.comment-link {margin-left:.6em;}

Wednesday, December 20, 2006

China Expert Technologies (CXTI) yet another two big wins

CXTI (combined links) just keeps winning contracts. Here are the actual contracts.

This time it's two more areas of Fuzhou City (population 6.6 million), capital of Fujian province.

Mawei District: $25 million ($21.7 million after hardware purchases and value added tax), $0.9 million consultant fee.

Yongtai County: $32 million ($28.5 million after hardware purchases and value added tax), $1.5 million consultant fee.

So far for Fuzhou City, here are the districts/counties (see here):
Cangshan District (got it)
Minqing County (got it)
Mawei District (got it)
Yongtai County (got it)
Pingtan County (got it)
Gulou District
Taijiang District
Jin'an District
Fuqing City
Changle City
Minhou County
Lianjiang County
Luoyuan County

Also, CXTI is winning contracts in Quanzhou, also in Fujian province.
Dehua County (got it)
Quangang District (got it)
Nan'an City (got it)
Hui'an County (got it)
Licheng District (got it)
Shishi City (got it)
Jinjiang City (got it)
Fengze District
Luojiang District
Anxi County
Yongchun County
Jinmen County
Ning Bo City, in Zhejiang province
Yinzhou District (got it) local government website in English, map, 750K population
Haishu District
Jiangdong District
Jiangbei District
Beilun District
Zhenhai District
Yuyao City
Cixi City
Fenghua City
Xiangshan County
Ninghai County

Once again I'll note that the entire province of Fujian has selected CXTI's Jinjiang City e-government system as a model for 82 cities in Fujian, which if I understand correctly, is pretty much the entire province. So far, CXTI has officially landed only 12 of them. 70 more to go. Plus there are other provinces such as Zhejiang.

CXTI stock today went up as high as $6.00 per share. I'm definitely going to need to figure out a closer lower bound on the value of the stock.

Can you tell me when they won the province of Fujian?

The math that I've done indicates that each of these deals are worth $18 million each on average. Do you know if this is a reasonable assumption of revenue generation going forward? If so, my math tells me that they're in line for over $1 billion in additional contracts in addition to the $250+ million they secured this year. If Yahoo is correct and CXTI is going to grow at an average of 50%/year for the next 5 years, and they're trading at a P/E of less than 12, a PEG of .36 and a P/S of around 1 currently. Do you believe that this growth rate is viable? Lastly, Zhejiang is another possible province they could win. Do you know what the size is of Zhejiang as compared to the province of Fujian, in terms of potential revenues? If the assumptions I've presented so far are accurate, this company is a huge value even at $6+. Any help you can provide would be greatly appreciated.
I wouldn't make any assumptions about revenue going forward. Who knows when other cities may want to start up their own e-government systems. Growing at 50% per year for five years would be quite a feat especially considering that skilled labor would need to scale at the same rate. It's not like making widgets where your skilled labor might scale at a lower rate than revenues.

There are a lot of uncertainties with any business. The future potential business of CXTI is almost unlimited compared to their current size. The question is how much of that they'll actually capture and how well the business can scale up. A lot of companies go bad when they grow a great deal. A lot depends on the quality of management.

CXTI could become the EDS of China. But the key word in that sentence is "could".
Bruce, thanks for your detailed analysis on CXTI.

I don't have much to comment on the financing part, but just to comment on Zhejiang and Fujian since I am a Chinese. Zhejiang and Fujian are both in the south east coast, and next to each other. They are rich provinces in China. They are more of leading provinces in capitalism in China.

Another thing that is more of my guess is that it maybe difficult for CXTI to go beyond Fujian, since the Zhejiang contract is fairy small. It maybe CXTI choose to focus on Fujian since it is a small company and may not be able to afford that many projects at the same time. But if the central goverment wants the provinces to go e-Gov, Zhejiang or another province isn't going to wait until CXTI is done with Fujian. The officials need to show progresses to move up the chain in their careers.
I noticed that for these two contracts signed on Dec 20, and the other two signed on Dec 14, CXTI will pay consulting fees within 20 days. I guess that may push the payment after the new year so they don't impact Q4 cash flow. On contrast, the one signed on Dec 4 will be paied within 10 days. What do you think?

Also, I found that starting on Nov14, 06 CXTI is paying consultants with cash while it has been paying with stock shares earlier. Is that a good sign?

I wonder what you think of the new CFO Simon Fu. He had a 15 yr experience as a financial controller with another co. There is a note in the Co's
Sept 06 presentation that the new CFO won't let bad financing deals happen in his watch. Do you feel from a financial control point of view that CXTI is doing better than when it was under the old CFO?

Thanks in advance!
Responding to the 10:17 comment of Jan 14, 2007,

I knew about those provinces being wealthy and leading the charge for development.

I agree that going beyond Fujian might be difficult. But given their success, I'd say they will probably compete very well for business outside of Fujian. The contract for Zhejiang is small, but it's only for the early phases, see here

I'm not sure CXTI can expand much faster. It's difficult to grow that sort of organization very quickly.
Responding to the 10:47 comment of Jan 14, 2007,

In either case with the contractor payment, there would/should be a liability for the future payment. I would guess that it would be amortized over the duration of the contract, but I'm not sure. If so, it doesn't matter when the contractor gets paid.

Paying with cash now makes sense because they have a lot more cash than they did and they're tired of diluting the stock.

I don't know what to think about the new CFO vs the old CFO. I don't think CXTI had much choice with financing deals in 2005. But today they really don't need toxic convertibles and bad deals with their stock high and investors clamoring for the company. For the CFO to say that, it's just an easy way to score points with the investment community.
Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?