Why Does CSST Want to Go Private?

By: John Honovich, Published on Jan 28, 2011

CSST [link no longer available], listed on the NY Stock Exchange and one of the largest providers in the Chinese market is trying to go private. On first glance, this is surprising. The stock markets have rebounded globally in the past 2 years and a number of their Chinese peers have recently went public. In the midst of this, why would they want to go private? We suspect they believe they are significantly undervalued relative to the growing stock market bubble in China.

Let's start with understanding CSST's current situation. CSST is on pace for $600 - $700 Million USD 2010 annual revenue. Most of that revenue is from system integration in the Chinese market with a minority from manufacturing and product distribution. The company's net profit margins have averaged 10-15% over the last few years (e.g., in 2009, operating income was $66 Million). Revenue grew from about $100 Million in 2006 to nearly $600 Million in 2009. However, recent revenue growth is much lower - in the range of 10%-20%.

Despite the company's rather large earnings, profits and growth rates, the stock price has lagged. As of January 28, 2010, the market capitalization is less than $500 Million USD, a low valuation for a company with such performance (e.g., price to sales ratio of less than 1 and a P/E ratio of less than 10). The company's market valuation peaked in October 2007 with a valuation of about $2.5 Billion, falling more than 80% since then.

Moreover, CSST's valuation is way out of line with Hikvision and Infinova - two public surveillance companies trading in the Shenzhen market. For instance, Infinova has less total revenue than CSST has operating income yet Infinova is valued nearly 3 times more than CSST. While there are some differences between the company, such valuation discrepancies are quite large and out of line. 

When companies go private it is often because they believe they are unfairly valued by the market. Companies as large as CSST generally don't stay private indefinitely. They makes changes or wait for more opportune times and then go public again.

Indeed, there is a general trend of Chinese companies listed overseas planning to move back home [link no longer available]. One article notes, "They are being attracted by the relatively higher price-earning ratios, higher underwriting prices and higher levels of funds raised by many companies that have gone public in China rather than on overseas exchanges."

Our speculation, based on no inside information, is that CSST is dissatisfied with their low valuation on the NYSE and is seeking ways to tap into the more lucrative Chinese investment market.

CSST's CEO, who is proposing this plan, states in a government filing [link no longer available] that he will seek financing from private equity firms active in Asia.

We believe this could substantially increase CSST's valuation. On the other hand, as we contended in our Infinova IPO review, we do not believe Chinese valuation of surveillance companies are sustainable. For a company that primarily does system integration, CSST's valuation, by American standards is not bad. While the company might be somewhat undervalued, the Chinese market valuations are far far overvalued (unless these companies grow at 40% CAGR for the next 5 years or so).

The outcome of this will be interesting to see. If CSST can execute this move, they may wind up with a much higher valuation and a warchest of new capital to invest into the surveillance market.

Comments : Members only. Login. or Join.

Related Reports

Dahua CEO Is Out on Feb 28, 2020
Dahua CEO Li Ke has resigned less than 3 years after he was brought in from Huawei to professionalize management. Inside this note, we examine...
Vivint Valuation Falls $1.5 Billion on Dec 19, 2019
Residential market struggles continue. Now, Vivint's valuation has fallen $1.5 billion in its impending merger. Inside this note, we examine...
"Stress in the Residential Market" - Major Lender Exits on Nov 06, 2019
The residential security / 'alarm' market is getting worse, at least for traditional players. Now, one of the biggest lenders in the industry has...
NetPosa Revenue Plunges 90% on Nov 04, 2019
Revenue for China's long-time largest VMS provider NetPosa plunged 90% in the latest quarter, adding to the firm's serious financial...
Resideo Stock Plunges 37%, CFO Ousted on Oct 23, 2019
The horrible year for the ADI / Honeywell Home spinout, Resideo, just got worse, with their stock plunging another 37% today. Not even a year...
Knightscope Sells Just 1 Net New Robot In 6 Months on Oct 04, 2019
For the first half of 2019, US government records show that Knightscope has sold just 1 net new robots ('machines-in-network'), inching up from 52...
Megvii Financials and Growth Examined on Aug 30, 2019
Megvii has already received more than a billion dollars in investment. Now, the company, a top China facial recognition provider, has filed for an...
Knightscope Adds Just 2 Total Customers In Past Year, Yet Raising Money at $300 Million Valuation on May 02, 2019
This is no longer funny. While Knightscope has laughed it up promoting robot selfies, joking about a 'suicidal robot', the man who attacked a...
Verkada Gets Half Billion Dollar Valuation on Apr 26, 2019
Last week, when we profiled Verkada (The Fastest Growing Video Surveillance Sales Organization Ever - Verkada), we predicted they would raise $40...
Hikvision Admits USA Sales Falling on Apr 22, 2019
Hikvision, in a new Chinese financial filing, has admitted that its USA sales are now falling. Less than a year after the US government passed a...

Most Recent Industry Reports

Wyze Raises $10 Million And Seeks Services Expansion on May 27, 2020
Wyze has raised $10 million, the company's first disclosed raise since the $20 million announced at the beginning of 2019. Inside this note,...
Startup Videoloft Presents Cloud Storage on May 27, 2020
Videoloft presented offsite cloud storage at the May 2020 IPVM Startups show. A 30-minute video from Videoloft including IPVM...
Directory of 250+ Fever Camera News Reports Globally on May 27, 2020
This global directory tracks 250+ articles about thermal cameras used to detect fevers in response to the coronavirus pandemic. Articles are...
Integrators Rising Against Coronavirus on May 27, 2020
IPVM integrator statistics make it clear - Coronavirus's impact on business is lessening and many are anticipating even better news in weeks...
Netposa Stock Surges 46% After US Human Rights Abuse Sanctions on May 27, 2020
Last Friday, the US government announced it would sanction PRC video management provider NetPosa for being "complicit in human rights violations...
LILIN Presents NDAA-Compliant P2 Cameras on May 26, 2020
Merit LILIN presented its NDAA-compliant P2 camera series at the April 2020 IPVM New Products show. Inside this report: A 30-minute video...
ZKTeco Body Temperature and Mask Detection Reader Tested on May 26, 2020
While dedicated fever cameras emerged first, now tablet/kiosk fever detectors are ramping up. China's ZKTeco has been aggressively promoting such...
IDIS Presents 12MP IR Panoramic Fisheye on May 26, 2020
IDIS presented its 12MP IR panoramic fisheye camera at the April 2020 IPVM New Products show. Inside this report: A 30-minute video from...
FDA Defines Correct Operation of "Fever Cameras" on May 26, 2020
The US FDA has now defined the correct operation of "Thermal Imaging Systems", colloquially known as "fever cameras". Many in video...
OnSSI Founders Return, Start Corsight on May 25, 2020
The OnSSI founders are back, less than 2 years after selling OnSSI to Qognify, they have returned to Corsight, a spin-out of an Israeli AI...