Thursday, March 30, 2006

Telestone Tech: Investors are Picking up the Phone.

On February 28, 2006, Telestone Technologies Corp. (TST-$4.30), a leading provider of wireless communication coverage solutions primarily in China, announced the successful completion of a comprehensive 3G wireless coverage test for China Mobile's Guizhou Province Division using Telestone's new 3G wireless coverage platform system. The test specifications were outlined and supervised by China Mobile and Huawei Corporation technicians who monitored and measured the overall quality and stability of the signal coverage of the Telestone system. The trial testing was conducted at a frequency of 1800 MHz for 3G using Telestone's new 3G-coverage platform system.

Investors had been anticipating this news, for in the wake of the Company’s news release, the price of the stock rose to at a seven-month high, closing at $5.20.

Technically, the stock has come under short-selling pressure, for with average daily trading volume of only 21,100 shares, more than 400,000 shares were sold short in the last thirty-days. The stock retraced, successfully testing the $4.12 level—its 200-day moving average.

We recommend that readers—new and old—revisit our initial BUY recommendation of Telestone Tech., “The Peoples Investment for 3G Wireless in China,” (when the stock sold for $4.01 per share).

On January 25, 2006, we stated:

“The catalyst for a sustainable upward move in the share price is the highly-anticipated rollout of the 3G (Third Generation)-related technologies for the PRC, [Peoples Republic of China] for which Telestone is one of only four principal companies that are licensed and capable of delivering on 3G wireless technology and equipment to China’s two largest wireless phone companies, which are China Mobile and China Unicom.
The Chinese authorities are expected to award 3G licenses to service providers later this year, as the country readies its high-speed network in time for the 2008 Olympics in Beijing. China's future 3G mobile network will use a home-grown TD-SCDMA standard co-developed by Siemens.

The subsequent rollout of 3G cell-phones will open up a market with a projected value of $25 Billion per annum. Of this market, Telestone’s wireless coverage solutions’ opportunities is approximately $2.5 billion per annum over the next three-to-five-years. Currently, the Company owns 2.7% of this market. Given that Telestone has a strong domestic presence in the PRC, we are being conservative in our belief that the Company can grow the top-line from existing businesses and the expected new 3G opportunities to easily hit approximately $100 million in top-line growth—dependent upon the release date of the 3G licenses….

Telestone is financially sound, with a current ratio better than 2:1, and no long-term debt.
Even without the inclusion of revenue generated from the upcoming 3-G deployment in China, management still expects top-line growth and share-net EPS in the order of 20%-to-30% year-over-year. We do, however, expect a big impact on revenues and profitability, assuming a 2H:06 deployment of the 3G technologies in the PRC. Our early estimates call for Telestone to show top-line of approximately $55 million, throwing of share-net of $0.50 [assuming 10 million shares, fully-diluted]. For aggressive investors willing to assume the inherent risk of owning a small-cap company, we recommend dialing up your broker and buying some shares.

Our initial target price for Telestone is $12.50 per share. This valuation assumes a multiple expansion to 25x forward 12-month earnings."


Information has been obtained from sources believed to be reliable, but its accuracy or completeness is not guaranteed. We advise readers to recognize that they should not assume that present or future recommendations will be profitable or will equal the performance of securities listed or recommended here in the past. Readers should be aware, too, that the purchase of securities, particularly in the case of low-priced shares, involves substantial risk of capital. The 10Q Detective is published by Blue Sky Enterprises, LLC. Blue Sky Enterprises, LLC. is not a registered investment advisor and therefore cannot give individual investment advice. The opinions expressed herein are subject to change without notice. Neither the information nor any opinion expressed herein constitutes a solicitation by us of the purchase or sale of any securities. Blue Sky Enterprises, LLC., its affiliates, and/or their officers and employers may from time to time acquire, hold, or sell a position in the securities mentioned herein. Upon receipt of queries, specific information in this regard will be furnished.


Anonymous said...

So true. Good job

Anonymous said...

We're seeing some talk indicating that Chinese carriers will be allowed to choose W-CDMA or CDMA2000 instead of the homegrown standard. Is Telestone positioned to provide coverage services given any standard, or does this development, if true, diminish the outlook for TST?