Does China Digital TV Measure Up?

| About: China Digital (STV)

After the recent runup in so many China names, I figured I'd do a little basic analysis to see how this China Digital TV Holding (NYSE:STV) IPO sizes up. Initial conclusion: price target of $80-$100.


STV sells the smart cards that set permissions/etc for digital cable TV users. According to the prospectus, 139 million households in China subscribe to cable TV. China has a target for 2015 for the entire market to be migrated to digital TV. In total of 2007, they should ship more than 6 million smart cards. They own 45% of their market.

To the numbers: They earned $12.2 million for 6 months ended Jun 30 07, versus $3.4 million for 6 months ended Jun 30 2006. Lets be conservative and assume they earn $30 million for 2007 total. Total outstanding shares are 56 million.

30/56 = .53 per share for full year 2007. 29.50 share price / .53 = 2007 PE of 55, implying a 55% growth rate is necessary to sustain this price to fair value. For 2008, lets assume they double that (100% projection) to $60m earnings, 60/56 = 1.07 per share earnings. 29.50/1.07 = 27.57, priced right now for a 27% growth rate !!!

But last y/y numbers are 400%. A 100% annual growth number is actually pretty realistic and conservative in the face of this. So with a 100 multiple on 08 numbers, I think $80-$100 price target is doable.

I just thought this might be a worthwhile analysis in the face of speculative stocks like China Natural Resources (NASDAQ:CHNR) or China Precision Steel (NASDAQ:CPSL) (CHNR: annual growth rate of 10%, but it gets a much higher multiple).

Disclosure: Author has a long position in some of the above mentioned securities.

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