Key Data

Stock Code: 74

52 Week H/L: $8.90/$2.70

Current Price: $8.2

No. of Shares: 453,872,000 (H Shares)

Market Cap: 3,721M

PE: 99/ 22.7x 00/16x

EPS: 99/$0.275 00/$0.388

Recommendation: Buy

12 month Target: $12

Great Wall Broadband Network Service Co. Ltd.

Summary

It is a newly established Internet Service Provider (ISP) by Great Wall Technology Company Ltd. (74) to develop broadband network infrastructure for internet users in China. Operating license acquired in March 2000.

GWBN plans to invest 300 million RMB in the first half year and then expanded to 5.2 billion in 5 year¡¦s time in setting up the broadband infrastructural community facilities. Coverage will be started from city districts and suburbs, then to nationwide.

Infrastructural networks comprised

1) Backbone lines (bandwidth 2.5G/40G) which to be leased from main carriers

such as

a) China Telecom

b) China Netcom

c) Unicom

d) Citic Group

2) City network(bandwidth 1G/10G) which will be in cooperation with local

governments, cable TV operators and power companies.

3) Community network(bandwidth 10/100M) to be developed by GWBN or

in conjunction with property developers in terms of building the optical fibre into

households in mass residential areas.

Bank loan and project revenue like monthly charges $100/month and a one-time installation fee of $500/registered user will finance the investment.

Figures

A five-year forecast for home users set as follows:

Year

Registered household(¡¥000)

Network household coverage(¡¥000)

1^st

250

1,000

2^nd

1,000

3,000

3^rd

2,500

5,000

4^th

4,250

7,250

5^th

6,000

10,000

A four-year financial analysis projected as below:

Year

Profit/(Loss)(M)RMB

Revenue(M)RMB

1^st

(65.94)

238

16^th month*

0

400

2^nd

413.8

1,266

3^rd

1,342

3,030

4^th

1,261

3,180

* The project is expected to break-even at 16^th month after initially implemented.

Opinion

GWT has been an IT forerunner in China since its foundation in mid 80s. The formation of GWBN represents that the group is advancing into the fibre optic market on top of strong hardware, software integrated development. The group¡¦s fibre optical products include optical isolators, amplifiers and switches coupled with the launch of broadband network could become another major source of earnings in the future.

The group is now signing agreement with some municipalities in major cities such as Beijing, Shanghai, Shengzhen, Chengdu, Kunmimg and Wuhan etc. to launch broadband transmission network for internet users in the respects of web-site browsing, distant learning and end to end e-commerce.

GWT has sound profit earning potentials and strong balance-sheet with a PE only 22x in 99 and expected for 00 is 16x, which is enormously lower than competitor Legend group. Therefore we recommended buy for its attractive valuation and target above $12 this year.