As a subsidiary of China Telecom Group, Comservice is almost guaranteed future growth on its business. However the question is ‘at what price’. The relationship can not guarantee Comservice good prices on its products and services and we are seeing dropping margins for years. If Comservice were an independent supplier that had already achieved magnificent market shares, we would expect that the margins would at least be stable in the prosperous telecom industry. However the kin relationship makes things unpredictable since transfer pricing is always the trickiest part of group accounting. In our forecasts, we have no choice but assume the downward trend will continue at a slow rate. This would be our best guess regarding the margins for now.
The acquisition of CITCC and the businesses of specialized telecommunications support services in 13 provinces sustains the sales growth, and now the company is operating in 19 provinces and expanding to overseas markets. We are also glad to see the decreasing proportion of revenue from the major three operators, namely China Telecom, China Mobile and China Unicom. The diversification reduces the dependence on major operators and increases its bargain power.
The revenue growth is close to our forecast while the decrease of margins is much higher serious than expected. We adjust downward profit forecasts and 12 months target price. The rating is still “Buy” due to dropping stock price since the day of last report.
相关研究报告下载： [attach]6583[/attach]
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发表于 2008-9-24 17:11
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