Chinacast Education - Food for Thought

Chinacast Education Corporation (NASDAQ:CAST) was established in 1999 and mainly provides service relative with its nationwide satellite broadband network. It has the VSAT (Very Small Aperture Terminal), ICP (Internet Content Provider) and ISP (Internet Service Provider) operation admissions, all of which are professional admissions in tele-communication industry. Chinacast accomplished its fast development in the beginning of this century based on the highly developing tele-communication industry in China. It provides governments, corporations, schools and so on services such as video conferences, distance education, profession training, data and information transmission, and also operation maintenance. Generally speaking, all its services are derived from its technology support. Recent years, Chinacast Education Corp. (NASDAQ:CAST) extended its service into the post-secondary education and e-learning services. Chinacast Education Corporation is trading at $7.96 due on October 25, 2009, 7:14 a.m. (US Eastern Time).

Revenue/Earnings Growth

Chinacast Education Corp. (NASDAQ:CAST) has a history full of acquisitions. It was formed as Great Wall Acquisition Corporation on 2003 as a blank check company, and then acquired ChinaCast Communication Holdings Limited (“CCH”) which listed on the Stock Exchange of Singapore in 2007 and terminated its SGX listing then. In 2008, the Company acquired the holding company (Hai Lai Education Technology Limited) of Foreign Trade Business College of Chongqing Normal University (“FTBC”). Therefore, by the end of 2008, the Company has successful expanded its service into two business divisions, the E-learning and training service Group (the “ELG”), and the Traditional University Group (the “TUG”), offering bachelor and diploma programs to students in China.

CAST_TJ_09Q21

The above graph illustrates that the Company’s revenue has been increasing from around 150 million RMB to nearly 300 RMB since 2005. The Company’s principal sources of revenues are from the provision of satellite bandwidth and network access services in distance learning, broadcasting of multimedia educational content through broadband satellite network, and to a lesser extent, the provision of English training services and sales of satellite communication related equipment and accessories. The revenue from service in distance learning is highly predictable since the Company signed with almost one third of the universities which are proved to conduct distance courses in China

by the PRC Educational Department. Unless the policy change, otherwise this part of revenue will not be threaten. It is also shown in the following table that the Company transferred its focus into service in recent years.

CAST_TJ_09Q22

However, the Company’s net income fluctuated during the past four years. This can be explained by its comparable high impairment loss and loss on discontinued operations both in 2006 and 2007. Because the Company provides E-learning and training services which rely highly on technology development, its long-lived asset has to be revaluated whenever events or changes in technology circumstances. Fast technology development will result in the impariement loss on its long assets. The loss from discontinued operations is due to the Company’s investment in one of its subsidiary Tongfang Chuangxin Techonology Limited in 2007.

CAST_TJ_09Q23

The company’s quarterly revenue and quarterly net income stays pretty stable except that in Quarter 4 in 2008 when the financial crisis happened and influenced dramatically the Company’s stock price and also its business environment both in US and in China.

Cash Flow

CAST_TJ_09Q24

The company’s CFO increased dramatically from 2005 to 2008 due to its increasing revenue.

Its CFI increased during these three years, and it could be explained by the Company’s expansion to education industry and spending on purchasing of property and equipment. Moreover, the increasing number is also due to the Company’s purchase of subsidiaries including CCH and FTBC.

The company’s CFF fluctuated a lot during recent years and the outflow in 2007 is striking. This negative number could be explained by the Company’s capital distribution and its payment of expenses in connection with share exchange transaction. Both of these two activities are connected by the Company’s expansion through acquisition.

In conclusion, the Company has plenty of cash and the only net cash outflow in 2007 is due to its acquisition for the other companies.

Competition/Industry

The Company is listed in Schools Industry in US, and there are some competitors from China in this particular industry, such as China Distance Education Holdings Ltd. (Public, NYSE:DL), China Education Alliance, Inc. (Public, AMEX:CEU), and New Oriental Education & Tech. Group Inc (Public, NYSE:EDU).

CDE and CEA both provide online and distance education courses, so they have pretty similar target consumers with Chinacast. On the other hand, Chinacast Education Corp. (NASDAQ:CAST) owns its own advantage which is that it provides provision of satellite bandwidth and network access services in distance learning which is far more hardware industry. Furthermore, CDE and CEA trade at similar prices as Chinacast.

Moreover, compared with EDU, Chinacast Education Corp. (NASDAQ:CAST) still has long way to go. EDU is trading at around 70 dollars now, while Chinacast just trades at 7 dollars.

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