Bullish on China Digital TV

China Digital TV (STV) is the leading provider of smart cards to the booming digital TV market in china. China Digital TV holds 44% market share in China, and already delivered 12 Million smart cards nation-wide.

Digital TV household penetration in China is only 3.5%, compared with 76% in the UK and 56% in the US, so you can see the potential for growth here is pretty huge. In 2006 there were only 13 million households in China connected with digital TV. this number is expected to grow to 46 M households by 2009, and to 111 by 2011. The Chinese government has a target to digitalize all TV programs by 2015 to reach 250 millin households.

In 2010, smart-cards shipments are expected to reach 45 M. considering China Digital TV's stake of 44% at present, bring us to an estimated revenue of $150 M, and a net income of more than $90 M, based on Q3 margins.

The company's net income has increased rapidly: it was $4.5m in 2005, $13m in 2006, and expected to be more than $25m in 2007 (expecting at least $51.5 in revenues).

As of yesterday's closing price of $21.89, the company's market cap is $1.2b, which gives it a P/E of around 48 for 2007. Since the company's growth rate is more than 100% YoY, that actually appears like a pretty low P/E. Analysts expect the company to bring in $0.84 in net income per share in 2008, means P/E of 26.

I therefore believe China Digital TV can be a rewarding investment for the next 3 to 5 years.

Disclosure: Long STV

Comments

[David Oliver:]

Maybe the Chinese people don't want digital TV if it means paying more money: cmp.hku.hk/2008/01/03/...

2008 Jan 13 08:59 PM

[mj:]

This is one of bubble stock that was also recommended 2-3 months back right after its IPO. And look where its fallen from! $48-50 to 21!
How can such a sane investor trust such a speculative stock ?

In fact, it even tanked when its Q3 results came out in November-why would this unreal P/E not be sustainable if the results were good(which they were not)?

2008 Jan 13 09:04 PM

[User 139571:]

i live in Beijing. last August, i got a free set top box which brought me 200 TV channels. now i do not remember when was the last time i used the set top box. going through the 200 TV channels is a waste of battery in my remote control - nothing interesting going on there. i'm happy and satisfied with the 41 non digital channels now.

2008 Jan 14 02:44 AM

[J.D:]

Asaf, are you pumping another weird Chinese company in the propaganda and censorship sector? I wonder who controls them, doesn't look like they want anyone to find out.

2008 Jan 14 09:56 AM

[online talk:]

I bought soon after the IPO and hold the stock till now. I will still hold the stock after 2012. Fools alway win money.

2008 Jan 14 11:26 AM

[retrobeast:]

Excellent article. Those who are crying have lost money because they made the mistake of buying the high price of an initial IPO. Most IPO's have that rise and crash like STV. If the stock is for real it will run up again and keep going. STV is one of those stocks that will accomplish this. Those buying at sub $25 will be very happy in coming years.

2008 Jan 14 03:34 PM

[Lan:]

I agree that 200 channels is too many but digital signal is much better than analog signal so for that reason I think people will eventually adopt the digital signal and it will be good for STV assuming that they manage their business well

2008 Jan 17 01:09 AM

[davidinusa:]

When is this stock going up? It's been a long time of drops...is there any good news in the making?

2008 Jan 22 10:03 AM

[online talk:]

These days "China" means drop rapidly, I wanna to know why? That's means we should sell our stock or buy more stock? Any suggestion or comments for "China"

2008 Jan 22 12:16 PM

[sonrisa777:]

Hello Wei! These days, everything is droping! China was the first to drop hard because it had risen too fast. Now prices for Chinese things are beginning to be ok again. It is almost time to buy. Wait until the US is more stable. Recession talk scares people away from the stock market.

2008 Mar 08 08:02 PM