Digital China mulls spin-off

PUBLISHED : Thursday, 16 June, 2011, 12:00am
UPDATED : Thursday, 16 June, 2011, 12:00am

Digital China Holdings has raised the prospect of spinning off one of its four business units after posting a record HK$1 billion net profit in its fiscal year to March.

Chairman Guo Wei said yesterday that Digital China has started discussions with banks about that proposed separate listing, which he pointed out would not be completed during its current fiscal year. The intended spin-off is the company's 'services' business unit, which offers information-technology systems consultation, design and integration to various industries. It also provides outsourcing and maintenance of business applications, such as enterprise resource planning systems.

Major customers of that proposed spin-off include the country's three nationwide carriers, China Mobile, China Unicom and China Telecom, as well as e-commerce giant Alibaba Group, China Construction Bank and PetroChina.

Digital China, the country's biggest information-technology services provider, reported a 21.97 per cent increase in net profit in the fiscal year ended March 31 to 'a historical high' of HK$1 billion, from HK$824.30 million a year earlier, on strong sales in the domestic consumer and enterprise markets.

The Beijing-based company estimated that annual net profit had grown an average of 21.64 per cent a year since it was successfully spun off on June 1, 2001 by mainland computer giant Lenovo Group (then Legend Group).

In a filing with the Hong Kong stock exchange on Tuesday, Digital China said its revenue rose 13.20 per cent to HK$56.80 billion from HK$50.18 billion the previous year. Basic earnings per share climbed 15.65 per cent to 96.13 HK cents from 83.12 HK cents a year ago.

'It was a spectacular year for the group,' Guo said. Shares of the company were up 3.15 per cent to close at HK$13.10 yesterday. Digital China's so-called 'distribution' unit, which caters to the consumer and small business markets, grew 18.47 per cent year on year to HK$26.92 billion as the company aggressively expanded its '@Port' franchise retail outlets to 634 stores as of March 31, up from 422 a year ago. Personal computer sales accounted for 60 per cent of this business segment's total revenue.

Turnover for the company's 'systems' business unit, which sells computer and networking hardware and software products to large companies, was 9.13 per cent year on year to HK$13.82 billion.

The 'supply chain services' unit, which delivers transportation logistics, transaction processing and other systems used by manufacturers and other large enterprises, grew revenue 14.19 per cent year on year to HK$10.02 billion.

The services business unit, which Digital China plans to spin off, posted revenue of HK$6.04 billion that was slightly better than the previous year's HK$6.01 billion. Its gross profit, however, improved to HK$968.75 million from HK$800.80 million.

'The management believes that, under the guidance of the 12th Five-Year Plan, urbanisation will provide the major driving force for China's economic growth,' Guo said, adding that technology services would benefit significantly.

A report by analyst firm Springboard Research predicted the mainland's information technology services market to reach US$11.5 billion this year, a 12 per cent increase over last year, due to significant government support. 'The Chinese government's stimulus initiatives for the 12th Five-year Plan will focus on expanding domestic demand, which will also stimulate IT expenditure by government entities and state-owned enterprises,' it said.