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Andy Li, CFA
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I am a value investor specialized in analyzing small/mid-cap companies and good at identifying under-valued fast growing companies. A believer of value investmenting and a follower of Warren Buffett, Charles Munger, Peter Lynch and John Neff. Andy Li, Ph.D, CFA, FRM is currently an active... More
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  • Goldman Sachs Issued a Conviction Buy for AMBO- PT 12$ 0 comments
    Mar 10, 2011 2:50 AM | about stocks: AMBO
    Goldman Sachs' Report

    Source of opportunity
    We upgrade Ambow to Buy post the stock’s recent correction and add it to the Asia Pacific Conviction Buy
    list. Ambow is one of the largest players in China supplementary education, and we forecast its K-12 tutoring
    and career enhancement services (two-thirds of revenues in 2010) to drive 20% 2010-2013E earnings
    CAGR. We view the stock’s recent significant correction (from liquidity constraints and sector weakness) as
    unwarranted, given fundamentals appear intact, with 4Q10 results exceeding expectations. At current levels,
    Ambow trades at 12X 2011E non-GAAP P/E, or 45%/60% discounts to Xueda/New Oriental. Our $12 12-m
    TP implies c.50% upside.
    Catalyst
    1) Ambow has executed on track post IPO in Aug 2010, which should ease investors’ concern over its
    historically M&A driven business model. Ambow beat our 4Q10 revenue and EPS estimates by 10%, and
    guided 1Q11 revenue 10% ahead of our forecast. The company plans to add a substantial number of
    learning centers organically in 2011, (40 on top of the existing 131), accelerating its expansion. 2) We believe
    the market will appreciate Ambow’s differentiated career enhancement business, which targets high-end IT
    training and leverages its cooperation with local govt.
    Valuation
    We raise our 2011E revenue forecast by 9% but lower our margin assumption on faster expansion. We have
    adjusted our 2011/2012E EPADS by -4%/+3% and introduce 2013E EPADS of $0.96. We maintain our 12-m
    target price of $12, derived from P/E-based SOTP. We apply 18X 2011 P/E to the tutoring business’s non-
    GAAP NOPAT, 25X to career enhancement services, and 10X on K-12 schools and colleges. Our M&A
    scenario analysis would add $4 to Ambow’s base-case DCF value of $16.7.
    Themes: AMAP Stocks: AMBO
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