Our Profile
Chairman's MessageBusiness Review In spite of what began as a US housing slump having developed into a worldwide economic downturn, 2008 proved to be a challenging but remarkable year for Sinotel. Fueled by China's rapid urbanization plans, we were able to capitalise on growing infrastructure needs and produced robust growth in our core business, the wireless network division. The Group recorded stellar financial results for FY2008 compared to the previous year. The Group achieved an increase in both revenue and net profit after tax of 35.9% and 25.7% respectively, raising our net profit after tax to RMB107.4 million. State owned telecommunication giants ("Telcos"), China Mobile and China Unicom, continued to be our main customers. Sinotel has been instrumental in many of their network expansion and optimization projects. We have come a long way from our humble beginnings six years ago of being merely a handset distributor to today's formidable wireless telecommunications solutions company with a reputation for providing reliable services and supplying quality telecommunication products and solutions. Leveraging on our strong track record, we were able to penetrate into neighboring provinces and clinched numerous contracts in Hebei province in 2008. We have also seen a healthy increase in the system integrations business. These assignments brought us closer to our customers as our team worked closely with senior counterparts from the Telcos to develop customised and integrated solutions for their networks. With credit to our strong business development and R&D team, the Group ventured into two new business segments last year. We embarked on the Emergency Mobile Communication System ("EMCS") project to design and set up mobile communication system that would boost and provide network coverage to trouble stricken areas or places with high capacity demands. We are confident that this business segment will continue to grow in the wake of heightening global emergency preparedness for civil disasters. Knowing that there will be a potential demand for wireless high speed internet access when Third Generation ("3G") networks are eventually launched, we started producing and marketing 3G internet cards in collaboration with our partner China Unicom. A trial in Tianjin province initiated in July 2008 yielded promising results. We expect the demand for network cards to further intensify when China's 3G networks mature in tandem with users desire to stay connected.
Industry Outlook and Future Plans Urbanization Will Continue To Stimulate Growth China continues to dominate as the world's largest population of mobile users. The aggregate number of users has risen steadily above 20% per annum since 2005. In the first nine months of 2008, this rate jumped to 23%, with the number of mobile users surpassing 700 million. Given China's low mobile user penetration rate of only 47.3%, we believe that this trend will continue to rise. Sinotel, a leading integrated connectivity provider in the wireless mobile telecommunication industry in the PRC, will be at the forefront to benefit from this organic development.
With the Telcos having almost completed the industry-wide restructuring exercise, we expect to see China Telecom, a newcomer in the wireless mobile arena, compete more aggressively to catch up with leading players, China Mobile and China Unicom. China Telecom had recently purchased China Unicom's Code Division Multiple Access ("CDMA") network that comes with merely 29 million subscribers. On the other hand, China Mobile and China Unicom each have 463 million and 134 million subscribers respectively. China Telecom has declared that they will invest up to RMB80 billion to shore up its CDMA network in a bid to attract 100 million subscribers over the next three years. After relinquishing its more advanced CDMA business to China Telecom, China Unicom retains an older GSM (Global System for Mobile Communications) platform which has to be upgraded. With the introduction of a new player into the wireless mobile industry and the urgency of upgrading GSM network, it is likely to stimulate further investment from the three Telcos and therefore we foresee more opportunities for Sinotel in the coming year.
The PRC government finally endorsed the official launch of 3G networks on 7 January 2009. It was very exciting and promising news for the telecommunications industry in the PRC. As a result, we expect the demand for upgrading of 3G infrastructure networks to increase significantly in the near future. China's Ministry of Industry and Information Technology (MIIT) estimates that the three Telcos will spend up to RMB280 billion on the upgrading of 3G networks over the next two years. With our long history and good working relationship with the Telcos, we believe Sinotel will benefit from the infrastructure upgrade and expansion as China's telecommunications industry enters into the 3G era. The faster 3G data transfer speeds will also pave the way for future business opportunities post 3G roll-out. We expect to see more media-rich value added services such as video streaming, content downloads, video calls and outdoor internet surfing. Sinotel is one of the pioneers to develop and distribute the 3G network card in collaboration with China Unicom that allow users to connect to the internet even in outdoor environments. With the increasing use of internet in our daily routines, we are confident of the prospects for this business segment.
Last but not least, I would like to use this opportunity to thank our shareholders, business partners, directors and our employees for their undivided dedication and continuous support. 2008 was a year of remarkable growth for Sinotel and I look forward to another year of tremendous opportunities. In addition, I would like to express my appreciation to our valued customers who have given us the opportunity to be of service to them, without whom, Sinotel would not be what it is today. We will continue to create value for our customers, provide a superior working environment for our employees and endeavour to produce sustainable growth so as to maximize shareholders' value.
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