21 January 2004 AFT CORPORATION (AFT ) $0.07 Air Purification Recommendation: Spec Buy No. shares: 438m Avg Monthly t/o:125m Mkt. Cap: $32m Last Review:15/10/03 (SCG 327) Rolling Year High: $0.097 Rolling Year Low: $0.022
Chinese Potential Emerging AFT had previously alluded to expectations of short term developments from China. Following the initial outbreak of SARS, Chinese authorities were known to be concerned about possible re-emergence of SARS in the general public. With AFT's 50% owned Microgenix technology capable of extracting and eliminating the smallest pathogens or contaminants we have been eagerly awaiting official Chinese and indeed British testing of the SARS virus which theoretically should be relatively easy to capture and eliminate.
Investors had started to vote with their feet due to perceived delays in the testing process but that drift should stabilise after the release of partial test information from China. A complete report is not available at this stage apparently due to time pressures with Chinese New Year approaching but the document released by the Chinese Centre for Disease Control in Beijing includes the following comments.
"We have planned and are carrying out the SARS correlation tests on the Microgenix Air Purification Equipment...."
"We are confident, from the results we have seen so far, that the Microgenix Equipment destroys a range of bacteria and viruses including SARS."
"Things are progressing well with regard to our future co-operation."
Expect Developments After These Test Results While full test results are necessary before we get too excited, there is clearly a favourable disposition towards the product after initial testing. We expect this will lead to developments in the relatively short term, probably in both the hospital and hotel areas. Major contracts are probably still some time out in China but the share price should still respond to any further positive news.
Press reports of a vaccine against SARS about to be tested should not have an overly detrimental impact on AFT in the medium term as what the company is trying to prove to the Chinese and other authorities is that Microgenix can extract and eliminate all contaminants and pathogens , right down to smallpox. Thus if the system is installed it can be expected to cater for all known air borne viruses and in all probability any variations or new strains of bugs which are likely to emerge in the near future. Logistical problems of vaccinating people across an area as large and as populous as China, also suggest that the authorities would be unlikely to rely purely on a vaccine in the short term, even if it proves effective.
Our take on China therefore is watch this space. Positive testing is likely to lead to contracts.
Conclusion: The company's market capitalisation remains out of synchronisation with announced deals to date. However longer term potential remains significant with a variety of European hospitals and apartment buildings testing Microgenix with a view to rolling it out through their groups if the tests are successful. Developments are likely to emerge from other sources as well following on from the relatively small Greek contract announced recently.
We retain our enthusiasm for AFT's speculative potential over the next 3 months in a stock market sense and the longer term fundamental potential. Our guess is that any Chinese contracts which may emerge following the testing are likely to be a prelude to larger contracts as usage makes the authorities more comfortable with the technology, which should provide the next catalyst for a stock price appreciation. Stay with the spec buy rating.
AFT Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
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