Reiterate BUY rating at fair value estimate of S$0.23. In view of the current economic focus of the PRC, we remain bullish of the potential developments of the telecommunication industry. However, the peers of Sinotel have provided indicative insight on the performance of related players. Hence, despite posting healthy growth, we are conservative and cautious, as the Group’s profitability is highly dependent on their ability to secure related contracts and projects. We maintain our BUY rating with a revised fair value estimate of $0.23, from a peg of 2.51x, based on its 52-week PE range, to FY2009’s earnings. Sinotel’s larger peers are trading on an average of 3.7x PE.

Growth delivered in earnings for FY2008. The Group announced growth in revenue of 35.88%, from RMB 266.48 million in FY2007 to RMB 362.08 million in FY2008; and registering growth in net profit after income tax of 29.65%, from RMB 85.38 million in FY2007 to RMB 107.36 million in FY2008. The Group attributes the growth in revenue to the increase in contribution from their “Wireless Network Solutions” and the revival of their “Distribution Solutions” from the commencement of sales of 3G network cards in July 2008. The Group’s expenses (as percentage of sales) fell by 0.01ppts from 0.14% in FY2007 to 0.13% in FY2008.

Profit margins declined. Despite earnings growth, the Group’s gross profit margin fell by -4.31ppts from 44.77% in FY2007 to 40.46% in FY2008; while net profit margins fell by -2.39ppts from 32.04% in FY2007 to 29.65% in FY2008. The decline in profit margins was brought about by the change in product mix, as their System Integration Services and Emergency Mobile Base Station (“EMBS”) are of lower margins.

Additional monetary boost for the telecommunications industry in PRC. The Beijing Government in the PRC awarded the long-awaited 3G licences to the telecommunications operator on 7 January 2009. In addition, the Ministry of Industry and Information Technology in the PRC has expressed the Chinese Government’s intention to spend close to RMB 280 billion on 3G upgrading networks in the next three (3) years, inclusive of the RMB 150 billion to be spent in 2009.