China Telecom Relatively Immune to Crisis: AsiaInfo Poised to Break Out

 |  Includes: ASIA, FXI, LFT, SNDA
by: John Henderson

With China’s Shanghai Class A equity index trading above its 50 day average since January 15th and with it being within striking distance of its 200 day average, China stands poised to becoming one of the first equity indices most likely to enter into a new bull market in the coming months. We are also beginning to see optimism for China ADRs trading on the NYSE and Nasdaq. While the FXI ETF still needs time before giving a buy signal, individual equities like SNDA, LFT, and ASIA all seem poised to break out over the coming weeks and months.

Current business trends seem particularly robust for AsiaInfo (NASDAQ:ASIA). ASIA’s sales boomed 45% higher in Q4 and business is poised to stay strong throughout 2009 as their three biggest telecom customers increase spending for their 3G networks build-out. China’s telecom industry seems to be relatively immune to the global economic crisis, thanks to the steady development being driven by 3G construction and full service telecom deployments.

ASIA supplies the picks and shovels for this network build-out, counting the top 3 telecom operators as customers. These three telecom operators are expected to spend $58 billion over the next three years, which in turn should allow ASIA to grow its top line by 30% the next two years. Subtracting the $4.5 a share in cash on its balance sheet, ASIA is trading for 12X 2009 numbers and 10x 2010 earnings estimates.

Looking at the chart ASIA seems to be nearing an inflection point on a move through $14. More importantly, a look at the 10-year chart shows that ASIA has been in one extended basing pattern between $8 and $15. When ASIA breaks above $14-15 it will attract fresh institutional money. $15 is an important price point where institutions will begin accumulating shares in a name like ASIA, as they are remiss to do so until this price level for fear of not being able to get out of the stock quickly because it is too illiquid.

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Disclosure: I have a small probing position in ASIA and plan on adding to the position with a move through $14.