HengXin Technology

HengXin Technology is a relatively new listed company in SGX. HengXin core business is in the manufacturing of radio frequency coaxial cables for mobile and telecommunications equipments in the PRC. HengXin Technology has a strong research and development base. Its strategic location allows the company to tap into the raw talents from Shanghai Cable Research Institute and Zhejiang University, Electronics Information Technology and System Analysis Institute to help improve and innovate new products for the company. So far, the company holds 3 patents and 5 pending patents from the 27 products they have developed. This is an impressive figure.
Coaxial cables find its many uses in (1) Outdoor wireless mobile signal coverage, (2) Indoor wireless mobile signal coverage, (3) Wireless mobile coverage in underground railways and tunnels, (3) Cable television network systems and (4) Broadband network access.

Hengxin Technology recently announced that they were awarded a contract worth 119 RMB million from China Mobile Communications Group Corporation and completion is expected by 30 Sept 2006. The contract involves supplying RF frequency coaxial cables of about 3100 kilometres and telecommunciations equipments to 31 cities and provinces in China. By no means, a huge contract to Hengxin Technology and demostrates its executionary capabilities. A side track is that 30,000 kilometres is the annual production capability of HengXin, which is around 10% for this contract alone.

HengXin Technology as noted by its directors are relatively able to buffer any flucuations in copper prices as they can easily passed on the cost to their customers. This to me is rather dubious.

Looking forward, HengXin Technology aims to get a slice of the huge mobile communications pie with the would be implementing 3G network in China. Currently, mobile penetration is only 30%. Hengxin Technology’s comprehensive sales and distribution network has helped to attract and maintain its wide customer base comprising major telecommunications companies in the PRC including 24 out of 30 branches of China Unicom, and 20 of 31 subsidiaries of China Mobile; seven major telecommunications equipment manufacturers such as Huawei Technologies Co., Ltd and ZTE Corporation; as well as 10 provincial cable television networks in the PRC.

HengXin Technology is going for vertical integration.The Group intends to expand its product range to include accessories like connectors and antennas. Plans are underway for the Group to commence production of connectors for RF coaxial cables by 4Q2006.

At current share prices of 0.51, HengXin Technology is trading at around single digit 9x FY06 PE. HengXin closest peer Andrew Corp is trading at around 25x.

Based on my DCF discount model, I derived a fair value of S$0.69 for HengXin Technology. This represents a cool 35% discount from current share price of S$0.51.


Cheers
Niversphere.

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Please read the prospectus and perform your analysis before making any investment decision. The above does not constitute a recommendation to apply for this company. I will not be liable for any losses incurred by anyone who invests based solely on the above-mentioned information