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 : PRO Members only. Login. or Join.

Related Reports

The Cowardly, Greedy "Leaders" of Video Surveillance - SIA on Nov 19, 2019
The video surveillance industry suffers from cowardly, greedy 'leaders' focused on maximizing easy money while undermining trust with the...
Top Manufacturers Gaining and Losing 2019 on Nov 18, 2019
2019 has been an explosive year for video surveillance, with the world's two largest manufacturers, Dahua and Hikvision, being sanctioned for human...
Hikvision CEO And Vice-Chair Under PRC Government Investigation on Nov 14, 2019
In a surprising and globally covered move, Hikvision CEO Hu Yangzhong and Vice-Chairman Gong Hongjia are being investigated by China's securities...
Hikvision Global News Reports Directory on Nov 11, 2019
Hikvision has received the most global news reporting of any video surveillance company, ever, ranging from the WSJ, the Financial Times, Reuters,...
Hikvision Markets Uyghur Ethnicity Analytics, Now Covers Up on Nov 11, 2019
Hikvision has marketed an AI camera that automatically identifies Uyghurs, on its China website, only covering it up days ago after IPVM questioned...
US Issues Criminal Charges For Fraudulently Selling Hikvision And Other China Products on Nov 07, 2019
The US government has made an unprecedented move on the video surveillance supply chain, charging a US company, Aventura for "having conspired with...
Senator Vitter Becomes "Proud Member Of The Hikvision Team", Calls Out "Anti-China" Rubio on Oct 29, 2019
Senator turned China lobbyist David Vitter has become a self-proclaimed 'proud member of the Hikvision team', a China (PRC) government-owned...
Dahua Co-Founder Says Human Rights Sanctions Shows Strong Dahua Technology on Oct 29, 2019
Despite Dahua doing nearly a billion dollars of projects in Xinjiang, including building and operating police stations, Dahua not only denies 'any...
Covert Elevator Face Recognition on Oct 24, 2019
Covert elevator facial recognition has the potential to solve the cost and complexity of elevator surveillance while engendering immense privacy...
Government-Owned Hikvision Wants To Keep Politics Out Of Security on Oct 21, 2019
'Politics' made Hikvision the goliath it is today. It was PRC China 'politics' that created Hikvision, funded it, and blocked its foreign...

Most Recent Industry Reports

The Cowardly, Greedy "Leaders" of Video Surveillance - SIA on Nov 19, 2019
The video surveillance industry suffers from cowardly, greedy 'leaders' who are focused on maximizing easy money while undermining trust with the...
Hikvision Dual Lens Face Recognition Camera Tested on Nov 19, 2019
Hikvision's Dual Lens Facial Recognition camera, claims that it "adopts advanced deep learning algorithm and powerful GPU to realize instant face...
Top Manufacturers Gaining and Losing 2019 on Nov 18, 2019
2019 has been an explosive year for video surveillance, with the world's two largest manufacturers, Dahua and Hikvision, being sanctioned for human...
Hidden Camera Detectors Tested on Nov 18, 2019
Hidden cameras are a growing problem as cameras become smaller, cheaper and easier to access. However, some companies claim to be able to detect...
Wyze Fires Back at JCI - Your Patents Are Invalid, Pay All Of Our Costs on Nov 18, 2019
Goliath JCI targeted startup Wyze this summer alleging the fast-growing consumer startup was violating a slew of JCI's patents. Now, Wyze has...
ADT Stock Surges - "Leading The Commercial Space" on Nov 15, 2019
Don't call it comeback... but maybe call it a commercial provider. ADT, whose stock dropped by as much as 2/3rds since IPOing in 2018, has now...
Gatekeeper Security Company Profile - Detecting Faces Inside Vehicles on Nov 14, 2019
Border security is a common discussion in mainstream US news and politics, as is the use of banned Chinese equipment by US Government agencies....
Hikvision CEO And Vice-Chair Under PRC Government Investigation on Nov 14, 2019
In a surprising and globally covered move, Hikvision CEO Hu Yangzhong and Vice-Chairman Gong Hongjia are being investigated by China's securities...
Camera Field of View (FoV) Guide on Nov 13, 2019
Field of View (FoV) and Angle of View (AoV), are deceptively complex. At their most basic, they simply describe what the camera can "see" and seem...
UK Big Brother Watch: Hikvision Is 'Morally Bankrupt' on Nov 13, 2019
UK civil liberties advocate Big Brother Watch has condemned Hikvision as being 'morally bankrupt' following IPVM exposing Hikvision marketing...