S A ADVISORY Nov - Dec 1997
New Buy Recommendation


Bonso Electronics International
Warrants 99

On Oct 4, 1997 we informed our superfast phone service (we call you) to purchase Bonso Electronics International warrants at $1.00/warrant. The warrants entitle the holder to purchase one share of the common stock at $7.35/share. The warrants expire December 14, 1999. The warrants are callable if the stock trades at or above $8.575 for 20 consecutive trading days within the 30-day period prior to the date of notice of redemtion. The warrant symbol is BNSWF. The Common stock's symbol BNSOF. Both trade on the National Market System of the NASDAQ.

Bonso Electronics designs, develops, manufactures and sells a comprehensive line of electronic scales and weighing instruments and electronic consumer and health products. The company manufactures all of its products in the people's Republic of China. The Company's electronic scales include bathroom, kitchen, office, jewelry, laboratory, pocket, postal, industrial and parcel scales that are used in consumer, commercial and industrial applications. The Company's electronic consumer and health include electronics thermometers and blood pressure meters.

At present Bonso has 2.8 million shares outstanding - (fully diluted) - management controls over 50%. There are 2 million warrants which are controlled by the public. The current book-value is around $4.35. LTD is only $787K. The company does business in North America, Europe and Asia. On or about January 8, 1997 the company moved into its new facility. The new facility will permit the company to approximately triple its productive capacity. We understand that new products and contracts are pending and we also anticipate "new" coverage from a number of Brokerage firms to be declared near-term.

The numbers look very impressive and in our opinion the upside potential appears very promising. (See Chart A) If we examine the actula and Estimate sales and earnings for BNSOF, a very interesting opportunity seems to be surfacing. Last year BNSOF had total sales of $16.9 million and earnings of .19. For the first Quarter of fiscal 1998 sales increased 30% over last years first quarter ($3.97 Mil and net income/share of .11) and net income/share increased by 27%.

In recent press releases management projects that due to the new facility, new products and contracts that business looks very favorable for fiscal 1998 and beyond.

When we examine the next three quarter's the trend is projected to continue.
We have heard that second quarter just ending September 1997 will be barn-burner!! If we look at the whole picture for fiscal 1998, some very impressive numbers jump out at you, that is, sales are estimated to reach an eye-popping $30 million and net income/share could explode to $.95.

On Friday, October 4, 1997, BNSOF was trading at $5.625, while the warrants were trading at $1.00.

If BNSOF can actually earn what is Estimated BNSOF is only trading at 5.9X 1998. This indicates an undervalued situation and further investigation should be considered. If we assume that BNSOF can grow by almost 100% this year and earnings could expand by over 5X, then it is quite evident that BNSOF should trade at much higher prices. If we assign a very conservative P.E. valuation of say 15X and if BNSOF can earn what they are estimating, then our share valuation would approach $15.00, while our warrants would have to trade at around $7.00.

Our main angle: you could buy the common at $5.75 and attain 160% gain if the common appreciates to $15, but if you purchase the warrants, they would have to be worth around $7. If the common appreciated to $15, this would result in a 600% gain!! This is the whole game!! If you like the idea, PLAY the warrants BNSWF.

PSR also indicates a very cheap investment opportunity. Based upon the share price of October 4, 1997, that is $5.75, and our Estimated sales for fiscal 1998, we generate a PSR of only .50, with the estimated growth that is anticipated, BNSOF could easily trade a conservative value of 1.5X sales, this would again results in a share valuation of over $15.00.

Our opinion is the same for book-value. This opportunity could easily trade at 3x book. Again, this would result in a share price of at least $15.00

If we look at cash-flow, which should equal at least $3 million for 1998, then our CF/S would equal around $1.10 our P/CF, that is 5.2X based upon our $5.75 share is again very undervalued and a value of 10X would indicate a share valuation of at least $11.00.

Bottom line: if we look at PE, P/CF, PSR and Book-value, this is a very cheap opportunity. In our opinion, the best way to play this is by purchasing the warrants BNSWF for greatest percentage GAIN. Finally, consider that other brokerage firms may start covering this issue. One should get on board before the masses. Broker contact: Steve Muth: 1-800-825-5627

PS: Since the recommendation, our warrants have appreciated smartly; that is up 75% from our featured price. We believe that the warrants will get exercised and BNSOF management has the ammunition to get the job done. It has been stated to us that the common needs to get to the $12 - $15 range. If that is the case, then our warrants will have to trade at least at $6 to $7, an average 271% above the current price.

The recent Hong Kong meltdown does not affect BNSOF since they are a contract manufacturer for companies outside of Asia - specifically, North America and Europe. Sales are mostly derived in Greenbacks. Higher interest rates might affect money borrowed, but only marginally. The company has only 900K in LTD. In addition, the company does not invest in the Hong Kong stock market. Also, the company's assets are vastly understated. If the currency weakens, it may prove to be a positive due to drop in cost of sales and employee wages. We are not worried. This situation is going to make a pile of money.


               Select Financial Data (Year ended March 31)

                                1qrt   2qrt   3qrt   4qrt 

               1996A     1997A       1998A     1998E    1998E   1988E    1998E

Sales          $14.2mil   $16.9mil   $5.2mil   $5.3mil  $9mil  $12mil   $30mil

income/share   .21        .19        .146      .15      .30    .35      $.95

Shares         2.8mil     2.8mil     2.8mil


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