Zst Digital Networks (PINK:ZSTN)

Hot Industry, Trading Opportunity

The GeoTeam® is coding ZSTN as GeoSpecial at its opening price yet to be determined.

ZST Digital Network Inc. (NASDAQ:ZSTN) 

Legacy Business:

Supplies digital and optical network equipment to cable system operators . Cable network devices include amplifiers, optical receivers. ZSTN offers a line of fiber-optic receivers and transmitters, cable transmission amplifiers and other network products which provide the flexibility, speed and clarity necessary in 1996 communications systems.

The company has also developed a line of internet protocol television (“IPTV”) set-top boxes that are used to provide bundled cable television, Internet and telephone services to residential and commercial customers.

GPS Business:

In addition, ZSTN is currently in the process of establishing a partnership with China Unicom, a wireless network provider, in connection with the Company’s development and sale of its new GPS tracking units. In March 2009, the Company entered into a technical cooperation agreement with China Unicom that allows the Company to use the China Unicom wireless network to provide GPS location and tracking services to third parties. Upon completion of this offering, the Company intends to negotiate a reseller agreement with China Unicom whereby GPS tracking units supplied by the Company would be sold in China Unicom retail stores, with the Company receiving a share of subscriber revenue collected by China Unicom.

Reasons for consideration:

1. Quick implementation of business strategy- In just two years ZSTN has become the leader in the IPTV set top box market in its region. 
   
2. Strong Track Record of growth-  
   
       2006 to 2008 Revenue Compounded Annual Growth Rate: 99% 
       2006 to 2008 Net Income Compounded Annual Growth Rate: 113%
   
3. The Company is experiencing stable income generation from its legacy cable business, while it participates in the attractive IPTV industry and enters the high growth GPS market.
   
            -China's Cable subscriber market is growing at approximately 10% to 15% and expected to remain healthy aided by the government mandated analog to digital conversion taking place over the next several years.
   
            -In the Henan Province only 10.8% of the population are cable subscribers.  China's Cable subscriber market in the Henan Province is expected to grow between 10%-20%
   
            -Company is focusing on the IPTV market which should experience faster growth than traditional cable services. 
   
            -China GPS Industry Trends: Less than 10% of vehicles are equipped with GPS devices, compared to 20% to 60% in more developed nations.  GPS business should have an immediate impact on revenues as the Company has yet to generate revenues from this product line.  
   
4. Barrier to entry: Leading market share position and loyal customer base have created a barrier to entry.

Important Note:  We have coded ZSTN as GeoSpecial as opposed to a GeoBargain.  We need to attain a better grip on the EPS outlook for 2009 and 2010.   Margins in legacy business have been affected by price reductions in order to gain market share.  Despite this, it is possible the market will notice ZSTN shares due to its involvement in some 'hot' industries. At the very least, recent China IPOs have been offering trading opportunities as they are occurring at significant discounts to industry multiples, something we have rarely seen in the traditional U.S. IPO market.

This Article is not intended to be investment advice. It is are provided to aid investors in making their own investment decisions.