China All Access (中國全通)

BUY Target Price: HK$3.12 (+84%) Price: HK$1.70 HKEx Code: 633 Tue, 31 Aug 2010

1H10 Result in-line with expectation

Equity Research

Communication solution/ China

.

1H10 Results Update Key points:

 Net profit up 63% yoy to RMB34.7mn, 21% of our full year
estimates. (1H09 earnings represented 18% of FY09 adj. earnings.)
Key Data Revenue up 58% yoy to RMB129mn while GP margin up 2 ppt yoy to
Close price (HK$) 1.70 41%. We expect GP margin further increase to ~42% in 2H10 due to
12 Months High (HK$) 2.02 operating leverage. Company’s order backlog reached 2H11, we expect
12 Month Low (HK$) 1.39 the company's earnings to increase by 69% to reach RMB165mn in
3M Avg Dail Vol. (mn) 3.02 FY10. Higher revenue contribution in 2H10 is expected as most
Issue Share (mn) 1,037.50
customers’ budget plans take place in second half of the year.
Market Cap (HK$mn) 1,763.75
Free Float % 38.84
 Rapid growth was driven by geographical expansion. Company
Net cash/share (HK$) (0.58)
Net debt/equity (%) Net Cash
added four and two provincial sales coverage for satellite solution and
Fiscal Year 12/2009
wireless solution starting in 2010, respectively. Satellite solution grew
Major shareholder (s) Chan Yuen Ming (42.0%) 23% yoy to RMB59mn while wireless solution grew 1.3x yoy to
Source: Company data, Bloomberg, OP Research RMB68mn in 1H10.
Closing price are as of 30/8/2010
All figures are subject to rounding
 Proposed HK$0.01 interim dividend. We expect CAA to maintain a
30% payout ratio FY10 onwards, helping to compensate investors for
Price Chart thin trading volume and attract long-term value investors given our
2.0
estimate of 45% earnings CAGR in 2009-12E.
1.5  Maintained “BUY” with TP of HK$3.12. 1H10 result was in-line with
1.0 our expectation. Growth drivers 2H10 onwards include the national
rollout of (1) dynamic satellite communication solution, (2) electronic
0.5
ticketing and payment wireless solution which have recognized as the
0.0 national industrial standard in July 2010, and (3) the new business
Apr-10
Oct-09

Dec-09
Sep-09

Nov-09

Aug-10
Jan-10

Jun-10
Jul-10
May-10
Feb-10
Mar-10

opportunities emerge in mobile multimedia broadcasting business. We

are confident on the company’s ability to deliver 69% and 42%
earnings growth in FY10 and FY11 respectively as order backlog
reached 2H11. We maintained “BUY” with TP of HK$3.12 or 6.6x
Company Background FY11 PE, representing 84% upside potential.
Listed in Sept 2009 with a public offering price of
HK$1.6. China All Access (CAA) is a solution
provider specializing in satellite and wireless
communication in China with 93% earning CAGR in
2006-2009. CAA intends to broaden its application
solution from public safety, city integrated
management and city emergency communication to
Exhibit 1: Results and forecasts summary
nationwide satellite mobile multi-media
broadcasting service and military application
Year to Dec (RMB mn) 1H09A 1H10A YoY % Old FY10E New FY10E Change %
solutions. Revenue 81.8 129.1 57.7% 495.5 495.5 0.0%
Net profit 21.3 34.7 62.9% 165.1 165.1 0.0%
Yuji Fung Gross Margin 38.7% 40.8% 5.5% 42.7% 42.7% 0.0 pp
Oriental Patron Securities Ltd Net Margin 26.0% 26.8% 3.3% 33.3% 33.3% +0.0 pp
+852 2135 0236 EPS 0.028 0.033 17.9% 0.160 1.160 0.000
yuji.fung@oriental-patron.com.hk Source: Company, OP Research
Oriental Patron Research
Exhibit 2: Income statement
Year to Dec (RMB mn) 2009 2010E 2011E 2012E
Revenue 324 496 696 917
Cost of sales (180) (284) (395) (520)
Gross Profit 144 212 301 397
Other revenue 2 0 0 0
Distribution expenses (2) (3) (4) (5)
Administrative expenses (29) (26) (36) (48)
Other net income 0 0 0 0
EBIT 115 183 262 345
Finance cost (5) 5 6 8
Pretax Income 111 189 268 352
Income tax (13) (24) (33) (53)
Minority interests 0 0 0 0
Net Profit 98 165 234 299
EPS (Basic) (Cents) 12 16 23 29
Source: Company, OP Research

Exhibit 3: Balance sheet

Year to Dec (RMB mn) 2009 2010E 2011E 2012E
Property, plant and equip. (Net) 48 71 89 105
Intangible assets 0 0 0 0
Others 54 82 116 152
Non-current assets 102 153 204 258
Others current asset 68 68 68 68
Trade and other receivables 131 171 269 304
Inventories 8 7 16 13
Cash & Equivalent 465 581 645 894
Current assets 673 827 998 1,279
Total assets 775 980 1,202 1,537
Others 9 8 12 15
Other payables and accruals 0 0 0 0
Trade and other payables 38 88 89 144
ST borrowing 0 0 0 0
Current liab 47 97 101 160
Deferred tax liabilities 9 9 9 9
Other LT Liabilities 0 0 0 0
Non-current liabilities 9 9 9 9
Total liabilities 56 106 110 169
Share Capital 9 10 10 10
Reserves 646 646 646 646
Retained earnings 63 218 436 711
Total common equity 718 874 1,092 1,368
Minority interest 0 0 0 0
Total Liab & Equity 775 980 1,202 1,537
Source: Company, OP Research

Exhibit 4: Cash Flow

Year to Dec (RMB mn) 2010E 2011E 2012E
Net Profit 165 234 299
Depreciation & Amortization 10 12 14
Finance cost 0 0 0
Net (inc)/dec working capital 11 (103) 27
Others (28) (33) (37)
Operating Cash Flow 158 110 303
Net CAPEX (33) (30) (30)
Change in LT Investment 0 0 0
Others 0 0 0
Investment Cash Flow (33) (30) (30)
Proceeds from ST debt 0 0 0
Proceeds from loans 0 0 0
Dividend Paid (10) (17) (23)
Proceeds from Share issue 1 0 0
Others 0 0 0
Financing Cash Flow (9) (17) (23)
Change in cash & equivalent 116 64 249
Source: Company, OP Research

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Exhibit 5: Revenue Breakdown
Year to Dec (RMB mn) 2009 2010E 2011E 2012E
Satellite segment 153 245 336 471
Wireless data segment 167 247 354 438
Call Centre 4 4 6 8
Growth (%)
Satellite segment 60% 37% 40%
Wireless data segment 48% 44% 24%
Call Centre -7% 50% 33%
Source: Company, OP Research

Exhibit 6: Key Assumption

Year to Dec (RMB mn) 2009 2010E 2011E 2012E
ASP (RMB mn)
Satellite segment
In-motion satellite system 2.50 2.45 2.40 2.35
Wireless data segment
PDA 0.011 0.008 0.008 0.008
Peripheral system for traffic police 5.0 4.9 4.8 4.7
Surveillance system 5.0 4.9 4.8 4.7
Remote control system 0.0 0.0 0.0 0.0
Service income (per system installed, Rmb)
PDA 780.0 780.0 780.0 780.0
Remote control system 660.0 660.0 660.0 660.0
Call Centre 0.020 0.020 0.020 0.020
Sales Unit (units)
Satellite segment
In-motion satellite system 54.30 100.00 140.00 200.00
Wireless data segment
PDA 5,000.00 10,000.00 15,000.00 20,000.00
Peripheral system for traffic police 3.00 5.00 7.00 9.00
Surveillance system 10.00 15.00 20.00 20.00
Remote control system 15,000.00 20,000.00 25,000.00 27,500.00
Service income
PDA 9,750.00 19,750.00 34,750.00 54,750.00
Remote control system 15,000.00 35,000.00 60,000.00 87,500.00
Call Centre 200.00 200.00 300.00 400.00
Source: Company, OP Research

Exhibit 7: Financial Ratio

Year to Dec 2009 2010E 2011E 2012E
Growth (%)
Revenue 73.4% 52.8% 40.5% 31.7%
Gross Profit 73.4% 47.1% 42.3% 31.7%
EBITDA 62.9% 53.7% 41.1% 30.8%
EBIT 50.5% 59.0% 42.6% 31.7%
Net Profit 44.4% 68.5% 41.9% 27.8%
Profitability (%)
Gross margin 44.4% 42.7% 43.3% 43.3%
EBITDA margin 38.9% 39.1% 39.3% 39.1%
EBIT margin 35.6% 37.0% 37.6% 37.6%
Net Profit margin 30.2% 33.3% 33.7% 32.7%
ROE 13.6% 18.9% 21.4% 21.9%
ROIC 62.3% 23.2% 26.8% 28.3%
Liquidity
Debt Ratio (%) 7.3% 10.8% 9.1% 11.0%
Interest bearing Debt Ratio (%) 0.0% 0.0% 0.0% 0.0%
Net Gearing (%) -74.2% -74.3% -65.3% -70.3%
Current Ratio 14.2 8.5 9.9 8.0
Quick Ratio 14.0 8.5 9.7 7.9
Operating
Inventory turnover days 12 10 10 10
A/R turnover days 124 111 115 114
A/P turnover days 84 82 82 82
Cash Conversion Cycle 52 39 43 42
Valuation Ratios
P/E (x) 12.7 9.3 6.6 5.1
P/B (x) 2.1 2.0 1.4 1.1
EV/EBITDA (x) 9.8 8.7 6.0 4.5
Dividend yield (%) 0.6% 0.9% 1.3% 1.7%
Per Share Data (HK$)
EPS 0.13 0.18 0.26 0.33
BVPS 0.79 0.84 1.21 1.51
DPS 0.01 0.02 0.02 0.03
Source: Company, OP Research

31 August 2010 Page 3 of 4

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31 August 2010 Page 4 of 4
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