CDC Corporation (CHINA)

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Founded in 1997, CDC Corporation (CDC) provides enterprise software, online games, mobile services and applications, and Internet and media services. CDC is headquartered in Hong Kong. CDC's business is divided into two segments: Software Business and New Media Business.

Software Business is the most important business segment for CDC. During 2004, 2005 and 2006, software business accounted for 59%, 65% and 57%, respectively, of CDC's total revenues. CDC is a leading global provider of Enterprise Software Solutions to medium and large enterprises. Its solutions include: ERP (Enterprise Resource Planning), SCM (Supply Chain Management), CRM (Customer Relationship Management), HRM (Human Resources Management) and BPM (Business Performance Management). The company has established strategic partnerships with leading international software vendors to localize and resell the company's software products throughout the Asia Pacific region. The company currently has more than 6,000 customers worldwide. CDC Software is ranked number 12 on the Manufacturing Business Technology 2007 Global 100 List of Enterprise and Supply Chain Management Application vendors. CDC generates software revenues from the sale of software licenses, and the maintenance and services for such software licenses. CDC has achieved 15% to 20% organic license revenue growth, which may be among the strongest in the industry. CDC Software has grown its revenue base from $16.3 million in fiscal 2002 to $240.8 million in fiscal 2006, a CAGR of 96.1%.

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. The New Media Business Unit is focusing on entertainment for both young adults and professionals by leveraging its extensive distribution network to achieve its growth objectives. Online game business is the most important among all the business units in CDC's New Media Business. CDC will focus on growing CDC Games into one of the leading online games companies around the globe. Founded in July 2005, CDC Games has become the second-tier game operator in China with 50 million registered users of its popular game Yulgang. CDC Games intends to launch one to two new games each quarter in 2008. After its launch in June 2007, Special Force has become one of the top ten most popular games in China.

CDC's revenue for the third quarter of 2007 increased 27% year-over-year. However, its adjusted EPS missed market expectations by four cents due to lower revenues from its online gaming business and its wireless business. We still think CDC is well-positioned to leverage the growth opportunities in small-to-medium business enterprise software market and China's online game market. In addition, its stock is trading at a lower valuation than its peers. 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.

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