Domestic
KingTeller set to expand network
By Zheng Lifei (China Daily)
Updated: 2009-05-22 08:12
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Customers use ATMs for transactions at China Merchants Bank in Nanjing, Jiangsu province. [CFP]
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It has taken less than 8 years for Guangzhou KingTeller Technology Co to become the country's second biggest automated teller machines (ATM) maker.
The small-cap company, which is listed on the Shenzhen exchange, also operates the country's biggest network of non-bank ATMs, a unique business model that has been propelling its rapid growth. The company is way ahead of its rivals in this niche.
Under the model, which is similar to the world's biggest non-bank ATM network operator, the US-based Cardtronics, KingTeller not only sells ATMs to financial institutions such as banks and rural credit cooperatives, it also leases the machines to them.
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The Guangzhou-based ATM maker had 12,462 ATMs in service in the country by the end of 2008, accounting for almost 8 percent of the country's total networked ATMs, according to China Unionpay figures provided by the company.
Among these, 5,281 units are operated by KingTeller's own network, 2,115 more than that in 2007.
KingTeller, which competes with global giants such as NCR and Diebold, chalked up 344 million yuan ($50.40 million) in revenue last year, up 41 percent from the year earlier.
Its net profit, however, only grew marginally to 60 million yuan, as increased marketing and sales expenses and maintenance fees ate into income, according to its annual earnings report.
"Compared with the robust sales revenue growth, the meager net profit growth (last year) was mainly caused by the significant expansion of its self-owned ATM networks, which pushed up its maintenance fees," said He Qifen, an analyst with Great Wall Securities.
The investment on additional ATMs for its self-operated networks will take at least one or two years to generate profits, he said, as people need to get familiar with the location of these ATMs.
"So, time lag means the investment (in last year's addition of 2,115 ATMs) will produce results only in the coming years," He said.
The ATM operation service business model, analysts said, has its advantages as it can generate long-term and steady streams of revenue and profits while direct sales can only generate one-off profits.
The major downside, they said, was that the company has to invest a lot of money upfront in installing those ATMs, which means it will need higher cash flow.
KingTeller announced last week that it was planning a private placement to raise about 500 million yuan to expand its ATM network.
The company is planning to issue 20 million to 50 million shares of common stock, with a price no less than 14.5 yuan per share, to raise the fund to add 8,000 ATMs in the Pearl River Delta, Yangtze River Delta and other economically advanced regions.
The company said it would have 15,406 ATMs on its network by May 2011, if the private placement project, which needs shareholder and regulatory approval, goes through.
"It (fund-raising plan) will remove a major stumbling block on KingTeller's network expansion, and is critical to maintaining its high-speed revenue and profit growth in the coming years," Changjiang Securities said in a research note, giving a "recommendation" rating on the company.
The large number of bank cardholders and commercial banks' expansion beyond their localities indicate that the demand for ATM services will be strong in the country, and that will benefit companies such as KingTeller, China Securities said in a report, giving the company an "outperform" rating.
China's ATM market is expected to maintain double-digit growth until 2013, London-based research firm Retail Banking R esearch predicted.
The number of ATMs per one million people is 120, far below the global average of 270 units, indicating that the potential for China's ATM market was still huge, the British research firm said in its 'Global ATM Market and Forecasts to 2013' report.
"A major downside risk to KingTeller this year is that the ATM market is going to become more competitive in the country as global players are set to focus more on China as their home markets are shrinking due to the global financial crisis," He from Great Wall Securities' said.
