Sinotel Technologies: S$0.18 BUY (TP: S$0.32) - New order from China Unicom

source: DMG

New order worth RMB32.8m from China Unicom. Sinotel announced that it won the bid for the development of a Network Optimization & Business Analysis System for China Unicom in six major locations, namely Beijing, Jiangsu, Chongqing, Guangxi, Hebei and Shanxi.

Proprietary software. The technology is a proprietary solution offered by Sinotel. This would allow China Unicom to record and monitor signal strengths emitted by individual base stations. This would also allow China Unicom to monitor and improve its network coverage, so that subscribers can enjoy better coverage and mobile services (higher signal strength, greater area coverage and more consistent data transfer speeds).

Expects more contracts as telcos move to upgrade quickly. The race is on for the telcos to speed up 3G upgrading works and to be the first to secure market dominance. Management expects more contracts to be up for bids.

Both China Unicom and China Mobile have been Sinotel’s customers before the restructuring of the telecommunications industry. Following the restructuring, China Unicom sold off its CDMA network (which was developed by Sinotel) to China Telecom. Therefore, when China Telecom upgrades the CDMA network, it is likely that it will engage Sinotel to do the job. Management also indicated that China Unicom needs to boost up its central system first, before it can commence on any upgrading works. Hence, we believe that Sinotel is in a good position to secure 3G network upgrading contracts from all three telcos.

Maintain BUY. Sinotel is expected to release its FY08 results in mid-February. We estimate earnings of RMB109.4m (EPS: 39.1 RMB¢) for FY08 and RMB133.4m (EPS: 47.6 RMB¢) for FY09. Sinotel is trading at 1.7x forward P/E or 0.8x P/B. We maintain our target price of S$0.32, based on 3.0x FY09 earnings. Maintain BUY.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

source:DMG