I could say that I was rewarded $x0x0x0x for this job; however, I did it for free, for the benefit of XNET investors and because I own some 40,000 shares in the Company (disclosure). I am not in any way qualified to do this job and it only represents my own opinion; so do some serious Due Diligence yourselves before investing in this, or any other Company for that matter. I might add that I had quite a few glasses of French Cotes du Rhone before tackling this daunting task, so you know what to expect!
1) I love this Company! No wonder, I bought at 42 cents a share....
2) I also love it because it has some great features: it's located in a market that is about to literally explode: 1.2 Billion Chinese; 8% growth; industrious and thrifty; 2.1 Millions Internet connections end of 1998; between 5 and 10 Millions by year 2000, depending on whom you believe; most powerful economy in the world by 2010. Would you not like to own an Internet/ISP/Telephony Company that started on the ground floor in this context? Read on...
2) Income from: ISP, e-Commerce, Home page Portal (whatever that means), Advertising (Microsoft, for one), Telephony and some really nifty concepts: e-mail to fax; e-mail to pager; e-mail to cellular, etc...Check the price of EFAX to get an idea...
3) Only Internet Company that is profitable in Beijing! Why? Because of the telephony twist! It's a lot cheaper to use voice over IP than conventional phone lines. Do IDTC or FTEL ring a bell?
4) Expansion plans: now in 2 cities: Beijing and Shenyang. About to start moving to other places with exotic names and large concentrations of people: Shanghai, Taiyvan, Chengdu, Chongqin. In addition, Bill Gates is bringing the Web on TV through his VENUS program in China....
5) How much profit, so we can quickly nail a price on that sucker? To avoid confusion, I kept away from the accounting figures, as I could not tell for sure whether it was Yuan or Dollars. Computing simple figures given in the brochure, bearing in mind 50% net operating margin, as stated, net income for 1998 was about $450,000, or 3 cents a share (not 5 cents). That's about $2.00/share (not $3) at a PE of 60. Actually, I think Internet in China may fetch higher multiples. Read on...
6) Big Minuses: strangely enough, the package was rather mute on that subject! I would expect the usual, but I am making it up: narrow bandwidth, high cost trunk lines, limited capital for expansion, government red tape, etc...
7) Big Pluses: Lowering of Internet costs and trunk line rentals. Nearly one half of the cost of business is line rental. As the Government is intent on developing the Internet, as a prerequisite to economic development, the whole price structure has been cut by about 50%, which should have a very positive effect on XNET's bottom line in the near future.
8) Conclusion: The PE should be much higher than 60, because there are only a very limited number of Companies licensed by MOFTEC to operate in this industry in China. So, the prospects of being bought by a major player down the road is very real.
As a result, I expect the share to trade as high as $5.00 in the near future, settle in a $3 to $5 range, and eventually progress towards the $10.00 range by next year.
My other triplets are IMOT, which has already had a good run to about $10.00, intra-day, and GTCI which has barely started to walk, let alone run. But, it will very, very soon!
I'll E-Mail a copy of this report to Mr Cheung on Monday. If he likes it and wants to compensate me for it, I'll promptly post a full disclosure. However, what I like about Chinese, is their thrift, so the likelihood of that happening is about as remote as China itself.
Regards, F. Goelo + + +
PS: for further DD, please look up #reply-8116325
|
