Feb. 18, 2010 (Judy Zhang) CONCLUSIONIt’s very difficult from an analyst’s viewpoint to connect CHTL ‘dots’ when it should be transparently and intuitively obvious to potential investors.
$1.33 BILLION POST-FUNDING VALUATION for CHTL China Tel (OTC:CHTL) appears to be valued at $1.33bb post-funding, after receiving $640mm in in four installments by June 1, 2010, for 48% ownership
Background: February 9, 2010 press release: ChinaTel (OTC:CHTL) Closes US$640 Million in Equity Investments at $3 Per Share, Feb 9, 2009
VALUATION
However, CHTL is valued today at $200mm. If the post funding enterprise is valued at $1.33bb then that it implies that the other 52% of CHTL is valued at $690mm, not $200mm. Something appears wrong with this picture. Consider CHTL’s pre-funding financials
FINANCIALS
Negative net worth of $80mm and $18,000 cash in the bank http://finance.yahoo.com/q/bs?s=CHTL.OB
$16mm loss on $259,000 of revenue for the quarter ended Sept 30, 2009 http://finance.yahoo.com/q/is?s=CHTL.OB
FUNDERS
according to documents filed with the SEC Excel Era Limited, over $200 billion under management, Isaac Organization, with $5 billion worth of projects under management across a family of funds.
BUSINESS MODEL ISSUES
(1) CHTL says it has leased 10,500 miles of leased (not owned) fiber optic network in China from which it plans to deploy wireless access.
In our opinion, if they want to compete with the big carriers, they'll need to deploy far more base stations than the big carriers especially if they use 3.5 GHz WiMax, which is what CHTL publically says it is deploying. The cost of building cell sites and leasing bandwidth for backhaul represents a prohibitive cost disadvantage to any operator aspiring to compete with mobile carriers operating at 1.9 GHz.
“ChinaTel (OTC:CHTL) is presently building, deploying and operating networks in Asia and South America:3.5GHz wireless broadband telecommunications network in 29 cities across the People's Republic of China (PRC) with and for CECT-Chinacomm Communications Co., Ltd., a PRC company that holds a license to build the high speed wireless broadband telecommunications network.”
(2) Today's mobile systems are all macro-cellular operating at 900 MHz and 1.9 GHz rather than 3.5GHz micro-cellular, which is what CHTL appears to be implementing. 3.5 GHz is simply not 'beachfront property' for mobile communications and dictates small cells with near line-of-sight access to the base station.
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