March 12, 2010POST SPAC SPECIAL SITUATION
China MediaExpress (CCME)
SPAC Analytics Special Situation Research
Price (USD)11.56Short term target20.0012 month target 28.00Market cap ($ mn)457F.d. enterprise value (EV)336F.d. shares outstanding (mn)39.6Public float10.1
Dec 31 YE2008200920102011
Revenue6395143191EBITDA38587795Adj net income27415466EPS basic0.971.431.642.00EPS f.d.0.781.161.361.66F.d. P/E14.810.08.57.0EV/EBITDA22.214.171.124.6EBITDA growth %201533223EBITDA margin %60615450
Med. Comp. Multiples
China MediaExpress (CME) Description:
Since its inception in November 2003, CMEhas grown rapidly to become China’s largesttelevision advertising operator on inter-cityexpress buses. The Company generatesrevenue by selling advertisements on itsnetwork of television displays installed onover 21,000 express buses originating infourteen of China’s most prosperousregions, including the five municipalities ofBeijing, Shanghai, Guangzhou, Tianjin andChongqing and nine economicallyprosperous provinces, namely Guangdong,Jiangsu, Fujian, Sichuan, Hebei, Anhui,Hubei, Shandong and Shanxi whichgenerate more than half of China’s GDP.
CCME – Sustainable growth from a well defended niche
Key investment points
: Growth driven by network expansionfrom 20,000+ buses in 2009 to 30,000 buses by the end of2010. Advertisers are attracted to CCME’s large scale(100+ million monthly viewers) and low CPM rates.CCME’s CPM rates should not suffer competitive pricingpressures due to its well protected niche, leading 32%market share and large discount to its peers. Excellentcash generation with low DSO. Growth, profit margins andcash conversion superior to all China out-of-homeadvertising public peers.
Despite these positives, CCMEtrades at a 69%+ discount to its direct public peers.
Credibility no longer an issue:
The primary issueholding back a higher multiple has been credibility after atough SPAC IPO that raised little cash. The recent StarrInternational preferred investment is validation thatCCME’s business is sound. Starr spent four months of duediligence before making the decision to invest $30M.Additional actions to build credibility have been the hiring ofDeloitte and Touche auditors, repurchase of $1M publicwarrants and active communication with public investors.
Our short term target is $20.00 which is 14.7x FY10F P/E(12.4x P/E ex-net cash) and 8.7x 2010 EV/EBITDA. Our 12month target is $28.00 which is 10.4x 2011 EV/EBITDA whichis in line with typical out-of-home advertiser forward multiples.Our 12 month target is crossed validated with our DCF modelthat generates a $28.23 valuation.Our forecast is conservative with net income below theminimum net income targets set by the Starr investmentagreement. For the 4
quarter 2009 we forecast $13.2M netincome for true fully diluted EPS of $0.38.
To meet the Starr2009 net income target, 4
quarter net income will need tobe $14.7M which would generate fully diluted EPS of $0.42.Bottom line:
CCME’s well defended niche and cash rich balance sheet ($100M net cash) support a sustainable andhigh growth outlook for its business. We expect the release of strong 4
quarter audited results andpositive guidance for 2010 to be the catalyst to move the shares towards our short term target of $20.00.
(858) 366-4580 MBA, CMA email@example.com