Bear Stearns lowering estimates and price tgt for Tom Online (NASDAQ:TOMO) as they view newly published Ministry of Information Industry (M.I.I.) rules incrementally negative. Firm is revising their 2006E EPADS est. from $0.63 to $0.55 and 2007E EPADS from $0.56 to $0.43. They have also cut their 2006E and 2007E revenue ests by 3.5% and 18.7%, respectively and YE 2007 price target from $15.00/ADS to $14.00/ADS.
Firm says many of the MII's new directives (published Friday, Sept. 15) echo policies already adopted by China Mobile in July. While China Mobile's policies will likely have a greater impact, this new set of regulations from the MII will likely make marketing more difficult for SPs, leading them to expect a longer path to recovery.
Despite becoming more cautious on TOMO's prospects in 2006 and 2007, firm remains positive on longer-term prospects for the company and the industry as a whole. They expect that a clear, consistent set of policies by the MII applied across all operators will hasten industry consolidation and a shakeout of unscrupulous SPs, a positive development for TOMO.
Notablecalls: I feel that the today's upgrade by Brean Murray may provide a nice shorting oppty as it is at least partially based on dismissing the constant regulatory/China Mobile threat the WVAS are constantly facing. However, beware of the high short interest.