Lo Fui Chu was recently promoted to be an executive director of Sinotel in addition to her Chief Financial Officer role. Photo by Leong Chan Teik
ACCOUNTANTS are also known as 'bean counters'. For Lo Fui Chu, the chief financial officer of a SGX-listed company, Sinotel Technologies, cocoa beans figured in her growing-up years. She remembers days spent picking up harvested cocoa beans and carrying them to lorries on her parents’ cocoa plantation in Sabah, Malaysia.
That experience, of course, has nothing to do with her subsequent choice of profession. “I liked math in school – my scores were at the top end of my class,” she says in an interview with NextInsight.
Her math prowess is reflected in her achieving the Malaysia Golden Medal in Accounting for being among the top 3 students for a subject in her London Chamber of Commerce and Industry diploma course in Kuala Lumpur.
After stints as an auditor in KPMG Peat Marwick in Sabah and as a tax management accountant in Borneo Samudera - which is a government entity that owned oil palm plantations - she came to Singapore in 2000.
She was an audit senior at KPMG (Singapore) before moving on to various jobs including CFO of Asia Silk Holdings, a SGX-listed company which she quit after a year because of the required traveling to the company’s remote operations in China.
With Sinotel, it’s different. Its headquarters is in the heart of Beijing, and she relishes her work trips there, which last for three or four weeks each time.
She joined Sinotel in April 2007, and oversees its finance department. On her work, she said: “The key thing is, working capital is the major resource we need. So we have to interact with banks frequently and proactively.”
She adds: “Another thing I do is to review contracts, check accounting records and work with my team.”
She also trains her staff, who range from fresh graduates to senior staff in their late 40s. Some are older than Ms Lo, who is 37. There are 10 finance staff in Beijing and 5 in Shanxi province.
Outside of work, Ms Lo loves traveling (“I love New Zealand the most”). She has just returned from a driving holiday in Italy with a friend. And she has just returned to the good news that she had been promoted from June 1 to being an executive director of Sinotel (in addition to her role as CFO).
The announcement of her promotion had a footnote saying that Ms Lo owns 2 million shares of Sinotel, up substantially from the 300,000 she had when the company was listed in Nov 2007.
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Ben Ng, Sinotel’s Vice-President for Corporate Communications and Investor Relations. File photo by Sim Kih
Sinotel at historical PE of 2.98
Sinotel provides a wide range of customized applications and solutions across the telecommunication value chain. Sinotel's main customers are China Mobile and China Unicom - two of the three state-owned telcos in China.
The share price of Sinotel climbed over 54.8% (from about S$0.155 to S$0.24) within a month. At the current price, Sinotel is trading at a historical PE of 2.98x and a PB of 0.85. Based on Dec 08 figures, Sinotel has a pre-tax operating margin of around 29.1% and had generated an ROA and ROE of 25.0% and 33.0%, respectively, in 2008.
NextInsight had a Q&A session with Lo Fui Chu and Ben Ng, Sinotel’s Vice-President for Corporate Communications and Investor Relations:
Q: Given the corporate governance concerns surrounding S chips in general, what would you say about the level of corporate governance of Sinotel?
Ben: We hold that transparency is very important. We have been giving regular updates consistently. Almost every other month, we make an effort to update investors on either our order book, new contracts secured, significant industry news, or changes to our shareholding structure. We also keep in close contact with analysts and they really know the company well. Investors sometimes call me or the analysts to understand our business better.
Since listing, we have conducted numerous roadshows in Hong Kong and Singapore. More recently, we participated in two of Financial PR’s events here and in Hong Kong which were conducted for fund managers and analysts. Both events were very well received. And now, we are in the midst of organizing a company visit for analysts to see our operations in Henan. Next month, you will also see our presence in the Asian Investment Conference and Exhibition (AICE) organized by SIAS. I would say that our investor relations work is adequate.
The one thing I always stress to investors who question the reliability of financial figures is: Look at who our key customers are. They are China Unicom and China Mobile, and these are very big companies. Our auditors have no problem checking our numbers against theirs, unlike other businesses which may have several hundred distribution channels or revenue stream from multiple parties – then it would be harder to account for every transaction.
Fui Chu owns 2 m shares of Sinotel, up from 300,000 during the IPO in Nov 2007. Photo by Leong Chan Teik
Fui Chu: Recently, we obtained loans from DBS and HSBC. If we have a contract, they will allow us to draw up to 80% of the contract sum for working capital needs.
The key condition is that our customers have to directly remit payment into the bank’s account – either DBS or HSBC – so, as you can see, the bank is part of our controls and is monitoring us to ensure that the collection from the customer is there and testament that these contracts are legitimate.
Moreover, our chairman is the guarantor for the loans from HSBC and DBS so this ought to give people added confidence.
Q What is the key attractiveness of Sinotel?
Ben: It’s the sector we are in - telecommunications. All the other sectors are not doing so well, except energy and telecoms. The key development this year is the 3G network rollout in China. It is unprecedented in scale and size. A lot of people cannot understand how big it is. It means physically going into every building in China and installing a new set of system. The subways, highways, all the transportation networks and hubs, everything needs to be upgraded.
The Chinese government is targeting the key cities – more than 200 of them – to be 3G-capable this year. That’s a lot, a lot of work and tremendous business potential for Sinotel and the few industry players. There is more than enough pie to go around.
Q Wouldn’t there be many players for this business?
Ben: There used to be several hundred players in this business. Many have closed down, some consolidated, and now we are only left with the stronger players, about 50 of them in China. Even then, not all of them does wireless infrastructure like we do. I would say only about 12-15 do so and maybe less than 8 are of a size comparable to us.
Sinotel shares closed at 26 cents last Friday (June 12).
Q: Can’t more players spring up overnight?
Ben: It’s difficult, because first you need to be pre-qualified to tender for jobs from the telcos. If you don’t have a track record, they won’t award jobs to you. Telecommunications is a very sensitive industry in any country. You also need to have a relationship with the telcos and build up trust over a period of time. This will ensure that your products and services are reliable. The other thing is, you need to have sufficient working capital for this business. You are talking about 180 receivable days. These are some of the barriers to entry.
Q: Why does it take so long to collect the money?
Ben: We don’t collect deposits for our wireless infrastructure projects. These projects take an average of six to twelve months to be completed. Upon completion, the telco will inspect and if everything works, they will pay us 50-80% of the contract price, depending on the contract agreement. That is more or less sufficient to cover our cost of goods given that our gross profit margin is around 40%. Then there is a trial period of another six months to make sure everything runs smoothly and that any defect is rectified. After that, we collect the rest of the payment except for the last 5-10%, which is retained for warranty for a few more months.
It’s a lengthy process but an industry norm. All our peers go through it. And it helps deter new players from entering this industry. What is more important is to be able to secure payment. Many businesses close down because they are unable to collect money, or their customers go bust. With the state-owned telcos, we have never experienced any case of bad debt or order cancellation.
To buffer the longer receivables from our wireless infrastructure business, we are also growing our other business segments such as distributing 3G Network Cards and Emergency Mobile Communications System (EMCS). These businesses give us much better collection times.
What are the investment merits and risks of Sinotel? Find out more by registering for the SIAS Research event (which will be moderated by SIAS Research Vice-President Roger Tan) here.
Previous SIAS Research event: Will the green shoots wither or thrive?
