Excerpts:

Event: We called on Shaanxi Broadcast & TV Network and communicated with the management team on Sep 9. The goal of this survey was to know: 1) detailed updates of latest operation; 2) impact of macro-economy and digital TV conversion on the company; 3) possibility of more political support; 4) financial status.

Our analysis and estimation:

Digital TV conversion: the company has converted 170,000 users in 1H2008 and is expected to accelerate promotion in the second half year with 200,000 users converted. Prudential action indicates its conservative attitude to financial status and prospect of value-added business.

Advanced charges and depreciation were mismatched. Depreciation and amortization incurred from digital TV update was laggard with advanced charges income, which may lower than the expectation.

User growth: the company has 3.92mn users at present, of which over 85% are urban users. According to statistics from Shaanxi Statistics Bureau, of its 11mn household users, 4.2mn are from cities and 6.8mn from countryside, thus most of its customers are in rural areas in spite of 80% coverage of Shaanxi province. In fact, it is not easy to exploit market in rural area; hence we forecast the company will not emphasize rural market but focus on increasing urban users and advancing charging rate. New CATV user number is expected to reach 200,000-250,000 in the coming 2-3 years.

Government support: the company is unlikely to enjoy financial subsidies and tax exemption like BGCTV as before.

Financial expenses: the company took over Rmb500mn liabilities in Q2, whether its interest (~Rmb10mn) is calculated to the listed company was under negotiation, however, despite this part, the company was still in expenditure pressure. We forecast this will affect investment to digital TV conversion and produce limited impact to decrease asset-liability ratio.