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Wireless in China - Telestone on the NASDAQ
Friday, 09 October 2009 18:43 Blaze Fabry
Oct. 9, 2009 - Chinavestor) We have extensively covered Chinese telecom carriers for years from both technical and fundamental point of view. We just argued at the beginning of this week on Monday that "Value investors should pay close attention to the most oversold China stock list below. Negative market sentiment took a toll on large cap NYSE listed Chinese plays, offering some at lucrative discount. ... China Telecom (NYSE:CHA) ... are trading near theoretical highs, something that doesn't happen too often". All three NYSE listed China stocks soared over 7% this week.
Besides core telecom carriers, there is a second and third tier of telecom related companies that are worth paying attention to. These companies provide network solutions for the carriers. While most of investors are familiar with ZTE Corp. (HKG:0763) and Huawei Technologies, there is much less known about the third tier of access network solution providers like Comba Telecom Systems (HKG:2342) or Telestone Technologies Corp. (NASDAQ:TSTC).
This is what Comba (2342), Sinotel (SIN
3W) and Telestone (TSTC) does: provide cellphone and related coverage in concrete buildings, high rises, tunnels, airports etc where cell signal doesn't reach. In order to provide sufficient wireless coverage, concrete buildings need additional infrastructure, as shown in the following picture.
Given that Shanghai has more skyscrapers than New York, the need for such equipment and solutions is just immense.
The questions is which companies are going to make it. At this point there is no industry standard, leaving companies with proprietor technologies temporary advantages. Telestone Technologies (NASDAQ:TSTC) is said to have developed a solution that caters for all three main carriers, China Mobile (NYSE:CHL), China Unicom (NYSE:CHU), and China Telecom (NYSE:CHA), for both 2G and 3G. This translates to Telestone (NASDAQ:TSTC) being able to deliver complete solutions for all existing mainstream carriers for both 2G and 3G. Given that 3G is relatively new in China, first licenses being awarder in January 2009, Telestone (TSTC) looks to have the first mover's advantage.
While arch rival Comba Telecom Sys. (HKG:2342) has a much larger market share and subsequently a larger market cap, American investors have easy access to Telestone Technologies Corp. (NASDAQ:TSTC). While Comba has a commencing market share in the most populous southern regions like Guangdong and Shanghai, Telestone (TSTC) is strong in the north in Beijing and surrounding provinces. At this point it looks that there is enough room for both Comba (HKG:2342) and Telestone (NASDAQ:TSTC), the question is how well these companies are going to execute.
As the chart above testifies, Telestone (TSTC) has been growing steadily over the course of the years. (2004 earnings are off due to a huge, one time extraordinary item) With guidance of around $70 million in revenues for 2009, Telestone is set to continue taking advantage of the Chinese growth story. Given that TSTC is trading at 11.3 P/E compared to 21.4 for Comba, Telestone has a lot of room left to go.
Source:
Wireless in China - Telestone on the NASDAQ
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