We are maintaining our Buy rating on software maker CDC Corp. (CHINA), as we still think that the company is well positioned to leverage the growth opportunities in small-to-medium business enterprise software and China's online-game market. In addition, the stock is trading at a lower valuation than its peers and does not reflect the company's intrinsic value.
CDC has achieved 15 percent to 20 percent organic license revenue growth, which may be among the strongest in the industry. With a differentiated combination of online games, mobile applications, Internet portals and media services, CDC's New Media Business is positioned to take advantage of the burgeoning demand for online services and entertainment in the China market. Online gaming is the most important of CDC's business units and the company intends to launch one to two new games in every quarter this year.
Based on our estimate for fiscal year 2008 earnings per ADS, the stock is trading at 41.5x, which is similar to the industry mean. Based on our estimate for fiscal year 2009 earnings per ADS, the stock is trading at 15.8x, which is much lower than the industry mean. Using a P/E multiple of 19.0x our fiscal year 2009 earnings per ADS estimate of $0.21 yields a target price of $4, which can reflect company's great growth prospects, in our view.
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