When it comes to its operations, AMAP's name says it all. Established in 2002, its roots are securely planted in the AUTOmobile NAVIgation industry, offering in-dash systems for more than 100 car models in China. While AMAP continues to explore other applications for its digital map database, which covers nearly the entire population through its 1.74 million miles of roadway, the heart of its operations lies in this original business venture, which accounted for 73.8% of total revenues for the first quarter.
Automobile manufacturers typically select the map data supplier two to four years before a vehicle hits the market. This timeline creates a high barrier to entry and confirms AMAP's staying power. Considering AMAP currently holds 48.7% of market share, based on the number of copies of digital map data sold in 2009 for in-dash navigation systems, it stands to reason that investors can expect solid revenue generation from this portion of its business well into 2012.
Although AMAP has been in business since 2002, its operations experienced a surge in 2006 with two pivotal acquisitions, entering into online map applications and establishing its aerial "photogrammetry" business. Additionally, an agreement with China Mobile propelled AMAP into the wireless location-based solutions. The two companies are currently working together to develop a new mobile navigation service that will launch this year, but both this contract and the nationwide digital map database are set to expire by December 2010.
Considering AMAP's wireless/Internet services comprised 10.7% of its first-quarter revenue, a reduction or loss of this contract will impact results, but it will not derail overall operations. Investors should keep a close watch for renewal developments, but regardless, we do not expect to see a sustained impact on aftermarket results.
The biggest wild card for AMAP's operations lies in its public-sector segment, where revenue is generated on a project basis. Essentially, AMAP provides aerial photogrammetry solutions and develops 3-D digital city models and geographic information systems for Chinese government agencies. This segment accounted for 13.8% of total revenue for the first quarter, down on a year-over-year basis.
Despite the uncertainties in this segment, it offers the strongest growth potential, as the need for digital map and location-based services is expected to increase. In large part this is due to a 2006 government sponsored "Digital City Geospatial Framework" initiative that is expected to be implemented in more than 330 large and medium-sized cities and select small cities by the end of 2015. AMAP may not win all related contracts, but with a comprehensive digital map database, it holds an advantage as a leader in this industry.
Some investors may be turned off because the company's bottom line declined 42.6% year over year in the first quarter.
This was mainly attributed to increased costs, which are not directly related to an increase in revenue since AMAP must expand its database, independent of projects and contracts, in order to remain relevant.
Additionally, AMAP began recognizing share-based compensation expenses, which put further pressure on its results.
Although these declines are cause for concern, AMAP does not have any debt, so the influx of proceeds from this offer will be going directly into operational expansion. By offsetting some necessary, growth-oriented expenses, this should bring improvements in future bottom-line results.
AMAP is an established company, which provides a solid fundamental investment. The biggest roadblock ahead is something the company can't change -- its foreign status. In the end, it becomes a question of whether investors need or want a Chinese-based company in their portfolio. If the answer is "yes," then we would recommend exploring opportunities to purchase at the IPO and possibly buying any dips in the aftermarket.
"The two companies are currently working together to develop a new mobile navigation service that will launch this year, but both this contract and the nationwide digital map database are set to expire by December 2010"
en geloof maar als ze daar met TT HD-Traffic mee inspringen het contract wel verlengd word,vraagje wordt uberhaupt in china deze service al aangeboden? wie