Editor's note: The following article was written by Maj Soueidan, the founder of The Markets Edge Hedge Fund and GeoInvesting. Soueidan's "GeoTeam" of researchers and analysts uses fundamental criteria to analyze micro- and small-cap stocks.Telestone Technologies ( TSTC provides 2G and 3G wireless communication access coverage solutions to telecom companies such as China Mobile ( CHL, China Telecom ( CHA - Get Report) and China Unicom ( CHU - Get Report) through its branch offices in China across 26 provinces. A number of factors should support this company's growth. Before we discuss them, however, let's look at what Telestone does. The company: Develops wireless, IP, CATV access network unification solutions technologies (WFDSTM) that are proprietary for carriers or building owners for their local information access network. Designs and manufactures telecommunication equipment used in its access network systems or sold directly to other telecom vendors. Implements its access solutions by installing the network systems at client sites through its nationwide branch offices. Following are important bullish factors for the company and its stock: The Chinese government will spend $70 billion over the next three years on 3G initiatives. This creates both visibility and acceleration in TSTC's business. TSTC has aggressive goals over the next two and a half years to increase its domestic market share from 5% to 33%, indicating that it intends to capture a good deal of government-allotted spending with its new WFDSTM technology. International business accounts for less than 5% of TSTC revenue. TSTC plans to expand its operations in the U.S. and other developed markets with its WFDSTM technologies, while serving those that are underdeveloped and behind the technology curve with its mature 2G technology to extend the life cycle of its 2G products.
Industry Standard?Telestone can address a multitude of wireless and all types of fixed cable lines needs, including those associated with security, phone, TV and computer applications with this new technology. Before 2009, these needs were addressed with separate solutions resulting in higher costs and less efficiency, exacerbated by architectural constraints. The company tackled this dilemma in 2008 and 2009 when it launched its WFDSTM technology.
"As an all-optic network, WFDSTM combines the technologies of ROF (radio over fiber) and its proprietary system components to transmit all kinds of information feeds into a building. This system supports all mobile telecom networks and a variety of other networks including WLAN, FTTH, telephone networks, and video surveillance systems. The benefits of the technology are substantial cost savings over old technologies, low loss in information transmission, easy and quick installation, low intrusion to the construction and minimal maintenance."In simple terms, the WFDSTM platform allows all aspects of a client's wireless and wired needs to be addressed as one comprehensive solution. WFDSTM has become more significant since China began granting third generation (3G) licenses during the first half of 2009. 3G systems put greater technical demands on the communication networks in buildings due to signal strength and frequency -- demands that WFDSTM can handle much more effectively than traditional wired and wireless methods.
Gaining TractionCurrently, TSTC is the only Chinese company offering a WFDSTM type platform. Even as competition enters the market, Telestone has a significant advantage because customers will likely be hesitant to switch to another provider with unproven reliability. Telestone believes that customers will gravitate to its services as the advantages it offers have the huge potential to save time and money.
"During the 2009 2nd quarter reporting period account receivable turnover has improved by nearly 30% when compared to the 1st quarter of 2009.With the formal launch of 3G and an improving accounts receivable outlook, investors may begin take notice of TSTC, especially because the stock is selling at only seven times our implied 2009 conservative EPS guidance, has no long-term debt and sports a book value per share of $5.35.
"While we believe having a good long-term relationship with our clients is very important, we will spend additional efforts on collecting accounts receivables, and expect to perform well in the next half of 2009."