Wireless Coverage Company China GrenTech Files for IPO (GRRF)

| About: China Grentech (GRRF)
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China GrenTech (NASDAQ:GRRF), a developer of wireless coverage and RF products for the Chinese market, filed to go public. GRRF plans to offer 6.25 million ADSs with a range of $14 to $16. The underwriters on the deal include Bear Stearns, Piper Jaffray and WR Hambrecht.

Financial Highlights:

  • Revenues: Increased from RMB 360.8 million in 2003 to RMB 566.5 million in 2004 and RMB 716.3 million (US$88.8 million) in 2005
  • Gross Profit: Increased from RMB 219.8 million in 2003 to RMB 324.6 million in 2004 and RMB 388.2 million (US$48.1 million) in 2005.
  • Net Income: In 2003, 2004 and 2005 was RMB 148.8 million, RMB 146.6 million and RMB 181.4 million (US$22.5 million), respectively.
  • Operating Income: Increased from RMB 155.5 million in 2003 to RMB 207.5 million in 2004 and RMB 225.0 million (US$27.9 million) in 2005, with operating income margins of 43.1%, 36.7% and 31.4% in 2003, 2004 and 2005, respectively.
  • Customers: In 2005, China Unicom made up 45.1% of the company's customer base, China Mobile 33.8%, China Telecom 9.7%, and China Netcom 5.1% and Others 6.3%.
  • In the company's prospectus, they address the market for wireless coverage in China:

    In recent years, wireless coverage market in China has benefited from increased capital expenditures by PRC wireless operators. According to the CCID Report, total spending by the China Mobile group and the China Unicom group on wireless coverage projects increased from RMB 3.9 billion in 1999 to RMB 6.1 billion in 2004.

    Additionally, the CCID Report forecasts that the aggregate wireless network coverage capital expenditure by the four largest telecommunication operators in China, the China Mobile group, the China Unicom group, the China Telecom group and the China Netcom group, will reach RMB 8.5 billion (US$1.1 billion) in 2005, RMB 12.0 billion in 2006, RMB 14.5 billion in 2007 and RMB 15.4 billion in 2008.

    We believe that the market for wireless coverage equipment will continue to grow in China for the following reasons:

    • Rapid growth in the number of wireless communication users in China will drive wireless operators to expand their network capacity and increase their investment in the maintenance and enhancement of their networks.

    • The increased competition in China’s wireless communication market has put increasing pressure on carriers to improve the quality and coverage breadth of their networks in order to keep existing subscribers and attract new subscribers.

    • The existence of several different transmission protocols, such as CDMA, PHS, GSM and digital trunk communication systems, and the potential addition of new 3G technologies such as WCDMA, CDMA2000 and TD-SCDMA, are expected to expand the need for wireless coverage equipment that is compatible with these new protocols.

    • The PRC government is expected to issue 3G licenses in 2006. We expect 3G networks to require greater deployment of network coverage equipment than existing 2G networks because of the technological requirements of 3G base stations. As compared to comparable 2G base stations, 3G base stations must be located nearer to each other. Due to the higher cost of deploying a base station versus deploying wireless coverage equipment, wireless operators are likely to often deploy wireless coverage equipment to extend the reach of their 3G networks.