Shenzhen Hi-tech Holdings Ltd. (May 10, 2001)

MTR Corporation Limited

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Key Data

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Stocks code:

106

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52 Week H/L:

$0.315/$0.140

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Current price:

$0.25

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No. of issued shares:

5,110,076,293

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Market capitalization:

$1,011,795,106

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Estimated P/E:

FY01/40x FY02/11.5x FY03/7.1x

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Rating:

Buy

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12 month target:

$0.40

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The company has faced off, and is turning over a new leaf in its business

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The group, formally known as Grand Orient Holdings Limited has basically changed its core business to super computer server design and manufacturing after acquiring 100% stakes in Dawning Information Industry Corporation Limited, a PRC company specializing in development and marketing of computer hardware and software.

We have paid a visit to the group's newly acquired Dawning Corporation in Beijing and had a thorough discussion with its management about their business strategy. We found that the products of the group are highly innovative in the China in terms of technology and are of good quality. The state government also vigorously suports its R and D. In conjunction with the National Research Center for High Performance Computers and Intelligent Computing Systems, Dawning Corporation has just rolled out its latest Dawning 3000 super server into the China maretk. It is now the edge-cutting product for Dawning with high hope for promising revenue in the next few years.

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After adversity comes prosperity

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The group is gradually stripping off its non-core business such as real estate development and securities trading. Full provision has been provided to compensate loss incurred and it has now a very healthy balance sheet with almost zero gearing. The acquisition represented a strong commitment of its management to pursue a direction in advanced technology and information industry after tremendous effort spent on restructuring and reengineering of the group. The group is poised to turnaround to profit in short run.

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Growth beyond imagination

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Dawning corporation is fast developing and profitable. Its products include Tiankuo multi-processor PC servers, Tianyan UNIX server and workstations, Tianluo message retrieval and routing systems and above all, the Tianchao superservers are expected to net EBITDA income amounted to RMB39M for FY01. The expected CAGR of which will reach an amazing 100% plus in the next 3 years. Strong sales in all these products, in particular the Tianchao superserver underpins sustained revenue growth. Major clients of this server are state institutions and academies, which included China Observatory, Petroleum Bureau, Ministry of Railway and a number of telecom bureau and universities and more. The user may expect soon to extend to commercial enterprises such as banks, large conglomerates and possibly overseas clients.

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Financial Forecast of Dawning

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HK$

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2001E

2002E

2003E

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Turnover

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388,535,000

873,035,000

1,444,461,000

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Net Profit

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36,801,896

129,877,804

216,155,817

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EPS (cents)

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0.72

2.54

4.23

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P/E

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40x

11.5x

7.1x

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GP margin

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22%

26%

26%

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* Certain financial information is provided by the group's management

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Risk Factor

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Even though the group is envisaged to experience strong growth in its business, yet advanced technology is a complete new sphere for the group, of which the existing directors have to spend unsparing effort to keep themselves abreast of the market conditions. Furthermore, Computer hardware and software business faces vigorous competition in the PRC market. Dawning may possibly encounter multi-national competitors in its business after China's accession into WTO. Besides, its product focus has been on servers rather than PCs, thus sales may be limited to organizations, not the vast market of general households. Finally, Dawning's products are subject to rapid changes in technology and thus sufficient capital has to be committed in order to keep its products competitive.

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