CSST's Slowing 2010 Growth

After multiple years of rapid growth, leading China surveillance provider CSST's growth rate has shrank significantly. When we profiled CSST in 2009, their growth rate had been 50% per year for the previous few years. Now, quarterly 2010 results show growth dropping under 15%. Google Finance charts show CSST's growth deceleration. On the other hand, profitability has increased significantly.

Here are specific interesting datapoints from the Q3 2010 CSR results:

• Quarterly revenue rose from $159 Million USD to $181 Million USD - 14% year over year
• Operating margins were up over 75% year over year - from 10.8% to 19.3%
• Installation revenue is now nearly 80% of all revenue
• Profits almost entirely come from the installation division
• Manufacturing revenue was under 14% of revenue (approximately $25 Million for the quarter)
• Manufacturing income were quite low - less than 4% of revenue
• R&D expenditures are low and declining - from $642,000 in Q3 2009 to $597,000 in Q3 2010
• Advertising costs are low but up sharply - from $102,000 in Q3 2009 to $1.1 Million in Q3 2010

Our knowledge of the local Chinese market is poor so we are hesitant to offer an interpretation of these results. However, given the robust Chinese economy, we are somewhat surprised that growth would be decelerating so quickly for a company many believe is the best (or at least biggest) Chinese surveillance company.