China Digital TV Should Jump on Bullish Note

Morgan Stanley is positive on China Digital TV (NYSE:STV) noting the stock stock price dropped 10%+ following its 1Q08 results – a market overreaction in firm's view.

They see CDTV as a ‘proxy’ for China’s digital cable TV market, one of the fastest-growing consumer sectors in China (digital cable TV homes in China may grow at a 5-year CAGR of 45% from 2007-2012).

Notably, some rivals offer smart cards at only half of CDTV’s price. Yet on firm's observation, they are barely breakeven and may soon be squeezed out of the market if they cannot capture a meaningful market share.

Investors are currently paying only ~US$1bn for CDTV, which owns half of the digital smart card market in China, a nation that hosts one-third of the global cable TV viewers and whose cable TV ARPU (average revenue per user) only amounts to 2-3% of the level in the US. 3

Morgan Stanley's DCF-based fair value of US$37 per share implies over 100% upside.

Reiterates Overweight.

Notablecalls: STV looks like it wants to bounce. Morgan Stanley provides a reason to buy. I expect it to trade over $18 level today.

Comments

[User 145883:]

Ground floor opportunity in a volatile stock with tremendous upside potential. Got to have this as the "risk"portion of a balanced portfolio.

2008 May 19 11:08 AM

[weng ho teng:]

I do not see the value. The market reaction is indeed appropriate.

China internet/telecom stocks will be roaring ahead in the next few years.

We know all of the big names but I have one small gem that is a must own now. MYST.OB.

They are about to launch Subaye English B2B site as competition for Alibaba English.

MYST.OB two partners are Google and China Netcom.

2008 May 19 09:52 PM