NotableCalls - China Digital TV: Buy the Dip says Morgan Stanley

Passing this along Masters from NotableCalls: Morgan Stanley reiterates overweight for China Digital TV (NYSE:STV) noting that the stock stock price dropped 10%+ post its 1Q08 result – a market overreaction in firm's view.

They see CDTV as a ‘proxy’ for China’s digital cable TV market, one of the fastest-growing consumer sectors in China (digital cable TV homes in China may grow at a 5-year CAGR of 45% from 2007-2012).

Notably, some rivals offer smart cards at only half of CDTV’s price. Yet on firm's observation, they are barely breakeven and may soon be squeezed out of the market if they cannot capture a meaningful market share.

Investors are currently paying only ~US$1bn for CDTV, which owns half of the digital smart card market in China, a nation that hosts one-third of the global cable TV viewers and whose cable TV ARPU (average revenue per user) only amounts to 2-3% of the level in the US. 3

Morgan Stanley's DCF-based fair value of US$37 per share implies over 100% upside.

Notablecalls: STV looks like it wants to bounce. Morgan Stanley provides a reason to buy. I expect it to trade over $18 level today.

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