Growing Chinese wireless internet market presents tremendous opportunities

May 30, 2006

China Venture Forum - Mobile telephony allowed us to talk on the move. The Internet turned raw data into helpful services that people find easy to use. Now, these two technologies are converging to create third generation mobile services.

In simple terms, 3G services combine high speed mobile access with Internet Protocol (IP)-based services. But this doesn't just mean fast mobile connection to the world wide web. Rather, whole new ways to communicate, access information, conduct business, learn and be entertained - liberated from slow, cumbersome equipment and immovable points of access.

With access to any service anywhere, anytime, from one terminal, the old boundaries between communication, information, media and entertainment will disappear. Services will truly converge.

"Mobility" will be offered with many services that we currently regard as "fixed" - indeed, Mobile operators believes that mobility will become the norm for many communication services. We'll be able to make video calls to the office and surf the internet, or play interactive games with friends at home - wherever we may be.

3G enables users to transmit voice, data, and even moving images. In order to realize these services, 3G improves the data transmission speed up to 144Kbps in a high-speed moving environment, 384Kbps in a low-speed moving environment, and 2Mbps in a stationary environment. 3G provides services like Internet connection, transmission of large-scale data and moving contents photographed by digital cameras and videos, and software downloading.

China's GDP grew 9.9% in 2005 while its telecom industry revenue grew 25.4%, more than doubled the pace of the overall economy, according to the Ministry of Information Industry of China ("MII"). In addition, the statistics from MII shows that China had approximately 404.1 million mobile phone users in February 2006, which is 60 million more than the a year ago. We see China will add another 50 million to 60 million mobile phone users in 2006. It is expected that China will have over 600 million mobile phone users by the end of 2008. As a result of the fast growing mobile phone market, WVAS such as multimedia messaging services, WAP, and interactive voice response (IVR) have been growing rapidly.

In addition, 3G licenses are expected to be issued to the Chinese telecom companies in 2006, which will propel WVAS growth. The 3G technology will enable more advanced WVAS such as shopping and downloading video via mobile phones. According to estimates, the total anticipated 3G market size in China will reach US$35.6 billion within 5 years after the launch of 3G in China. Considering the imminent 3G license issuance in 2006 and expected launch of the 3G technology before the 2008 Beijing Olympic Games, many wireless players such as Telecom Communications and TOM Online, KongZhong Corporation, and Dragon Capital Group in China will be able to capture the great opportunities.

Dragon Capital Group Corp, a holding company of emerging technology companies in China, achieved consolidated revenues of approximately $7.685 million in sales for the first three months of 2006 with $464,897 in gross profit and $233,466 in net income.

DRGV trades about 6x projected earnings and 0.3x projected revenues for 2006. It appears that DRGV trades very undervalued compared to its peers, such as Telecom Communications, KongZhong Corporation, and TOM Online. TCOM trades about 29x earnings and 5.8x revenues. TOMO trades about 26x earnings and 6.68x revenues. KONG trades about 16x earnings and 4.5x revenues