The Story Behind China Tel Group CHTL.OB and Why Im Long And Strong
Nov 13, 2009 Small Cap Stock Picks
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Heres a great rundown of the CHTL story written up by investor Tobin Smith. Founder of Changewave.com. I have a significant position in CHTL.OB @ .5125
With the initial funding of the first two draws of Olotoa PIPE (Private investment in Public Equity) comes a series of transformational events within CHTL and its 49% JV partnership in CECT-Chinacomm Communications Co. Ltd.
#1 They embark in deploying the LARGEST 4G Wi-Max network in the world. We look for CHTL to VASTLY expand its initial 5 city simultaneous deployment schedule as the demand for TRUE broadband connectivity purely from the Shanghai World Exposition is significantly more than we first projected. Travel and business demand from the 78 million Chinese traveling to Shanghai during the May-October 2010 event creates security/surveillance projects through out the region, not just Shanghai and Beijing. They ALL run on private broadband networks and China simply does not have NEARLY enough bandwidth from its most DSL providers to make this happen. CHTL is literally the only broadband provider that will have the spare capacity to make this happen.
And in light of the problems the PRC has had in its northern provinces, they will NOT be unprepared for the influx of tens of millions into Shanghai. We have intelligence reports from a number of Wi-Max vendors that they expect to see a HUGE wave of Wi-Max demand in the big cities and regions in China.
#2 CHTL’s two wholly owned foreign enterprise subsidiaries (WFE’s pronounced “woofies”) will, from an accounting standpoint, become operational. They will be injected with $50mm each. THIS transforms the company: it means CHTL will start to report its 49% share of Chinacomm revenues, cash flow and operating metrics like customer counts in its Q3 financials.
Again this event is KEY—it will once and for all lift the veil surrounding its operations in China Tel Group and Chinacomm
#3 CHTL gets to finally INVOICE Chinacomm get paid for around $81 MILLION of outstanding invoices to Chinacomm. What most investors do not realize about CHTL is that the $196 million they paid for the 49% share of Chinacomm went to that JV. But until they funded/made operational their WFE’s, the private sponsor of CHTL TrussGroup was fronting the equipment and services for the first part of the Chinacomm network in Beijing.
What investors REALLY don’t understand is IF you look at the 2008 financials you will notice that CHTL expensed all the work it did for Chinacomm in 2008. But they are getting paid for it in 2009…so virtually all the $81 million will be NET MARGIN—CHTL already paid for the equipment.
That means for Q3 2009—which reports in October 2009—CHTL for the first time will get to report its deployment revenues for its Chinacomm contract AND its 49% share of Chinacomm’s Beijing operations…
BTW in Beijing Chinacomm already has nearly 500,000 consumer subs for its Wi-Fi network almost ALL pre-paid and hundreds of commercial and government ministry contracts (I visited a number of the large commercial and ministry installations when I visited Chinacomm in June).
They have NOT been able to add consumers to the network because their network is full. With the additional bandwidth from the brand spanking new Wi-Max deployment, Beijing could be at 1 million subs by year end.
