"We are talking to an investment bank, and we plan to list on the Nasdaq in the latter half of this year," he said.

Online advertising has registered strong growth in China over the past two years.

According to mainland market research firm iResearch, spending on online advertisements surpassed that on magazines last year. The online market yielded 3.19 billion yuan (HK$3.07 billion), compared with 1.8 billion yuan from magazines.

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Leading portals such as Sina and Sohu have a 30 percent annual growth rate in online advertising revenue, while the smaller but fast-growing search engines, such as Baidu, have an annual growth of more than 150 percent.

The online advertising revenue in China has grown from 0.5 percent of all media spending in 2001 to 2.3 percent last year. This is still less than the normal 5 percent US firms spend online.

The surge in online adverts has also seen a rise in the number of agencies helping clients utilize the medium.

Shanghai-based Allyes was founded in 1998 by current chief technology officer Wang Jian Gang and his three classmates at high school. They built a computer system, AdForward, for Web sites to manage their online advertising operation, which they successfully sold to top domestic portals, such as Sina and Sohu, beating foreign players, like US- based DoubleClick.

"Being local, we can customize the system for our clients. The system takes 80 percent of the market in China," Zhu said.

In 2000, Allyes branched out to become an advertising agent for domestic Web sites. "Almost all Web sites in China are represented by us," Zhu said.

It has 230 advertisers including Pepsi Cola, Colgate and Hyundai. "Right now, we are the No 1 advertising agent for all the major domestic Web sites," he said.

But keen competition is driving down the profit margin in the business. "Although the advertising agency work brings most of our revenue, its margin is not the highest," Zhu said.

"The profit margin of the agency business is capped."

Zhu has high hopes for an online affiliated program, which the company introduced in 2004.

Under it, the company selected a group of small- and medium-size Web sites to run online advertisements for its clients. The Web sites are paid each time they generate a click, a registration or a sales lead for advertisers.

Right now Allyes' online affiliated program has more than 20,000 Web sites and 70 advertisers.

It is the largest in China, according to the Internet Society of China.

Similar online affiliated programs, Commission Junction and Linkshare, have been running in the United States and Europe since 1996. Parent company of Commission Junction is Nasdaq- listed ValueClick, which is trading at about 16 times earnings.

Zhu said the company plans to expand to Taiwan soon - at first selling the AdForward computer system, before gradually building up other lines of business. The company is also talking to a leading online marketing company in Europe for a potential partnership.

Allyes raised US$30 million from US-based venture capital fund IDG and Oak last September.

"So far, total investment in the company is about US$32 million to US$33 million," Zhu said.

Apart from IDG and Oak, Focus Media chief executive Jason Jiang is an investor. The four founders still hold the majority of the company, although less than 50 percent.