CHINA Poised For Further Growth

With a strong track record in consolidation and organic growth in its software business, we believe CDC Corp. (CHINA) is poised for growth.

With continuous focus on vertical industries and cost reduction initiatives in its software segment, CDC should develop a significant competitive advantage in this year and beyond. New launches and upgrades (Yulgang 2.0 and Ross Enterprise v6.3) in its product line as well as its share repurchase plan currently in action will further help the company drive growth. As such, we maintain our Buy rating on the shares of CDC with a six-month target price of $3.50.

Based on our estimate for fiscal 2008 EPS, the stock is trading at a P/E multiple of 88.3. As we are currently into the second half of 2008, we roll our valuation to fiscal 2009 estimates. As such, the stock is trading at a P/E multiple of 24.1x our fiscal 2009 EPS estimate of $0.11, below the current year industry mean. Although CDC reported a loss of $0.10 per share for the second quarter of 2008, its adjusted EPS again exceeded market expectations.

CDC’s stock is trading under book value and the company will continue to repurchase its shares. Overall, we do not think its current stock price fully reflects the company’s intrinsic value. A P/E multiple of 31.8x our fiscal year 2009 EPS estimate yields a target price of $3.50, which we believe reflects company’s greater growth prospects.

Anita Mohata contributed to the report.

Posted in Categories: Contributor, External Research, Stocks, Technology.

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