Wednesday, March 24, 2010

AsiaInfo Holdings Inc. (NASDAQ: ASIA): Immense Opportunity Ahead

AsiaInfo Holdings Inc. provides telecommunications software solutions, and information technology security products and services for telecommunications service providers, as well as to other major enterprises in China. The Beijing-based firm is the nation's leader in telecom billing systems and business intelligence software, which helps firms find small pieces of data that help improve marketing and pricing.

ASIA has two separate business segments:

1. AsiaInfo Technologies

This division offers traditional telecom software and solutions to telecommunication carriers. The division is broken into three primary categories which include Business Operation Support Systems, Service Application Systems, and Network Infrastructure Solutions. If all of that sounds like alphabet soup from the '90's, you can boil it down simply by saying that ASIA partners with carriers to help with processes like efficiency, connectivity, billing, and customer care.

2. Lenovo-AsiaInfo

The Lenovo division could actually be compared with Mcafee Inc. (MFE) or Symantec Corp (SYMC). With expertise in IT security, antivirus and other network protection technologies, Lenovo has built a reputation for security. Landing contracts with the Chinese government is certainly a ringing endorsement of the divisions skill in protecting customers.

The Chinese software provider AsiaInfo Holdings is benefiting from the explosion of communication technology in China, the world's largest mobile market. Moreover, there is still immense untapped potential in the country as a rapidly growing population will require a huge amount of phones to satisfy its needs. According to research firm Research and Markets, total mobile subscribers in China will likely increase from 706.7 million in 2009 to one billion in 2014. China's telecoms will aggressively spend on technology to capture share in the lucrative market for mobile data services. For example, China Mobile plans to spend $55 billion for infrastructure upgrades from 2009 to 2011. China Mobile and its two rivals, China Unicom and China Telecom, spent $21 billion building out third generation (3G) mobile networks last year, following the long-awaited but much-delayed awarding of 3G licenses.

Meanwhile, China's telecom-software spending is expected to grow 15% a year through 2012. Expansion into the IT-security market is a safe diversification as government agencies drive growth.

Last year, AsiaInfo Holdings Inc. agreed to acquire Linkage Technologies International Holdings Ltd., a rival provider of telecommunications-industry software, in a cash-and-stock deal valued at $733 million. The deal is expected help AsiaInfo make inroads with China Telecom Corp., the country's second-largest telecom provider by users, after China Mobile Ltd. "We have very complementary customer bases. AsiaInfo's traditional strength is with China Mobile, and Linkage's traditional strength is with China Telecom," he said. After the merger, the combined company will become the world's second largest telecom software provider only next to Convergys.

Looking at the most recent quarter, fourth-quarter profit multiplied sixfold to $14 million, or 29 cents a share, while revenue climbed 42% to $76 million. The operating margin widened from 15% to 19%. Gross margin for the quarter was 57.7%, compared to 53.5% in the year-ago period and 54.6% in the previous quarter. The year-over-year and sequential increases in gross margin were primarily due to a strong contribution from higher-margin software solutions and services. AsiaInfo holds $285 million of cash, equating to a quick ratio of 2.1, and no debt. Shares of the company are currently trading at forward P/E (fye 31-Dec-11) of 15.70 and PEG Ratio (5 yr expected) of 0.70. The valuation looks quite attractive for a fundamentally sound and rapidly growing company like AsiaInfo. Institutional ownership of 62% is relatively impressive. Any significant dip in the prices should be seen as a good buying opportunity. In terms of stock performance, shares of the company have gained nearly 85% over the past year.

Full Disclosure: None.
Related Posts with Thumbnails

Wikinvest Wire