Internet fervour swept up property developer Dong-Jun Holdings yesterday, as its shares rocketed 90.52 per cent on the back of a $49.92 million purchase of an effective 4 per cent stake in a mainland Web-site company for children. The transaction values the Chinakids Web-site joint venture at $1.09 billion, setting new boundaries for the pricing of Internet-based businesses with mainland links. Brokers were surprised by Dong-Jun's share price movement on the back of the purchase of such a small stake in the Web site. 'They took a small minority stake in a China Internet company which almost doubled their market capitalisation in one day,' Tai Fook Securities sales director Andrew To Koon-hung said. 'That's absolutely ridiculous.' He predicted the stock to fall on profit-taking in the next few days. For Dong-Jun, which operates in the mainland, the deal was a step towards building 'cyber-properties', where Internet connections and content would be provided to units in the company's properties, a company executive said. 'The cyber-property is the ultimate target of our business,' Dong-Jun company secretary Raymond Wong Wai-man said. 'We just want to invest in some Internet-related businesses first and then we can do more things to merge the two concepts.' Dong-Jun bought a 5 per cent stake in Chinakids.net, which in turn owns 80 per cent of the Web-site joint venture. Independent consultancy Sallmanns arrived at the very high valuation figures for the Web site despite parent company Chinakids.net's accounts showing a net asset value of a paltry $33 million. An announcement of the deal also revealed Chinakids.net lost $1.7 million for the year to May 31. The high valuation of the Web site was supported by agreement between the joint venture and the Young Pioneers, the Communist Party organisation for schoolchildren, to raise the number of subscribers to five million by the end of this year, according to Sallmanns director Brett Shadbolt. The Web site has 3.7 million subscribers, according Dong-Jun. China Telecom had agreed to provide additional infrastructure, and the Industrial and Commercial Bank of China would open bank accounts for all the site's users through which their subscription fees would be paid, Mr Shadbolt said. 'The valuation is based on the earnings potential over several years and given the agreements they have in place they have very good prospects,' Mr Shadbolt said. The remaining 20 per cent of the Web-site joint venture is held by an unidentified third party that is the registered owner of the site. The minority stake in parent Chinakids.net was sold by Wong Kam-fu, who will be paid in the form of 998,400,000 new shares in Dong-Jun valued at five cents a share, a 72 per cent discount to yesterday's closing price of 18.1 cents. On completion of the transaction, he will become the largest shareholder in Dong-Jun with a 20.8 per cent stake. 'Dong-Jun will gradually become a hi-tech company [and] is looking at opportunities to acquire some Internet portals,' Raymond Wong said. Dong-Jun has an option to acquire a further 5 per cent in Chinakids.net within one year. Dong-Jun's share price plummeted during the economic downturn from a high of $2.57 in August 1997 to last week's close of 9.5 cents.
