Reader's stock pick: Chinese distributor moving in new direction

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Includes: INTN, JOBS
by: Ezra Marbach

At the China Stock Blog, we regularly receive stock recommendations from readers. You can view readers' picks in the folder on the left side of your screen entitled "Readers' Stock Picks". This week's pick has particular implications for investors in 51Job (ticker: JOBS), a Chinese online recruitment and human resource services company. (Feel free to e-mail us with any of your picks. Please make sure to include an explanation for your recommendation.) For this week's pick, please hit continue:


This week’s reader recommendation is:
Intac International (ticker: INTN)

Intac International is a US-based holding company focused on business opportunities in China and the Asia-Pacific Rim. The Company's principal operations involve distributing wireless handset products to
mobile communications equipment wholesalers, agents, retailers and
other distributors mainly in Hong Kong. These products are then sold
primarily to customers in Hong Kong and Mainland China. The Company has offices in China, Germany and the US.

Stock information:
Share price: $12.33 (as of March 17, 2005)
Float: 7.4 million
Shares outstanding: 21.1 million
Market Capitalization: $260 million
52 week high: $19.18
52 week low: $6.25

You can access the latest 10-K for the period ending December 31,2004, here.

Business operations:

  • The company's business activities were mainly focused on distribution opportunities in the wireless handset market.
  • But new challenges for traditional wireless equipment distributors have changed the landscape including Increasing numbers of equipment manufacturers, models, lack of brand loyalty, price volatility etc.

INTN shifting business focus:

  • Though it will continue to derive substantially all of its revenue from its
    wireless handheld distribution segment, the company is changing strategic direction.
  • INTN is increasingly engaged in the Chinese career development service market.

Market opportunity:

  • There are more than 500,000
    elementary and middle schools in China, with more than 200 million
    students.
  • There are
    approximately 1,700 universities with almost 14 million students
    in China.
  • Demand for higher education is rising quickly.
  • Some 3.4 million students will enter the job market
    in 2005.

INTN intends to address the career development services market:

  • INTN formed an Internet joint venture called Intac Purun.
  • Intac Purun was formed in October 2003 with EMIC, an entity affiliated with the Ministry of Education of The
    People's Republic of China.
  • Intac Purun is developing its Internet portal to provide employment information on its website to
    facilitate students' job search and future career development.
  • The Ministry of Education has established a database of more than
    3.3 million graduates which has been made available exclusively to
    Intac Purun.
  • In December 2004, INTN acquired a Chinese developer of management
    software for educational institution administration. Huana Xinlong has products distributed and
    installed in more than 5,000 elementary and middle schools in 12
    Chinese provinces.
  • INTN has a real-time communication solution combining Internet and wireless
    technologies that fulfills the instant and interactive
    communication needs of teachers and parents.
  • Parents
    can receive frequent updates on their children via SMS, and Interactive Voice Recognition (NYSE:IVR) services
    on their mobile handsets, or over Intac Purun's Internet portal joyba.com.
  • Teachers can exchange questions, comments and
    feedback with parents over the same platform.

According to the company’s 10-K, INTN has:

  • Exclusive access to the Ministry of Education's student databases.
  • Exclusive authority to set up and operate local career service centers.

Q4 2004 results:
(all percentage changes and comparisons are year on year)

Revenue:

  • Total revenue increased from $24.9 million to $50.8 million.
  • Distribution revenue increased from $24.9 to $46.6 million.
  • Career development revenue increased from zero to $4.2 million.

Operating income:

  • Total operating income increased from a loss of $209,409, to +$5.5 million.
  • Operating income from distribution services increased from a loss of $75,893, to +$3.6 million.
  • Operating income from career development services increased from a loss of $133,516, to +$1.9 million.

Net income:

  • Total net income increased from a loss of $145,975, to +$4.8 million.
  • Net income from distribution services increased from a loss of $80,166, to +$2.9 million.
  • Net income from career development services increased from a loss of $65,809, to +$1.9 million

Wei Zhou, Chairman
and CEO
:

    ....2004 was a defining year for INTAC's new career development service
business segment, capped by an outstanding fourth quarter.  We are delighted
with the strong results we achieved with our career development services.  The
success of the strategic shift to the more lucrative career development
services has validated our 14 months of hard work. Our strong partnership with the Ministry of Education has
been a key success factor in our business redirection.  We anticipate our
career development services revenue and income to increase substantially in
2005 and to create significant shareholder value for our investors.

In 2005, we expect continued strong growth in the market for educational
services in China. Our career development services are
showing excellent momentum as we roll-out some very promising services in the
first quarter of 2005, like the Family School Link Communication System, our
management career training services, as well as HR and recruiting services
delivered through our Internet portals http://www.PHRBank.com and
http://www.Joyba.com .  As a result, we expect to continue expanding INTAC's
service and product portfolio and marketing programs, as well as expansion of
our student database to a number of up to 15 million students in 2005.  With
the effective execution of our M&A and partnership strategies, we believe that
2005 will be an outstanding year for INTAC's evolution to become an integrated
education company serving to empower China's educational future and
infrastructure.

Reader's comment: The company has stated that it is winding down its wireless handset distribution business to concentrate on its educational development portal called Intac Puran Educational Development Ltd.  This is a joint venture with the Education Management Information Center (“EMIC