Research Notes

 

November 16, 2006 

Terence Tubbs, CFA

Telecom Communications

www.skyestar.com

www.Subaye.com

www.icstarmms.com

www.mystaru.com

www1.blogolb.com/b/

 

TCOM (OTC BB)                $.155

Target:                              $.50

 

Suitability:         Speculative Investors

Industry:            Business Services (China)

 

Stock Data

Current Price (11/16/06)              $.155

52 Week Range                             $.15–.80

Daily Volume (3 month avg)         301,000

Market Capitalization                    $15.7 mm

Shares Outstanding                       92 mm

Float (est.)                                       ~60 mm

Institutional Ownership                n/a

Insider Ownership                         32%

 

Financials

Sales (ttm)                         $13.6 mm

Net Income (ttm)              $5.62 mm

Current Ratio                       6.8

Cash                                    $.85 mm

Debt (LT)                               $0

 

Valuation

Price/Earnings (FY2005)           7.7

Price/Earnings (FY2006E)         2.6

Price/Book                                   0.79

 

FY Dec            Revenue              EPS  

2004A             $1.4 mm           $-0.21

2005A             $9.1 mm           $0.02

2006E             $13.5 mm         $0.06
 

A well-positioned Chinese Communications and Content Services company with strong profitability and growth prospects

    COMPANY DESCRIPTION

Telecom Communications, Inc. is a Total Solutions Provider that offers Integrated Communications Network Solutions and Internet Content Service in universal voice, video, data web and mobile communications for interactive media applications, technology and content leaders in interactive multimedia communications. It develops, markets and sells a universal media software solution for enterprise-wide deployment of integrated voice, video, data web and mobile communications and media applications.

Telecom Communications, Inc. does business in Asia via its wholly owned subsidiaries:

Alpha Century Holdings Ltd. (http://www.subaye.com),

IC Star MMS, Ltd. (http://www.icstarmms.com),

3G Dynasty Inc. (http://www.skyestar.com) and

Guangzhou TCOM Computer Technology Limited (http://www.mystaru.com).
 

    MARKET OPPORTUNITIES

    １、TCOM intends to target the enterprise multimedia communications market in the PRC where there is significant growth potential. In the PRC, where billions of messages are sent every month, Short Message Services ("SMS") is the basic form but the major growth is in Multimedia Message Services ("MMS"). TCOM's Customer Relations Management Virtual Call Center ("CRM") provides highly customized, scalable, flexible interactive services, offers clients high value, low cost sales and service solutions using the highly scalable interactive MMS response (IMR), interactive voice response (IVR) and speech recognition solutions.

    ２、 TCOM's business model is built on the integration of strong entertainment and lifestyle content into the Total Solutions System, network database and the application of technology. Network database was established by signing contracts with strategic partners and the database collected all of their Internet and mobile phone users to be the online/offline members in the PRC. Their content was built through our business alliance in which IC Star MMS Limited (formerly known as Sino Super Ltd.), one of their subsidiaries and a network services provider based in Hong Kong, links entertainment and lifestyle information to local communities across the PRC. IC Star was first invented as a SMS/MMS interactive between IC Star and fans of local artists in the world. By integrating the network database and contents into software that TCOM sources from the market, they can leverage the functions of the software and target it to various industries.

    ３、 SEO4Mobile, a search engine optimization for mobile phones, is the original unique new service solution creation by Alpha Century. The SEO4Mobile offers wireless mobile phone service, allowing providers the ability to use SMS search implementation for their users. Mobile phone users who enter a relevant keyword or keyword phrase, along with a geographic identifier, can send searches via an SMS to a service code. The search results will be received by MMS and the search engine optimization processes the search through the Internet within a matter of minutes. Many searchers don't realize that, within an SMS search query, they can add in a geographic identifier. By specifically laying out a separate search SMS for the geographic portion, SEO4Mobile helps structure the search in a simple and efficient way for the searcher. SEO4Mobile has been selected by service providers such as China Mobile and China Unicom.

     

     4、TCOM has established 3G Dynasty for the exploitation of 3G mobile systems.  3G Dynasty will be responsible for sales of IC Star MMS products, and will focus on entertainment content for 3G mobile and Internet use. IC Star Wireless Application Protocol ("WAP") Club is based on the IC Star Theme Club on WAP, which provides the most comprehensive and up-to-date mobile entertainment services in the PRC.  The WAP users can access IC Star Theme Club for content we provide through China Mobile Communications.  3G Dynasty has created the website http://skyestar.com, a multi-channel infotainment portal supported by proprietary fan clubs and a community platform.  It allows new members to personalize their own homepage with 3G Dynasty's content as added-on value. It registers members and allows them to build their personal homepage on WAP.  As of June 30, 2006, IC Star WAP Club had over 800,000 registered members.

     

    3G Dynasty has finished the integration of all business units of IC Star MMS Limited through Aixi Software Limited into cooperation with Baidu.com (Nasdaq: BIDU); Shanghai Linktone Information Limited (Nasdaq: LTON); the wireless business division of Beijing eLong Information Technology Limited, a company of eLong Inc. (Nasdaq: LONG); 3721 Inter China Network Software Co. Ltd (www.3721.com); a Yahoo!, Inc. Company (Nasdaq:YHOO); Tencent Company Limited (www.qq.com); Kongzhong Corporation (Nasdaq: KONG); Guangdong Mobile Communication Co., Limited , a China Mobile Communications Corporation; and China Mobile (Hong Kong) Ltd. (NYSE: CHL) to develop entertainment SMS, MMS, WAP portal and other wireless contents such as artist profiles, gaming and an SEO4Mobile SMS search engine.

     

     5、SkyeStar.com is a website that is a multi-links user experience sharing network in the PRC as well as a multi-channel entertainment portal supported by proprietary fan clubs and a community platform. SkyeStar.com combines the best of IC Star MMS's artist profiles, "my star friend", games and other entertainment offerings with a host of new content, community and fan networking features. SkyeStar.com is the first Internet portal to network users across multiple entertainment channels, linking friends and their entertainment choices in a unique way.

    SkyeStar.com provides users multiple opportunities to play games, send MMS/SMS greetings, watch movie trailers, find show times, and purchase tickets and DVDs. They can also rate, review and refer their entertainment choices to others. Customization features allow members to create their own personal homepages, profile and display their entertainment favorites as well as access their friends' recommendations. SkyeStar.com's innovative fan club's networking features flow throughout the site so users can enjoy diverse content and connect with other people who enjoy similar interests.

     

INVESTMENT SUMMARY

  • Special Swing Trading Consideration:  In addition to the research in this report supporting a longer-term perspective for TCOM, swing and shorter-term position traders may want to keep a close eye on TCOM as a trade.  Recently, the following microcap "sectors" have been making nice moves:  China, strong profitability, and video/blog/YouTube-related.  Microcaps tend to have exacerbated moves heading into the holiday season, and TCOM seems to be in the sweet spot for the aforementioned reasons.
  • Niche:  The aggregation of TCOM's subsidiaries serve intriguing content and value-added services in the most population-rich area in the world.  Other than TCOM's value proposition (see below), the two areas that TCOM might be able to exploit are its involvement with video blogging (http://tinyurl.com/y98rha) and its alliance with BIDU (http://tinyurl.com/t7fyk).
  • Value:  Let's be realistic.  A 2006 estimated PE of 2.6 is too good to be true, right?  At least, that's what the market is saying.  The market is entirely discounting the possibility that TCOM is profitable.  The market is telling us that there's something amiss at TCOM.  I'm inclined to believe the market to an extent, and under .20 is the extent at which the risk/reward value proposition takes over for my nickel.  The financial statements look relatively clean despite some bad debt recovery and stock-based compensation to consider.  Until such a time that the auditors resign, I'm inclined to put some level of faith in the financials. 
  • Growth:  2006 revenues are expected to show substantial growth from 2005, and the EPS should follow lock-step.  TCOM is participates in some exciting growth sectors, and should be able to parlay that into some nice 2007 results, looking forward.
  • Management:  Visibility into the competency of Chinese management is always tough, and TCOM is no exception.  I have not been able to come to any conclusions about management other than via the growth in the company's financials.

  • Target:  TCOM is somewhat unique from a target perspective, because I'm not going to apply a P/E to future EPS to try and come up with an earnings-based target.  Rather, I think that earnings will play a supporting role in an intriguing overall story.  With GOOG snatching up the likes of YouTube, with GOOG owning part of the burgeoning BIDU, and with TCOM's profitable Chinese operations in complementary businesses, I feel that there are numerous catalysts that could catapult TCOM beyond our 1 to 9 month price target of  $.50

Disclosure:  At the time of this report's release, the principals of Topline Research owned shares of TCOM for a longer-term position.  Please see our disclaimer for additional information.

  
 
 
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