TSTC not sure if posted ROTH Notes...
2011-01-25 Roth Capital Reiteration Buy $18.00
A typical wireless coverage system integration project consists of two major milestones, hardware installation and signal connection. Carriers inspect and sign contracts with system integrators upon the completion of hardware installations, at which time system integrators recognize the contract value as revenue. Carriers typically engage multiple system integrators to cover multiple projects in a geographic region, and inspect each milestone in totality. For example, China Unicom in Shijiazhuang conducts its annual inspection at the end of the year, only when all system integrators in the city achieved the same milestone. As revenue recognition is contingent upon not only the carriers' inspection schedules, but also the progress of other projects in the region, it's reasonable for TSTC to have long DSOs and volatile revenue at year end.
We are satisfied with the explanations provided by TSTC and the telecom carriers regarding the company's long DSOs, which are caused by the time lag between hardware and signal connection inspections and carriers' internal payment flow.
Time lag between hardware and signal connection inspections – As the timing of signal testing depends on the schedules of telecom carriers and installers, rather than the work pace of TSTC, it's not uncommon to have a six-to-twelve month gap between the completion of hardware installation and the actual signal testing. China Telecom Tianjing is a case in point that signal testing has not yet been done for hardware installed in late 2009.
Carrier payment schedule - While schedules vary by carrier and city, telecom carriers typically pay 20-30%, 70-60%, and 10% (or 70%, 20% and 10%) for a contract after the satisfactory inspections of hardware installation, connectivity testing, and fulfillment of a one year warranty. For each contract, a carrier recognizes accounts payable proportionately after hardware and connectivity inspections; which explains why there is no A/P over 360 days for the carriers while TSTC has DSOs over 360 days. It takes approx 1-2 months after the completion of each phase for the carriers to channel payments from their provincial branches to the city level branches, which another 2-3 months for the service providers to receive payments from the city level branches.
Expect DSOs improvement – Telecom carriers recognize the inefficiency of the inspections that create large backlog for system integrators. The two carriers that we talked to both mentioned plans to systematically shorten the inspection period between hardware installation and signal connections. The three branches of TSTC expect significant payment improvement in 2011, especially from China Mobile and China Telecom.
2011-01-18 Roth Capital Reiteration Buy $18.00
We reiterate our BUY rating and $18.00 PT, based on a 7.6x multiple applied to our FY11 estimate of $ 2.36, a discount to the peer group in China and Hong Kong. We urge investors to take advantage of the mis-information in the market place as a buying opportunity.
2010-12-06 Roth Capital Reiteration Buy $18.00
We maintain our BUY rating but increase our PT from $15.00 to $18.00, based on a 7.6x multiple applied to our FY11 estimate of $ 2.36, a discount to the peer group in China and Hong Kong.
