Why Does CSST Want to Go Private?

Author: John Honovich, Published on Jan 28, 2011

CSST, 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%.

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