For the bulls Phoenix is a rare and valuable bird as the only Hong Kong-listed company tapping into the mainland television advertising market, which has grown at a blistering 48 per cent per year for the past 10 years.

'We are big buyers,' Deutsche Bank Hong Kong research head Archie Hart said. 'The earnings are coming through. The fact that they are breaking even in year four [of operations] is pretty creditable to them.'

Salomon Smith Barney analyst Norman Waite said his projections showed earnings per share would double to two cents in the current year to June, then bounce to five cents and nine cents in the next two years.

The money will roll in as advertisers queue up to buy space on Phoenix's Mandarin programming, which has been consistently one step ahead of leaden rivals. Phoenix sells 80 per cent of its advertising slots and the rate charged has climbed fast.

Credit Suisse First Boston analyst Marisa Ho wrote in a report that peak slot rates rose 21 per cent last year and 33 per cent this year. Her report noted Phoenix's 'potential sexy earnings growth'.

Mr Hart said Phoenix could reach millions of homes in the rich coastal areas where many families were making their first purchases of expensive items such as air-conditioners.

The broadcaster beams its programmes up from Hong Kong to a satellite which bounces them back down to the mainland.

Worldsec International analyst Chris Cheung Ka-tsun said wealthy viewers could pick up the signal with their own dish but most obtained it through cable providers, which charged a household just 60 yuan (about HK$56.20) to 80 yuan per month.

Already 80 million households, or about 27 per cent of the 300 million households with television, had cable access, he said.

The growth story sounds great and there is also the attraction of a heavy hitting shareholder, Rupert Murdoch's Star TV, which holds 37.6 per cent of Phoenix and provides some programming.

However, there is a big catch with the company - the legal 'grey area' it operates in.

Ms Ho said even if foreign broadcasters obtained mainland licences, their programmes could legally only be seen by expatriate or 'privileged' viewers.

Phoenix has been able to get around the restrictions by using what analysts politely refer to as chairman Liu Changle's guanxi, or connections.

Mr Liu is a former senior manager of China Central People's Radio Station, which not only has given him the contacts in the mainland media industry to make Phoenix work, but also an acute understanding of what he can broadcast without upsetting political sensibilities in Beijing.

Adding to his clout is his background as a former officer in the People's Liberation Army.

The danger is that while Phoenix has found a 'gap in the fence' as Ms Ho puts it, that gap may close at any time if Beijing decides to crack down. That has to be taken into account when valuing the stock.

Indeed, Phoenix is understood to have temporarily lost some distribution by mainland cable operators after the United States bombed the Chinese embassy in Belgrade in May last year.

It may work the other way too, as more companies such as Hong Kong-listed Sun Television Cybernetworks Holdings find their own gaps in the fence to reach the rich advertising pickings.

Mr Cheung said: 'We still have a 'buy' [on Phoenix] but we have to look at the ease with which competitors can come into the market.'

The upside from here may be limited if analysts' target prices are any guide. Ms Ho, who put a buy on the stock last month when it was $1.53, has seen it already nearly hit her $2.10 target. Mr Hart has a $2.38 target, giving 16.09 per cent potential upside.

A US analyst said: 'I'm not hugely excited at this price.'

He referred to the offering document for Phoenix's June flotation as 'the world's most risk-laden prospectus'.

Graphic: phoe06gbz