EAST ASIA SECURITIES COMPANY LIMITED
9/F, 10 Des Voeux Road Central, Hong Kong.
Dealing: 3608 8000 Research: 3608 8097 Facsimile: 3608 6132
HONG KONG RESEARCH
Analyst: Kevin Tam 27th April 2006
This report has been prepared solely for information purposes and we are not
soliciting any action based upon it. Neither
this document nor its contents shall be construed as an offer, invitation,
advertisement, inducement or representation of
any kind or form whatsoever. The information is based upon information, which we
consider reliable, but accuracy or
completeness is not guaranteed. Opinions expressed herein are subject to change
without notice. At time of this report,
East Asia Securities Company Limited has no position in securities of the
company or companies mentioned herein, while
its group companies may from time to time have interests in securities of the
company or companies mentioned herein.
Main Board Listing - Research
DBA 電訊（ 亞洲）控股有限公司
DBA Telecommunication (Asia) Holdings Limited [Stock Code: 3335]
Sponsor : Sun Hung Kai International Limited
Joint Book-runners and Joint Lead Managers : Sun Hung Kai International Limited
: SBI E2-Capital Securities Limited
Sector : Technology Hardware & Equipment
Business : Telecommunication equipment
Total share offer (excluding over-allotment):
250,000,000 shares
(25% of the enlarged share capital)
Public Offer: 25,000,000 shares (9%)
Placing: 225,000,000 shares (78%)
Greenshoe: 37,500,000 shares (13%)
Price: HK$1.26 per share
Market Cap: HK$1,260 million
Pro Forma FY2005 P/E: 8.9X
Adjusted NTA per share: HK$0.56
Staffing: 582
HK Public Offer period:
26th April 2006 - 2nd May 2006
Receiving bank: Standard Chartered Bank (HK)
Share registrar: Tricor Investor Services Ltd.
Listing date: 11th May 2006
Business of DBA Telecommunication
The Group is principally engaged in the design,
manufacture and sale of telecommunication
equipment and related products under the brand
name of “締邦” (DEBAN) in the PRC. The Group’s
revenue is generated from the sale of
communication terminal equipment, intelligent
electronic products and communication transmission
connection products, accounting for 65.1%, 26%,
8.9% for total turnover in FY05 respectively.
Public telephone booths, public telephones and
wireless business telephones, which are under the
communication terminal equipment category, are the
principal products of the Group. The Group also
manufactures smart card vending machines as its
intelligent electronic products. The communication
transmission connection products, comprises a
range of connection devices for telecommunication
purpose including ODFs and optical passive
devices.
The Group had approximately 15 active customers
in the PRC, which include major operators of
telecommunication services.
Major Shareholders after Listing (Assuming the over-allotment option is not
exercised)
Daba International Investments Limited (77.6% owned by the Group’s Chairman &
CEO) 50.04%
Kenwell Enterprise Corp 24.96%
Public 25%
100%
2
EAST ASIA SECURITIES COMPANY LIMITED
Use of Proceeds
Net proceeds from the offer are estimated to be HK$258 million.
(Assuming the over-allotment option is not exercised)
HK$ million
Purchase of land and construction of new production facilities 70
Acquisition of advanced production equipment and machinery 65
Expansion of sales and marketing network in the PRC and certain other markets in
Asia 36
Development of FTTH products 33
Enhancement of existing products 29
General working capital 25
Financial Highlights
Year ended 31st December
2003 2004 2005
RMB’000 RMB’000 RMB’000
Turnover 265,252 384,470 557,883
Gross profit 105,677 161,270 231,840
Operating profits 83,654 123,549 175,001
Profit before tax 80,693 120,500 174,750
Net profit 74,169 110,831 146,969
RMB’000 RMB’000 RMB’000
Owner’s equity 119,037 229,868 311,767
Strengths/Opportunities
The Group has established its reputation and brand identity of “締邦” (DEBAN).
The Group has extensive
distributive network covering 28 municipalities, provinces and autonomus regions
in the PRC.
It is estimated the Group’s market shares in the PRC for public telephone
booths, public telephones, ODFs
and optical passive devices were approximately 11.9%, 7.5%, 2.7% and 5.7%
respectively in 2004.
From FY03 to FY05, the Group’s gross margin were 39.8%, 41.9% and 41.6%
respective; while operating
margin were 31.5%, 32.1% and 31.4% respectively. This track record suggested the
Group has strong
pricing power amid rising material cost and competitive environment.
Priced at 8.9x FY2005 P/E, valuation is cheap.
Weaknesses/Threats
× Increasing popularity of mobile communications cast uncertainty on the
long-term demand growth for public
telephone, a major revenue source for the Group.
× The Group is too reliant on major customers. For FY05, the Group’s five
largest customers accounted for
approximately 97.8% of its total turnover.
× The Group is too reliant on major suppliers. For FY05, the Group’s five
largest suppliers accounted for
approximately 70.9% of its total purchase.
× From FY03 to FY05, average trade receivable turnover days were 76.3 days, 76.7
days and 84.2 days
respectively. The long trade receivable poses some constraint on cash flows.
× Raw material accounted for 94% of cost of goods sold. Surging commodity prices
are likely to pose some
pressure on the Group’s margin eventually.
Recommendation: Trading Buy