Stock Arguably Overreacting to TV Program on Push SMS

3/17 - "A China state TV channel aired a program last weekend covering (among other items) alleged “spamming” of (i.e., pushing SMS advertisements to) mobile phone customers by Focus Wireless."

"1) Focus Wireless accounted for 9% of Focus’ revenue last quarter and, we assume, a similar portion of EBIT...2) We view the risk of Focus Wireless losing its operating license as low, given the mobile services companies such as Linktone and Hurray! kept their licenses despite China Mobile fining them for various policy infringements. 3) We believe a more plausible worst-case scenario is one in which China popularizes “Do Not Spam” lists...Such a scenario might, we estimate, warrant about a $2 reduction in Focus’ stock price, if SMS advertising activity were to halve."

"We forecast Focus Wireless accounting for 9% of group revenue and EBIT in 2008, and believe that Focus can out-earn the consensus 2008 EPS figure of $2.04, even if SMS advertising falls short by a half. We have a Buy rating on Focus. Our 12-mo target price is unchanged."