Culturecom: Capturing the Middle Kingdom

It actually isnÆt a dot.com at all but a transformed publisher of comic books. Analysts remain bullish on its longer-term prospects for gaining acceptance of three distinct, yet related technologies.

StockHouse LogoThe name is a misnomer. It actually isnÆt a dot.com at all but a transformed publisher of comic books (hence the com) aspiring to set the standard for Chinese-language-based software systems. And despite the sharp pullback in CulturecomÆs share price, in the course of a general shake-out of the Hong Kong tech sector, analysts remain bullish on its longer-term prospects for rolling out and gaining acceptance of three distinct, yet related technologies.

The rollout strategies have been slightly altered over the past six months but remain largely focused on securing the approval and acceptance of the Chinese authorities in order to accelerate usage and gain market share. Initial indications show that this type of push for CulturecomÆs Q9 Chinese-language input system, its Chinese2000 operating system and its Chinese-language eC-book has been well received by the Chinese authorities.

However, widespread acceptance, with or without the support of Beijing, is unlikely to happen overnight and as such, investors can largely ignore CulturecomÆs results for the year to March 31 2000 to be announced at the end of August.

"This is a transformed company and the results will only reflect last yearÆs performance," warns Alice Leung, an analyst at Worldsec International.

Johnny Wong of Dresdner Kleinwort Benson Securities adds, "We probably will not see a lot of the new stuff in there but in terms of direction, it is headed the right way."

He goes on to state, "Culturecom is one of the few Hong Kong companies with proprietary technology and it is also the first mover in many of its business segments, with some of its products nearing fruition."

A wild ride

CultureComCulturecomÆs share price roared to a March high of HK$2.775 amid Hong KongÆs tech craze. The stock was a darling of the retail investor and was consistently among the most actively traded issues. However, the share price and volume declines were just as incisive and the stock currently languishes below HK$0.90.

Mr Wong was not surprised by CulturecomÆs pullback. There was, unfortunately or not, quite a bit of retail money in the stock. What has happened is that newsflow has also dried up.

He values the Company on a piecemeal proxy basis. Most of the proxies, including Gemstar International [GMST] and Zi Corporation [ZICA], have also pulled back.

WorldsecÆs Ms Leung is more succinct in her valuation of Culturecom and ascribes a fair value of HK$1.76 to the stock.

CulturecomÆs three main Chinese-language software systems and their prospects are described below.

Q9

Q9 is a Chinese-language input system developed by Qcode Information Technology in which Culturecom holds a 30 percent stake. It claims that Q9 is the most user friendly and quickest Chinese-language system currently on the market. Its use of a nine-key numeric keypad as the inputting platform makes it ideally suited for use with mobile telephones. As such, Qcode had originally hoped to secure licensing agreements with the Nokias [NOK] and the Motorolas [MOT] of the world.

But Ms Leung points out, The negotiations dragged on and Qcode decided to establish its own sales agents in China and approach pc manufacturers such as Legend [992]. Then the software would be installed as a bundle with computers.

This would tie in with a separate agreement signed between Qcode and Chinese Academy of Sciences subsidiary Redflag Software where Redflag will distribute the Q9 software via its Linux operating system and application software to government bodies and schools.

Subsequent to the signing of the agreement with Redflag, Qcode announced that it would seek a listing on the GEM board this year.

eC-book

The eC-book is a handheld device developed by Culturecom that allows users to download electronic versions of Chinese books. The device will be supported by publishing portals developed by Culturecom. The Company has also established the Han-Culture Information Union, an association of Greater ChinaÆs top publishers, software houses and hardware firms. To date, Commercial Press, Chung Hwa Book Company, BeijingÆs Qinghua University, ChinaÆs Central Library and the top ten publishers in Taiwan have all signed on to provide content and adopt the eC-book platform.

The revenue model will be two-pronged. Culturecom will sell the units, at a forecast retail price of less than $1,000, as well as charge a fee, to be shared with the publisher, for each download.

Ebooks have received mixed reviews in the US and bar the experience of Stephen King, lacked a critical mass of content as publishers and authors have refused to commit to the various platforms. But CulturecomÆs Chinese version has a decided structural advantage over its US counterparts. Intellectual property rights regarding publishing in Asia stipulate that electronic rights are part and parcel with printed rights. This is not so in the US where e-rights are separate from the print versions.

Culturecom has also signed an agreement with a subsidiary of ChinaÆs Ministry of Education, which happens to be the largest educational publisher in China, to supply 30,000 eC-books in a trial run.

CHINESE2000

Chinese2000, a 65:35 joint venture with the Chinese Academy of Sciences, is a Chinese language operating system based on the Linux operating environment with open coding. It is billed as the only operating platform with a source code in Chinese and as such, will bypass the need for translating between Chinese and English at the operating level.

The Chinese Academy of Sciences is lobbying the Chinese central government for standard adoption of Chinese2000. DresdnerÆs Mr Wong believes that the argument for Chinese2000 is strong.

Investors will recall the recent commotion raised by the Chinese central government over potentially disallowing the use of Microsoft Windows2000 in China. Part of the reason may relate to political jockeying between China and the US over trade and the WTO. However, I also believe that part of the reason may be due to allowing a foreign product to gain such importance over all aspects of China, including potentially politically sensitive sectors of the economy. Given this and culture pride, we expect the Chinese will push for a Chinese operating system.

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