ztect, Wall Street Research report on GTCI...
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Buy Recommendation February 8th, 1999
Special Report
Global Telephone Communication Inc.
(OTC: GTCI)
Shares Outstanding: 12,245,935
Active Float: ~2 million
Recent Price: $1.25
52 Week Bid Range: $.31-$1.69 1999 EPS: $.69(Est)
2000 EPS: $1.10(Est)
P/E Ratio: 2/1(Est)
Book Value /Share: N/A
Year Ending December 31, 99 1999 (E) 2000 (E) 2001 (E) 2002 (E) 2003 (E)
Revenues (millions) $17.0 $50.8 $114.7 $188.5 $268.3
Earnings (millions) $8.56 $15.7 $35.0 $58.1 $83.2
Shares Outstanding (millions) 12.45 14.24 14.24 14.24 14.24
Earnings per share $.69 $1.10 $2.46 $4.00 $5.80
Projected Price P/E Ratio of 20/1 $13.97 $22 $49 $80 $116
Business Summary:
Global Telephone Communication Inc. (OTC BB: GTCI) is an ambitious young micro-cap that appears to have opportunities for explosive growth through its early-stage participation in several solid telecommunications projects in the Peoples Republic of China. Through its operating subsidiaries the company is beginning to provide communications products and services in China. The company through joint ventures and exclusive agency agreements with subsidiary of China Telcom, the largest Telecommunications Company in China, offers Internet connection, mobile communication integrated systems, and Internet telephony systems and products.
Rapid Growth in China:
Global Telephone Communication has positioned itself to become a serious player in the significant growth of Internet business already going on in China. GTCI completed its first step by entering into a joint venture/exclusive agency agreement, through its wholly-owned subsidiary Regent Luck Holdings, Ltd. (RL), with Shenzen Newsnet Co. Ltd. (SNC), itself a wholly-owned subsidiary of China Telecom. The joint venture/exclusive agency agreement, China Global, will operate in six major urban areas with a population of over 300 million. These areas are Beijing, Shanghai, Ghangzhou, Chonquing, Shenzen and Wuhon.
Exponential Growth of the Internet:
The Internet is experiencing exponential growth worldwide. The volume of electronic data, voice, fax, audio or video, being transmitted over global networks is no longer measured in "mega" or "giga" digital bits-per-second, but rather in "tera" or trillions of bits. The global communications grid is sustaining an explosive expansion in capacity and bandwidth. The bandwidth boom will change the way we communicate, learn and do business. Simply put, the use of e-mail, e-commerce and e-telephony will dominate business and personal communications as we enter the 21st century.
Internet Telephony Protocol (IP) is experiencing the most spectacular growth. IP is the use of the Internet and corporate Intranets to carry traffic rather than the more expensive International Direct Dial. Savings can approach 50% to 70%. IP traffic is expected to reach $10 billion by 2001 and account for 25% of international long distance calls. The gateway equipment to carry such calls is estimated to grow from $1.8 million in 1995 to more than $6.3 billion in 2002. The license allows the joint venture to offer this value-added service for the same region and the same time period as the ISP license.
China To Be A Major Player
China's future depends on growth, which requires technology as its fuel. The Chinese government has already invested over $28 billion on more than 100,000 km of optical fiber that now links 85% of the country. In fact, China needs to be ready with fiber-optic communications very quickly because this year (1999) $1.2 billion China - US Cable Network project (the first direct fiber-optic link between the two countries) will be completed. The fiber-optic link will provide an explosion of information available to China.
The number of people using the Internet in the world's most populous nation has increased more than 30 fold in just five years. Internet users are expected to grow from 70,000 in 1996 to 4 million in 2000 and 7 million by 2001. Other forecasts see 100 million users in the near future. Web pages hosted in China have grown from 100 in 1994 to 250,000 in 1998.
Equally explosive growth is expected in PC sales and users. The Chinese market is expected to become the LARGEST in the world! As a matter of fact, personal computer sales in China are expected to surpass those in the United States by year 2000.
GTCI's Joint Venture:
GTCI's exclusive Agency Agreement (Joint Venture) is for 12-years automatically renewable, with minimal requirements, every three years. The Joint Venture / exclusive agency agreement is between Regent Luck Holdings, Ltd. (wholly owned subsidiary of GTCI), and Newsnet, the Internet arm of China Telecom. Regent Luck is to provide financing into the new venture, Shenzhen Global Net. Newsnet already has an existing Internet subscriber base of 45,000. Profits will be allocated 35% to Newsnet and 65% to RL for the first two years and 49% to Newsnet and 51% to RL in years three and beyond. RL will own 51% of the voting equity of Shenzhen Global Net and will appoint three of the five directors of Shenzhen Global Net.
A License of Approval has been granted to Newsnet to conduct all telecommunications and Internet business and services in six major urban areas. Newsnet has obtained all regulatory agency approvals to utilize the Licenses and to do business as an Internet Service Provider (ISP) as well as both reseller and agent. Newsnet will contribute the License of Approval and all regulatory agency approvals to Shenzhen Global Net. The joint venture/exclusive agency agreement is to operate in six major urban areas with a population of more than 300 million residents. The areas are Beijing, Shanghai, Ghangzhou, Chonquing, Shenzhen and Wuhon.
Future Looks Bright for ISP in China
The Ministry of Posts and Telecommunications is encouraging a large Chinese language Web presence for electronic resources ranging from search engines to weather services. China has embarked on a series of projects that will employ state-of-the-art technology into everything from education, agricultural planning and healthcare to finance.
In order to take advantage of the coming flood of information, the Republic of China is encouraging foreign investment and assistance in developing its telecommunications and technology infrastructures. There is strong support for the privatization of State Owned Enterprises (SOEs). The government intends to transform the majority of SOEs into profitable, stand-alone, shareholder companies. GTCI expects to play a meaningful role in the development of China's telecommunication technology. GTCI has established a foothold and gained a select competitive position, benefiting from the exclusive nature of its license(s).
Y2K Bugfix Software Solution:
GTCI has entered into an exclusive licensing/marketing agreement to provide GTCI's Year 2000 (Y2K) Bugfix solution through Shenzen Global Net. The company has engaged Viacor Industries to develop its Y2K Bugfix solution specifically tailored to the PC market. This Y2K solution is one of the most user friendly on the market today and has a multitude of software versions and features, including a clean and simple interface real mode device driver and an uninstall feature.
The Chinese State Council has mandated that all government agencies and government-owned enterprises have all systems revised and all millennium bug tests completed by September 1999. The State Council has ordered 18 government departments and ministries to send monthly reports on their progress toward upgrading systems.
China's metal industry illustrates the extent of potential Y2K problems. The China Metallurgical Industry Bureau reports that 20,000 of the 28,000 computers used in the industry, or 71 percent, are threatened by Y2K problems. The PC market in China alone totals 10 million computers, all of which must address the millennium bug.
GTCI enjoys relationships with and is negotiating with several Chinese Government Agencies to supply its Y2K solutions. In addition, GTCI has entered into an agreement t acquire 51% of Pacific Assets International Ltd. The acquisition is part of a Joint Venture giving PAI exclusive franchise rights to market the company's Y2K software solutions to financial institutions and their clients throughout Asia excluding China.
Principals of PAI have extensive contacts and strong ties with the Asia Pacific banking community, including the Association of Development Financing Institutions in Asia and the Pacific, which encompasses 78 development banks in 33 countries with members and clients exceeding eight million. Additional contacts include the Asian Bankers Association (ABA) and other banking associations in the region. The same principals of PAI annually organize the Asia Pacific Bankers Congress, the Asian Banking Awards and the Asian Banking Digest. PAI is in the process of setting up Internet and information technology business relationships for bankers worldwide. Included are a banking/financial search engine, information mall and a comprehensive business library.
The strategic relationship between GTCI and PAI will focus on information technology and e-commerce for Asian Bankers and their clients. This will allow GTCI to have a significant foothold in an explosive market. From nearly zero last year, on-line e-commerce will top $15 Billion by 2002. Taking into account the sizable amount of transactions among manufacturers and suppliers, this number could increase tenfold. PAI intends to establish its banking/commerce search engine to be a major Internet portal in that region to facilitate trade and e-commerce.
GTCI has teamed with Veronex Technologies Inc. to pursue business opportunities together in Asia. GTCI will market Veronex's proprietary I/NOVA System, which offers a complete end to end solution for renovation, repair and testing of any mainframe system requiring Y2K compliance. The I/NOVA System will broaden GTCI's Y2K solutions services to the mainframe computer market and will be marketed through the Shenzhen Global Net and PAI Joint Ventures.
Some estimates put the total global cost of fixing the Y2K problems at U.S. $1.4 trillion. In other words, twice the combined costs of the Vietnam War, the 1995 Kobe and 1994 L. A. earthquakes, and Hurricane Andrew, according to the Organization for Economic Cooperation and Development. The Y2K problem in Asia is particularly critical due to the lack of preparedness both by the governments and businesses. It is reported that more than 65% of the companies in Asia are just starting to address the issue and they will have to resolve the problems far beyond 2000.
GTCI, with its established strategic relationships in Asia and complete system integration solutions to the Y2K problem, will undoubtedly be able to capture a substantial piece of the market. Also, this will position GTCI to become a significant and possibly even dominant player in the IT, e-commerce sector in the future.
GTCI, with estimated 1999 earnings of $ .69 per share and year 2000 earnings of $1.10, is extremely undervalued and offers substantial price appreciation potential! Using a price earnings ratio (PE) of 15 to 20 x projected earnings, we forecast a near term price target of $5.00 to $8.00 by August, 1999 and a longer term price target of $18.00 to $25.00 by December, 2000.
Company is positioned to benefit substantially from growth of internet in China.
Company's Y2K (Bugfix) solution will increase revenue stream significantly.
GTCI has a dominant position in the world's largest PC sales and users market!
Company could be a take-over candidate for a major telecommunications company.
Management team is strong and experienced with a history of major success.
The Company has several viable sources of revenue.
China will have a continued huge and growing demand for Company's services.
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