Susquehanna Maintains a 'Positive' Rating on China Information Security Technology (CPBY)

May 13, 2009 9:17 AM EDT

Susquehanna maintains a 'Positive' rating on China Information Security Technology (Nasdaq: CPBY), lowers price target $5.

Susquehanna analyst says, "...We believe two factors could potentially explain why new contract activities and the project pipeline remain robust, but revenue recognition, which is dependent upon project implementation milestones, is slower than expected. Specifically, 1) the delay of project implementation is partially caused by management's initiative to revamp internal operations, streamline recently acquired businesses, and ultimately improve its product/service capability for the long haul; 2) there could be challenges stemming from CPBY's substantial A/R balance, which ties up working capital and limits CPBY's ability to generate revenue growth. Strategically, we are encouraged by management's commitment to building a solid franchise in the long run, albeit sacrificing near-term growth. That said, we believe CPBY currently lacks effective communication with the investment community and potential benefits from the shift towards improving product/service quality is difficult to quantify in the next quarter or two...We are lowering our 2009 revenue estimate from $108.3 million to $95.5 million (+12% Y/Y), and non-GAAP EPS estimate from $0.70 to $0.57 (-1% Y/Y). We are introducing our new 2010 estimates with revenue of $115 million (+20% Y/Y) and non-GAAP EPS of $0.68 (+20% Y/Y)."

China Information Security Technology Inc., formerly China Public Security Technology, Inc., is a provider of integrated solutions for the public security sector in the People’s Republic of China, specializing in providing public security information communication applications and Geographic Information Systems (GIS) software services.

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