Rda Microelectronics (NASDAQ:RDA) is a China-based fabless semiconductor company that designs, develops, and markets radio-frequency and mixed-signal semiconductors for a broad range of cellular, broadcast, and connectivity applications. Reasons that we are tracking the company:

  • RDA became public through an IPO.
  • With the recent resurgence in the performance of many ChinaHybrid stocks, accompanied by an improving Chinese economy, we are on the lookout for attractively priced opportunities that could experience an expansion in their valuation multiples.
  • The company is trading at a trailing non-GAAP P/E of 9.4 and a P/E of 8.5 on 2014 EPS estimates.
  • Annual non-GAAP EPS grew steadily from $0.71 in 2010 to $1.34 in 2012. While EPS growth is expected to be flat in 2013, analysts expect RDA’s EPS growth to resume in 2014.
  • Management just initiated a dividend program.
  • The biggest near term catalyst that could push shares higher may be positive fallout from the imminent IPO of Montage Technology (OTCCB:MONT) which operates in the same industry as RDA (depending on the IPO valuation).

Caveats:

  • We don’t love the company’s industry, which carries low margins where changes in business outlook can occur quickly. Thus, at this point we are treating RDA as a short term opportunity and hope to ride the coattails of the upcoming IPO and enthusiasm over the company’s dividend policy.

Disclosure: Looking to establish positions in RDA.

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