Linktone Unprofitable Thru ‘09

Linktone Ltd (LTON) is a provider of wireless interactive entertainment services for mobile telephone users and advertising services to enterprises in China.

The Chinese wireless value-added services market has seen increasingly intense competition and the policy/regulatory changes have a material impact on Linktone’s business. However, the company’s revenue has increased sequentially for three consecutive quarters, which may indicate that the worst time for Linktone has passed. Advertising service business may become another revenue source for the company.

The wireless value-added services business (WVAS) has strong prospects in China. There were about 550 million mobile users in China. The market opportunities remain attractive arising from the launch of 3G wireless services, and eventually mobile television and flash media products. Therefore, we are maintaining our Hold recommendation as we assess market conditions and global economic effects.

Currently we don’t use P/E ratio to value Linktone due to its negative earnings. Its other multiples including P/B and P/S are lower than the industry mean. Our target price is $2.00 mainly based on a P/B multiple of 0.8x, which we believe reflects the company’s near-term prospects as the company is expected to remain in a net loss position through 2009.

Read the full analyst report on LTON

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