CDC Corp.'s (CHINA) loss for the second quarter of 2008 was $0.10 per share. However, its adjusted EPS again exceeded market expectations. We still think CDC is well positioned to leverage the growth opportunities in the small-to-medium business enterprise software market and China's online game market.
In addition, its stock is trading under book value and the company will continue to repurchase its shares. Overall, we don't think its current stock price fully reflects the company's intrinsic value. Therefore, we are maintaining our Buy rating on CDC shares.
With a differentiated combination of online games, mobile applications, and 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.
China has 253 million internet users as of June 30, 2008. The internet users are expected to increase at 15% annually in the next three years. It is expected that China's online game market will grow 49% in 2008 over 2007. We forecast China's online gaming market would grow to RMB 40.1 billion yuan by 2011.
However, the software business will continue to be pressured under current challenging market conditions. Pirated game servers will reduce the company's revenue from online games. New games may not be as popular as the company expects. The recent earthquake in China will negatively affect its game business in the second quarter. Its expansion strategy through acquisitions or investments may be costly and may not be effective. Also, there is limited synergy between its software business and new media business.
Read the full analyst report on CHINA
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.