Recent Spike in CNIT Price is based on Rumors, But a Good One


  • In June 2015, CNIT received a proposal to go private at a 30% market premium
  • On July 1, CNIT management formed a special committee and a month later they hired a financial advisor and a legal counsel to consider the proposal
  • Last week, after QIHU went private, rumors surfaced that CNIT will soon follow its lead
  • CNIT stock price has gained around 86% over the last week and the original proposal price still offers an additional 100% upside potential to secondary investors

Company Overview

China Information Security Technology Inc (NASDAQ:CNIT) is a internet service company that offers accessible internet advertising to businesses of all sizes. Its main product offerings include various cloud based platforms like the Cloud-App-Terminal (CAT) services.

Besides CAT, China Information Security Technology Inc offers two other services, the Taoping Net, which is an e-commerce marketplace, focused on online transactions of advertising resources for digital display terminals, and the Yunfa Net, which offers customers with a one-stop solution for information distribution, cloud storage and payments.

As of December 24, 2015, China Information Security Technology Inc had a market cap of $73 million and a Beta of $2.57, which makes it a micro-cap stock with with extreme price volatility. We recommend that investors take caution regarding trading this stock as there are good chances of large price swings.

The Chinese Companies are Leaving

Over the course of 2015, a number of high profile Chinese companies listed on U.S. stock exchanges have decided to either simply delist or became private. Just last week, Qihoo 360 Technology (NASDAQ: QIHU) went private after receiving a $9.3 billion proposal.

While Chinese companies enjoy access to the US public markets and the capital they need to expand, they also offer US investors an opportunity to diversify their portfolio by getting exposure in the $10 trillion market that makes China the second largest economy in the world.

However, the ever increasing regulatory burden to be listed in US stock markets has prompted some large scale Chinese companies to rethink about raising capital from abroad.Especially, after the Federal Reserve increased interest, there seems to be a concern regarding the future of cheap money that made it lucrative for foreign companies to raise capital in the US.

Chinese laws are not as strict as the US counterparts and if they get an offer to become private, it would make it easier for these companies to operate.

China Information Technology Already Had an Offer Back in June

After the Qihoo 360 Technology  announced to go public, on December 23, 2015, The Street reported that China Information Security Technology Inc  is among a number of other Chinese companies who might go private in the near future.

“”There are more coming,” said one analyst, regarding the deal that Qihoo accepted on Friday”, the article mentioned.

But getting privatization offers are not new for China Information Security Technology Inc. Back in June 2015, China Information Security Technology Inc received a preliminary, non-binding proposal letter that offered $4.43 per share to acquire all of the outstanding ordinary shares of the company at a 30% market premium.

It is worth noting that last Friday, Qihoo 360 Technology went private on a 16.6% market premium only.

Latest Developments

As a response to the June 19 offer, China Information Security Technology Inc formed an independent special committee on July 1 to consider the possibility of going private.

Furthermore, on August 19, 2015, China Information Security Technology Inc engaged Duff & Phelps Securities, LLC and Duff & Phelps, LLC as its financial advisor and Gibson, Dunn & Crutcher LLP as its legal counsel to deal with the offer.

The press release mentioned back then that these two companies would “assist he Special Committee to continue its evaluation of the Proposal.”

While the proposal is still officially on the table, a few things have changed over the last six months. First, the revenue of China Information Security Technology Inc has gone down to $16.1 million in the first six months of 2015, which represents a 46.4% decline compared to same period last year.

The Chairman and Chief Executive Officer of China Information Security Technology Inc, Mr. Jiang Huai Lin, said that “shutting down manufacturing facility and downsizing traditional system integration services” caused the revenue to drop.

However, China Information Security Technology Inc recently launched its Cloud-App-Terminal (CAT) services  and introduced a proprietary operating system called Cloud Nest OS ((NOS)).

While taking these new directions are all great, these initiatives will take time to translate into cash flow.


We are rather optimistic that international investors would not have to wait for a long time for the organic growth opportunities. Instead, China Information Security Technology Inc will soon exit the NASDAQ by paying a hefty premium to its investors once the “Special Committee” will decide to negotiate a good deal on the existing proposal to go public.

This is a highly speculative recommendation, but given the recent bullish momentum in the market, we believe the “smart money” has already placed their bet that something is happening under the table.


China Information Security Technology Inc stock price has already gained around 98.65% since December 18 and currently trading at $2.20 per share. Based on the original offer of $4.43 per share, China Information Security Technology Inc offers secondary investors an additional 100% upside potential.