Read carefully this interview: Here's the interview the CEO of CHID gave to WallStreetReporter last month:
«WSR Interview Questions for China Digital Communication Group
WSR: We are speaking today with Yu Xi Sun, President, Director and acting CEO of China Digital Communication Group. Ms. Sun, thank you for joining us today.
For our first question, please describe China Digital’s Business
CHID: China Digital is one of the two largest lithium ion battery component makers in China. We make battery shells and caps for Chinese companies that produce finished batteries and electronic products. The batteries are used in millions of mobile phones, PDAs and other mobile electronic devices. We also manufacture and assemble complete lithium-ion batteries for small portable devices such as iPods although this is still a small part of our business.
This business operates through our wholly owned subsidiary E’Jenie, which is based in Shenzhen adjacent to Hong Kong. We acquired E’Jenie in late 2004 just after China Digital was formed by a group of Chinese investors.
In fiscal year 2005, exclusively from E’Jenie operations, we had revenue of $12.7 million and net income of $2.7 million with EPS of $0.05 per share. We operate in a 65,000 square foot facility in Shenzhen.
The company has been profitable since it was founded in 2002 and now has a work force of 591 people with a capacity of 600,000 battery shells and caps a day.
WSR: What is the near term outlook for this business?
CHID: We believe the future of this business is very strong because we are gaining profitable market share in the world’s fastest growing major market.
China’s mobile electronics business including mobile phones and PDAs is exploding. The 2005 demand for lithium-ion batteries for mobile phones and portable electronic devices was 570 million units, roughly one-quarter of the global market. This was up significantly from 450 million units sold in China in 2004.
In addition, with 10% market share, we currently have the second largest market share of this highly fractured small battery component market and we fully expect our market share to continue growing substantially. So we are benefiting from growth of the market and growth in market share.
I also should mention that we benefit from a number of competitive advantages in terms of product quality, financial stability, an outstanding on time delivery record and a strong R&D team.
WSR: The company has announced the intention to buy two companies in the 3G communications space. Please explain the strategy.
CHID: We have agreements to purchase two companies that make high tech products for the rapidly emerging 3G telecommunications market in China. As you probably know, 3G refers to third generation communications devices representing the next technological evolution in mobile telephones and consumer electronics.
The first of these two companies is UPE Far East Limited, which owns Shenzhen Zhou Tong Power Supply Company, one of China’s leading power suppliers to the domestic market and a pioneer of 3G power supply technologies and equipment. In 2005, Zhou Tong had $5.4 million in revenue and reported net income of $1.85 million.
The second company we are acquiring is Galaxy View International, which owns Sono Digital, a leading supplier of 3G communications technology and equipment. Sono reported 2005 sales of $6 million and net profit of $2 million.
Both of these companies will be a great fit for China Digital and will not only help expand our company significantly but will also significantly expand our market opportunities. As the fastest growing major economy in the world, we believe China’s demand for 3G communications as well as portable electronics will be enormous. China is certain to become the world’s largest wireless society and user of portable electronic products.
WSR: Can you be more specific on how these businesses will impact the results of China Digital? When do you expect to close them?
CHID: With the successful completion of the two acquisitions, we are now projecting revenue of $30 million and net income of $10 million or $0.13 per fully diluted share. We expect to close both acquisitions during the summer.
WSR: As a Chinese company, why did you list on the OTCBB?
CHID: The American listing is valuable to us in China. It provides us with credibility in dealing with other Chinese companies and helps distinguish us from other companies that we are competing with. It makes us more attractive to potential acquisition candidates and also exposes us to new sources of capital as we build our business in the rapidly growing Chinese market.
WSR: Please discuss your plan to purchase shares in the open market.
CHID: I have now announced my intention to purchase up to 1 million shares of the company in the open market between April 20 and June 20. This is because I believe that our stock does not currently reflect the true value of our company. We are trading at only 10 times trailing EPS. Even at a multiple of 20 times our already reported $0.05 a share, this suggests we are substantially undervalued even without the acquisitions. You can make your own judgment of a proper valuation when we reach $.10 a share with an even higher run rate by year-end.
WSR: What are your plans for the future?
CHID: We have a number of new products in our development pipeline as we continue building the E’Jenie brand in China’s secondary battery market. We have an aggressive acquisition strategy in the area of profitable telecommunications equipment manufacturers. And we continue to develop our international distribution channels that will enable us to expand sales outside of China.
WSR: Why should the investment community be interested in China Digital as a long-term investment?
CHID: China Digital is exceptionally well positioned to benefit from China’s growth over the next 10 years or more. We will continue to build and strengthen the E’Jenie battery brand as we seek to become the price leader in international markets. We have already sold a small test order of batteries for iPods to a U.S. retail consumer electronics chain and we expect that to lead to new business. In the meantime, China’s market for rechargeables is worth $500 million and is growing at a 20% annual rate.
Through acquisitions, we will gradually diversify into the telecommunications industry, which had revenues of $121 billion in 2003 and is expected to grow 23% a year in the next five years.»
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