Blessed, short report on one of my Chinese triplets: XNET...
The other two are IMOT and GTCI. See end of report:
Outstanding: 8.5 Millions shares + + + Float: 2 to 2.5 Millions
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 5 cents a share. That's about $3.00/share 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
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Jeffrey, threadmaster of InvestRight, asked me what I thought of the WSR report, particularly the earnings projected for 1999. I replied that, IMHO to play it safe, I expected 25 cents rather than the 69 cents projected, and here again, this is a semi educated guess with the help of the review I had just done on XNET.
However, I disagree with the low PE ratio of 20 attributed by WSR, for the reasons explained in the report. Since there are precious few licenses issued for this type of operations and there can only be a limited amount of joint ventures/partnerships possible, I think a PE of 30 to 40+ should be in order, giving, in my opinion a potential value of between $7.50 and $10.00 in the medium term: #reply-8307115
I agree with the longs here that the stock has not moved yet because there are not a lot of verifiable information and figures on the company. But then, there was not a lot available on the other two either. I checked GTCI joint venturer, Newsnet Web site: it looks pretty good and will be in 6 major cities, just like XNET. (can someone supply the URL, I have misplaced it)
It is clear to me that GTCI is the next stock to run up, probably next week, when the profits are taken out of IMOT and XNET and ploughed into GTCI.
Subsequently, Jeffrey added GTCI to his Index: #reply-8307138
Forgive Jeffrey's enthusiasm: he thinks a world of good about me because I had a few winning stocks last week: SNMM, LZMCF, IMOT, XNET, SETO, some of which he put on his Index.
By the way, I hope that my disclaimer, at the top of the report where it should always be - not the bottom, will satisfy ztect and Bobcat.
All the best. Regards, F. Goelo + + +
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