Beijing Gehua CATV Network Co. Ltd. 

Public (SHA: 600037)

Company Facts:

Beijing Gehua CATV Network Co, Ltd. was initiated by Beijing Gehua Culture Development Group, Beijing Youth Newspaper Corporation, Beijing Cable TV Shopping Limited Liability Company, Beijing Broadcasting Development Corporation and Beijing Publishing House in year 1999. The company’s main business focus include construction & development of broadcasting and TV network, receiving and transferring broadcast & TV programme and broadcasting &TV network information services.

The company was exclusively approved by the government of Beijing is in charge of the construction, management and operation of cable TV network for the capital city of China. The company has 3.44 million analog TV customers and 1.9 million digital TV customers. Moreover, the company has moved forward its footprints into digital TV fields by building up strategic alliance with ‘Hair’ in manufacturing digital TV’s top-box business; shareholding digital TV technological companies such as Zhuozhuang Network Co. Ltd.

Financial Review:

Related Companies:

-- Shareholding Company:

Beijing Beiguang Media Digital TV Co. Ltd.

Beijing Shuimu Sunny Media Technology Co. Ltd.

Beijing Zhongguang Net-Media Information Consultant Co. Ltd.

Beijing Beiguang Media & Film Co. Ltd.

Beijing Digital Visual Technology Co. Ltd.

Shenzhen Zhuozhuang Network Technology Co. Ltd.

Beijing Beiguang Media Mobile TV Co. Ltd.

Beijing Jingshi Media Limited Liability Company

-- Holding Company:

Beijing Beiguang Media Investment Development Centre

-- Subsidiaries:

Beijing Shikuan Xinchuang Cable Information Engineering Limited Liability Company

Beijing Gehua Cable Digital Media Co. Ltd.

Zhuozhou Gehua Cable TV Network Co. Ltd.

-- Actual Controller:

Beijing Beiguang Media Group Co. Ltd.

-- Invested by same holding company:

Beijing Guangmei Real Estate Development Co. Ltd.

-- Ultimate Controller:

Government of Beijing

Stock Health:

As on 13 August, 2008

Open: 9.90     High: 10.35   Low: 9.50   Close: 10.23   Vol.: 11,298,650                

Key Stats & Ratios

     Unite: RMB 10,000 Yuan

Daily Stats (last one month):

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Performance Analysis:

The digital TV business is emerging industry in China (mainland) which has relatively less competition; as well as it has great potential in the future along with considerable profit margin. The company aims to build up a digital industrial chain by tracing up-stream and down-stream in related businesses, such as manufacture of digital TV top-box and providing maintenance services for the digital TV network as well as product sales and development.

The company is referred as to the exclusive live cable TV operator for the 2008 Olympic Games. In my opinion, in short term, the profit return is barely seen comparing with the huge amount investment in order to fulfilled the Olympic mission, however, in long term company could see good returns if they accomplish the task successfully, it will improve the world-wide brand reorganization, which will come hand in hand with international investments and opportunities of co-operation, as well as more support from the government policies. Therefore, I would like to suggest investors to pay attention to this stock in middle and long terms.

Personally, I believe that, currently, the digital TV business in China is an industry that has high profit returns but also accompanied by high risks, like any other business.  As the market is yet to mature, competition is relatively less fierce, especially, it is monopoly business which is initiated and financially supported in network construction by the government with objectives to improve the public living standard, the profit margin of the industry is considerably high.

However, the fee policy of digital market is set up by the government and there are immense pressure upon raising the service charge by the company; that means, although RMB 18 Yuan per month’s current charge is much less than it is in Shenzhen that is RMB 28 Yuan per month, or it is in Guangzhou RMB 25 Yuan per month, without permission from the government, the company is not able to increase the service charge.

I would like to throw some lights on the stock performance as well.  As we can see from the above historical stock prices, the stock price slumped about 30% in the past one month. It is partially impacted by the overall stock market depression; more importantly, it shows the market’s worries about the uncertainty of post-Olympic performance of so-called ‘Olympic plate’ stocks. The company has invested heavily before the Olympic Games in order to guarantee its first-class services for the game. While the future benefits yet shown and service charge remains unchanged, the market investors start worrying about the company’s cash flow and capability of sustainable growth.

Nevertheless, I would like to suggest this stock to investors as the company has monopoly advantages in the digital TV industry in Beijing and the business structure of the company is also getting more and more sophisticated thus more risk resistant. Moreover, the current stock price is almost touching the bottom, thus it is the time for interested investors to buy-in. The only thing we need to pay attention is whether the company’s performance would continuously boom after the Olympic Games.

For the short term investors, I would like to suggest wait and watch, as post-Olympic performance of the company is yet uncertain; it is risky to rush in at the moment.  For existing shareholders, I believe that there will be a chance in near future, once the government allows the company to increase the service charge, the overall business performance of the company will be largely improved, thus, having a positive impact on the stock price.