CCID Consulting Company Limited

CCID (‘Company’) is 70% owned by the Chinese state. It is affiliated to the China Electronics Information Industry Development Research Institute - of the Ministry of Industry and Information Technology.

It is one of China’s leading providers of research, consulting, and IT-related outsourcing services - and has a diverse roster of high-profile clients.

It reports revenues under four segments: i) Management and strategic consultancy services – implementation of enterprise management applications (48% of 2019 revenues); ii) Market consultancy services – market research (9%); iii) Information Engineering Supervision Services – software, network, communication, and security projects (37%); and iv) Others (6%).

The company was hit by quarantine during the Covid-19 outbreak which resulted in delays in customer acceptance of work done and hence, declines in revenue recognition during the period. As of date, however, it is back to full operational strength.

The company reported TTM sales of $234m, which included the nine months to September 2020 (2019: $273m) and net profits of $53m (2019: $67m). Considering the entrenched position of the company within the industry, we expect conservative earning power of $50m/year.

The striking feature of the balance sheet is the excess cash (in excess of current liabilities) of $182m.

The stock currently sells for $280m, which is under 6x earnings, and an absurd 2x earnings after backing out cash.

As capital intensity is light, the company can grow earnings relatively quickly.

Set against this is the company’s poor record of dividend payouts. Last year’s payout amounted to only $5.7m and dividends have been skipped twice in the last five years.

The dynamic and generally competitive nature of this industry is largely offset by the state-backed entrenched nature of this enterprise, and the stock appears to be quantitatively cheap on the financial performance and position.