Vimicro (NASDAQ-VIMC) Initiating Coverage

Mon, 2012-07-30

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Title: Vimicro (NASDAQ-VIMC) initiating coverage - NEUTRAL - en route to profitability, capitalizing on the growing security and surveillance industry in China

Synopsis: We initiate coverage of Vimicro International Corporation (NASDAQ: VIMC) with a Neutral rating and a 12-month target price of US$1.20, offering a 22.4% upside potential from the current price of US$0.98. Our target price reflects the low end of our valuation due to two reasons: 1) a significant portion of our valuation is derived from the security and surveillance segment, which has yet to build a track record to prove its growth potential; and 2) our valuation is based on management’s guidance of US$1.5 million net loss in Q2-2012 and achieving breakeven on a quarterly basis in Q3 or Q4-2012. We believe that the market will closely monitor Vimicro’s ability to meet its own management guidance in Q2 before the market gives due credit to Vimicro’s share value for its growth potential. Therefore, if the company is able to successfully meet its guidance, there can be significant upside potential that we have not yet fully reflected in our target price.

Report length: 33 pages

Miller Chu
Peter Fang, CFA