Shell Electric Mfg. (Holdings) Co. Ltd. (June 27, 2000)

Shell Electric Mfg

 

Key Data

 
 

Date of report:

27th June 2000

 
 

Stock code:

81

 
 

52 week H/L:

$2.25/$.71

 
 

Current price:

$1.32

 
 

No. of issued shares:

528,779,837

 
 

Market capitalization:

687,413,788

 
 

Estimated P/E:

FY00/7x FY01/6x

 
 

Estimated EPS:

FY00/$0.19 FY01/$0.21

 
 

NAV/share:

FY99/$5.03 FY00/$5.98E

 
 

Recommendation:

Buy

 
 

12 month target:

$2.00

 
 

Summary

 
 

The Group adopts dual strategies to develop new economy business on the top of its traditional operation and generated profits of US$66 million by disposing stakes in Nasdaq listed E-Tek in early 2000.

 
 

The Group has a very strong balance sheet and currently possesses 600 million cash on hand to look for quality investments.

 
 

Sybond Venture Ltd was established as flagship for information technology and internet investments and a number of promising projects are proceeding on right track.

 
 

On the old economy side, the Group’s sales on electric fans, vacuum cleaners and electronic products are stable while return on real estate and highway investment and development in the PRC are very steady and future growth is looking promising.

 
 

While diversifying in traditional business, its new economy takes off

 
 

The group’s new economy business is being vigorously carried out with a track record of success. Flagship Sybond Venture has invested in a number of high tech companies with some of which has already posted profit. Management has planned to spin off and list Sybond either in Hong Kong or the US. The Group has so far invested US$13 million in the High tech and e-commerce business and a total of US$30 million is committed for this purpose. An overview of some of the investee companies is accounted of as below:

 
 

NetGratus- in which 52% stake is owned. It is Silicon Valley based and provides an online advertising and promotion platform with purpose to create and capture value in B2B business.

 
 

Modern Devices (China) LTD- 41% stake in hand, it has been set up more than 10 years and is a system integrator (SI) with strong partners such as Sun Microsystems, Cisco and Oracle. Its main business is involving software development for e-commerce infrastructure and network computing. In FY99 it has posted a turnover of US$23 million and gross profit over US$1 million. It is confidently projected by management to have revenue and gross profit over US$30 million and US$1.5 million respectively in FY00.

 
 

ASPEngines.com- 20% owned is also a US based high tech company to develop super web-based servers for ISPs, ICPs and ASPs. ASPEngines supercedes mainframe technology while maintains efficient management concepts and strict operating procedures and therefore has high level of marketability.

 
 

Rainmaker- is a Silicon Valley hi-tech company engaged in R &D of high bandwidth network communication chips. The chips can be widely used in PCs, internets and consumer electronics appliances. It is advanced designed and has good market potentials. The group has 43% stake in it.

 
 

EnFasion Online Fitting- a 13.7% owned Silicon Valley company engaged on Web-based enabling technology for the apparel industry. Operating as B to B e-commerce enabler the company provides services for apparel companies to improve their sites.

 
 

9XO9.com- is a first B2B Wine portal catering for China market. Wine industry is a high profit margin one and thus affords high ad fee, which provides a lot of room for the Website to develop. Currently the group holds 9% of it.

 

 

 

Besides, Sybond also held a 16.7% Kosdaq listed Power Tech’s convertible bond which to date posted a nominal profit of over US$ 3 million and has a locked up period of nine more months.

 
 

On the old economy business the Group is also leveraged and diversified to balance both of its revenue and profit. They include:

 
 

Electricity and electronic product design and manufacturing- which comprise fans, vacuum cleaners and telephone products.

 
 

Real estate, highway investment and development.

 
 

Securities trading: The business is expected to be very stable and profitable as sales of electronic products remains optimistic and rent income from 20% Guangzhou Citic Plaza and Hong Kong Shell Industrial buildings are over 35 million per annum. Furthermore, stakes in Shunde-Panyu Highway and Liang Xing Highway are generating RMB 20million revenue each year. They will remain as major earning contributors to the Group in the foreseeable future. The CAGR of net profit is anticipated to be 5% in coming three years.

 
 

Estimated income from 00 to 02 per high tech companies and ventures

 
 

US$’000

Stake held

Capital committed

Total Rvenue(E)

Total Profit(E)

 
 

1)NetGratu

52%

2,000

80,000

10,000

 
 

2)MD

41%

6,110

80,000

6,000

 
 

3)ASPEngines

20%

2,800

100,000

20,000

 
 

4)Rainmaker

43%

1,250

90,000

11,000

 
 

5)EnFasion

13.7%

1,000

20,000

5,000

 
 

6)9XO9.com

9%

980

RMB700m

RMB50,000

 
 

7)Power Tech

16.7%

2,004

-----

5,000

 
 

Opinion

 
 

We are quite positive about potentiality of success of the above ventures from the point of view of their substances. One worth of mention strong point is that those businesses are teamed up with highly professional personnel who are authority in their respective fields. In addition, strategic partners such as Sun Microsystems, Cisco, Microsoft and Oracle etc. are potential investors. Some of the above ventures possess high individual spin off potential. We further postulate that if, and only if half of these venture succeed, then the Group will increase its asset base by a very significant percentage or the Group will be cashed back by successful spin offs and listings.

 
 

Risk factors

 
 

Even though the Group has track record in successful investments, IT and internet ventures are high risk and possibilities of failure exist.

 

 

Forecasts of revenue and profit are based on the Group’s point of view and are subject to variations.

 





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