Value Investor

Value Investor

Monday, 29 May 2017

China Digital TV Holding - Money back guarantee with topping


A special situation net-net.

“China Digital TV Holding Co., Ltd. (CDTV Holding) is a holding company. The Company is a provider of conditional access (CA) systems to the People's Republic of China's (PRC) digital television market. The Company is engaged in the provision of cloud-based application platforms and CA systems. The Company's CA systems, including smart cards, head-end software for television network operators and terminal-end licensing for set-top box manufacturers, enable digital television network operators in the PRC to control the distribution of content and value-added services to their subscribers and block unauthorized access to their networks. The Company sells and provides integration service of digital television applications, such as electronic program guides (EPGs), and subscriber management systems (SMSs), to digital television network operators with certain hardware. It also sells other products sourced from third-party suppliers, such as surface-mounted device chips.

At first sight this company may seem risky with its operations in China and that it just got delisted from NYSE. However, in contrary to the typical chinese fraud listings, this company have actually provided substantial value through dividend several times during the last ten years. Also, the company was forced to delist from the NYSE because of the sale of its major holding Beijing Super TV.  

STV recently announced the sale of the holding Beijing Super TV, and with it, the announcement to pay a dividend of 1,5 USD  per share. Today the share price is 1,51 USD, meaning a money back guarantee investment. However, that is not all assets one gets, as net cash per share is close to 2 USD, meaning STV is traded at a 25% discount to NCAV.

It is not clear what will happen with the rest of the cash but according the last quarterly report the management intends to acquire assets or businesses.

Also, there might be other undisclosed assets in the company. This was stated in the fourth quarter management statement:

“Mr. Zhenwen Liang, China Digital TV’s chief financial officer, stated, “We are glad to end 2016 with robust growth in our cloud business. Additionally, in December 2016, Beijing Cyber Cloud Technology Co., Ltd. (“Cyber Cloud”), a subsidiary of China Digital TV, received a RMB33 million strategic investment for 10% equity ownership in our cloud computing business. After the capital injection, China Digital TV now maintains 58% ownership of the subsidiary’s equity. Looking ahead, we are committed to developing new growth opportunities and generating further value for our shareholders.”

That means that the “Cyber Cloud” subsidiary was valued to 330 M RMB, equivalent to 50M USD, of which 28M is held by STV. That’s net assets of 0,5 USD per share added to the margin of safety.

Disclosure: I am long STV.

Note that the dividend record date is expected to be on may 31.

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