3 Small-Cap Chinese Tech Stocks Worth Looking Into

Includes: RDA, SPRD, VIMC
by: James Hartje

With a population of over 1.4 billion and a booming technology industry, China has become a true player in the tech world with many top up and coming stocks worth looking at. While there are great large-cap, big-game Chinese tech stocks like Baidu (NASDAQ: BIDU), China Mobile (NYSE: CHL), Sina Corporation (NASDAQQ: SINA) we are going to focus on the smaller, high growth, more speculative plays. What we are going to look at is highly speculative, high growth, small to mid cap Chinese tech companies. Below is a list of three small- to mid-cap Chinese tech stocks worth looking into:

RDA Microelectronics (NASDAQ: RDA) is a Chinese designer of RF and mixed-signal semiconductors for cellular, broadcast, and connectivity applications. RDA’s chips are used in cellular and other products. While not heavily followed by investment firms, there are currently three analysts watching RDA and all recommend ‘Buy’ with two of three recommending it a ‘Strong Buy.’ RDA is a fast growing Chinese based chip stock that in the past years has had its ups and downs. Since its initial IPO, RDA has soared all the way up to a 52-week high of $18.20 before recently tumbling down to a low of $7.06 in mid-September. Currently shares are trading at $8.30; we think this is very cheap when factoring the basic fundamentals, qualitative factors, its financial statements, etc. RDA’s shares are trading at 13.33X earnings and 4.25X sales. In addition to that, sales grew 66% quarter to quarter along with EPS growing 257%. Expect RDA to rise over the course of the next year. Within the next 12-months we expect shares to be trading at around $14.50, a total yield of 78%.

Spreadtrum Communications (NASDAQ: SPRD) is a Chinese based semiconductor company. SPRD is a big player in wireless communication chips and has been capitalizing on the growing Chinese handset market. While Mediatek dominates the market, Speadtrum is quickly gaining ground and market share and becoming a prominent player. SPRD is a solid overall investment with a PEG of 0.57, trades at 3.1X sales, 4.3X cash value, and 11.5X forward earnings. Sales have been growing exponentially up 150% from the past two quarters while EPS has skyrocketed 2,675%. The company’s upper management is very efficient producing strong results with 17% Return on Assets and 59% Return on Equity. Long-term SPRD is a safe, strong bet on Chinese telecom and we expect the stock to rise to over $30 per share, a total yield of 29%.

Vimicro International (NASDAQ: VIMC) designs, manufactures and sells semiconductors in China. It is the leading chipmaker for PC webcams and has achieved great success for the design of multimedia chips for mobile phones. The company has been rapidly expanding, recently it has even created a unit focusing on surveillance-camera chips. The company is a high risk, huge reward speculative play. Trading at such low levels, many worry about the long-term success of the company. Recent losses have hurt VIMC’s stock price significantly but after recent strategic moves we believe VIMC will return to profitability. If all bodes well and Vimicro succeeds the stock could nearly double, soaring to over $4 per share, good news for investors worldwide.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.