SOURCE: China Digital Wireless, Inc.

June 01, 2005 19:10 ET

Dutton Associates Reiterates Speculative Buy Rating on China Digital Wireless

NOTE TO EDITORS: The Following Is an Investment Opinion Being Issued by Dutton Associates.

EL DORADO HILLS, CA -- (MARKET WIRE) -- June 1, 2005 -- Dutton Associates continues its coverage of China Digital Wireless (OTC BB: CHDW), reiterating its Speculative Buy rating and $4.60 price target. The May 23rd, 2005, research note by Dutton senior analyst Silvia M. Kwan, CFA is available at www.jmdutton.com as well as from First Call, Bloomberg, Zacks, Reuters, and other leading financial portals.

China Digital Wireless, Inc. reported solid revenues growth of 22% to $5.8 million in 1Q 2005 from $4.7 million a year earlier. The increase in revenue was mainly attributable to the Company's marketing efforts in the mobile phone distribution business, which facilitated by Samsung's marketing promotion as well. Revenue from mobile phone sales increased 22% to $4.7 million in 1Q 2005 from $3.9 million in 1Q 2004. Samsung's mobile phones accounted for about 97% of the Company's total mobile phone sales in 2004. Revenue from information services declined 24% to $658K in 1Q 2005 from $869K in 1Q 2004. This was mainly due to the declined usage in their financial value-added service as a result of the weak Chinese stock markets.

Thanks to the contribution of the advertising service revenue, gross profit increased to $1 million in 1Q 2005 from $809K in 1Q 2004, up 28%, despite the fact that the Company encountered margin squeeze in its mobile phone distribution business. Gross profit margin for its mobile phone business declined to 3.4% from 5%. The Company's 100% subsidiary, Shanghai TCH, rendered advertisement services to Shanghai Tianci Real Estate Co. Ltd. and reported revenue of $388K from the services. Overall gross profit margin managed to increase to 17.9% in 1Q 2005 from 17.1% in 1Q 2004. Operating profit increased to $799K in 1Q 2005 from $647K a year ago, up 24% with operating profit margin improved slightly to 13.8% from 13.6%.

Net income was $666K in 1Q 2005 compared with $599K in 1Q 2004, up 11%. Fully diluted EPS was 3.9 cents compared to 4.3 cents for the same period of the prior year, given the share issue during 2004 as a result of the reverse merger.

We believe earnings growth of the company will be boded well by the new digital TV initiatives in 2005 and 2006. We are maintaining our Speculative Buy rating, despite its over 100% gain potential, primarily due to its lack of trading liquidity.

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Dutton Associates is one of the largest independent investment research firms in the U.S. Its 27 senior analysts are primarily CFAs and have expertise in many industries. Dutton Associates provides continuing analyst coverage of over 90 enrolled companies, and its research, estimates, and ratings are carried in all the major databases serving institutions and online investors.

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    John M. Dutton
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