Commentary

Singapore Knows The China Frequency

Tech Market WatchBy Perry Wu
Turn now to Singapore. The country has been making a push for its financial sector to become more relevant in China. While a listing in the U.S. or Hong Kong continues to be the dream of Chinese entrepreneurs, the Lion City has recently gained traction as an attractor of capital.

A few months ago, ChinaCast became one of the latest mainland-based companies to list in Singapore. ChinaCast is a Bermuda-registered, Beijing-based company that traffics in satellites. And it boasts an A-list group of shareholders, including Intel, Hughes Electronics and Sun Hung Kai (the Hong Kong real estate powerhouse).

ChinaCast did its IPO on the Singapore stock exchange in May 2004.

ChinaCast's basic business is to rent raw bandwidth from third-party satellite providers, and then package this satellite bandwidth out to businesses that need a turn-key satellite hookup. The company has focused on universities that use the satellite hook-ups to provide distance-learning courses.

The Chinese Ministry of Education has now issued dozens of licenses to universities across China to use distance learning in their curriculums. At last count, ChinaCast had inked deals to provide distance learning to at least 15 of these universities, including Beijing University.

Although by now it is a cliche, Chinese do tend to value education. As Chinese become prosperous, there is every reason to think more money will be spent on education, making universities growing markets. By focusing on the education market, ChinaCast is probably betting on the right horse.

Essentially, the Chinese universities decide what to teach, and then outsource the rest to ChinaCast. ChinaCast then delivers an end-to-end technology solution to deliver the course via satellite. This includes the bandwidth, data transmission and the operation of the entire network system. The lectures are then broadcast from whatever venue the university chooses, to any registered student in China with Internet access.

It is a win-win situation for both the university and ChinaCast. Rare is the university that would want to put up the capital needed to operate a satellite network. Even if a university were able to muster the resources, the maintenance and management of such a system would probably be out of reach.

There is also a largely untapped market in corporate distance learning. As Chinese and foreign companies become less regionalized and more national, distance learning will only become more important. And already ChinaCast has a footprint in this market. With its Enterprise Networking Division, ChinaCast has set its sights on capturing the market for large organizations that need to communicate among branch offices in China.

ChinaCast does not have its own satellite but pays a satellite provider a periodic usage fee, and incurs a transponder fee. And by focusing on providing satellite-based services and not on owning the actual satellite, ChinaCast has avoided many potential pitfalls.

AsiaSat, one of the most well-known satellite-providers in Asia, does actually own satellites. But along with this ownership of satellites comes numerous maintenance problems, and problems with finding customers. As a result AsiaSat, listed on the New York Stock Exchange, has not been a lollapalooza to investors. Over the last seven to eight years AsiaSat's stock price has ranged from highs of over US$40 to lows of just over US$10. It now sits at about US$18.

Let's hope with the cash and recognition that came with their recent IPO, the executives at ChinaCast do not get any grandiose ideas of launching their own satellite like AsiaSat. They should stay closer to earth, lest investors feel the need to ground them.

Now listed on the Singapore stock exchange, ChinaCast's market capitalization is in the neighborhood of US$80 million. With profits currently annualized for the year at just over US$4 million, the stock is not a screaming bargain.

But ChinaCast has virtually no debt and is poised to develop its distance learning courses deeper into the mainland. With a sky-high profit margin of 25%, ChinaCast is already showing signs of being a well-tuned company. As the company develops a track record and grows its profits, investors will want to stay tuned.

About the author:
Perry Wu is a writer and correspondent for ChinaTechNews.com and can be reached here at the site. Perry Wu does not hold any positions, long or short, on any of the Chinese or American company securities mentioned in this article.

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