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www.ghsecurities.comFebruary 1, 2011
Company UpdateChina
Ping Luo, CFApluo@ghsecurities.com646-264-5688Jodi Dai jdai@ghsecurities.com646-264-5666
Rating:BuyPrice Target:$26.00
Price Target Metrics: 8.9x P/E (2011)
Current Price:$17.84
Float:10.9MMDiluted Shares:38.4MMShort Interest:6.4MMAverage Daily Volume:2,103k52 Week Range:$7.58 - $23.97
Market Cap:$686MM
Cash and Investments:$170MMDebt:$0MMEnterprise Value:$516MMNet Cash/Sh:$4.42
PRICE & VOLUME CHART
0 2 - 2 0 1 0 0 3 - 2 0 1 0 0 4 - 2 0 1 0 0 5 - 2 0 1 0 0 6 - 2 0 1 0 0 7 - 2 0 1 0 0 8 - 2 0 1 0 0 9 - 2 0 1 0 1 0 - 2 0 1 0 1 1 - 2 0 1 0 1 2 - 2 0 1 0 0 1 - 2 0 1 1
25.0020.0015.0010.005.000.00Pr8.007.006.005.004.003.002.001.000.00Vol
ESTIMATES $ (MMs except multiples & EPS)200920102011Revenue
Q1 (Mar)$18.8A$44.5A$63.5EQ2 (Jun)$19.1A$53.5A$71.2EQ3 (Sep)$26.1A$57.0A$79.0EQ4 (Dec)$32.0A$59.0E$86.0EFY$95.9A$214.0E$299.7E
EV/Sales5.4x2.4x1.7x EPS (GAAP)
Q1 (Mar)$0.36A$0.54A$0.62EQ2 (Jun)$0.40A$0.80A$0.70EQ3 (Sep)$0.56A$0.81A$0.77EQ4 (Dec)$0.49A$0.73E$0.84EFY$1.81A$2.88E$2.93E
P/E9.9x6.2x6.1x EBITDAS
Q1 (Mar)$11.3A$25.3A$41.1EQ2 (Jun)$11.9A$39.9A$46.1EQ3 (Sep)$16.3A$43.1A$50.9EQ4 (Dec)$20.4A$40.3E$55.5EFY$59.9A$148.6E$193.5E
EV/EBITDAS8.6x3.5x2.7x
China MediaExpress Holdings, Inc.
(Nasdaq: CCME)
Continued due diligence on CCME reinforces our thesis; Reiterate Buy.
Summary: We are currently on a due diligence trip in China and as part of our ongoing workon CCME, we talked again to a number of advertisers and bus operators and observed CCME'sbuses during this trip. We also checked government certificates/documents and the rankingfrom China Advertising Association, which in 2009 ranked CCME #6 in China by outdoor advertising revenue. During the last seven months, we have done extensive due diligence on thecompany, including interviews with advertising customers, bus operators, regional managersand CTR, an independent market research firm. We have visited Starr International and talkedto the company’s independent auditor, Deloitte. We feel comfortable with CCME’s business andcontinue to believe in CCME’s growth potential. We maintain our Buy rating and $26 price target.HighlightsInterviews with advertisers and bus operators.
In the last few days, we talked to a number of CCME’scustomers and bus operators. The advertiser customers we spoke to confirmed their 2010 revenues withCCME, and stated that they continued working with CCME in 2011. Among the customers, ShanghaiApollo, a company owned by Shanghai People’s Fine Arts Publishing House, a state-owned companywith 50+ years history and strong industry relationships, confirmed that they bought approximately 7minutes (~RMB50MM revenue) in 2010 and expect to buy similar amount of advertising time from CCMEin 2011. These advertisers and bus operators confirmed that CCME is the only inter-city bus mediacompany with a national coverage and quality services.
Experiencing the bus rides.
We again rode on the company’s airport buses in different cities. Thefollowing videos in Guangzhou and Chengdu airports, which are similar to our experiences, we believecan give investors a feel of CCME’s operations.http://www.soku.com/search_video/q_CCME.
Checked government documents.
We checked with China Advertising Association (CAA),an official government agency that all advertising platforms in China must register with. In 2007, CAA ranked CCME’s operating entity Fujian Fenzhong Media #15 bytotal advertising revenuehttp://www.cnadtop.com/news/FHDT/2009/2/6/b98600ff-c4d3-4646-ab84-fe9a5764b33a.htm, and #6 by outdoor advertising revenue in 2009http://www.cnadtop.com/news/vision/2010/8/2/578d5f78-6a1a-4ff3-aa7e-d6bf2fcd55d0_3.htm. The company is also a Class IAdvertising Enterprise; we checked the company’s certificate issued by CAA. We have also reviewedthe company’s five-year contract with TTAVC, an agency under the Ministry of Transport, which grantedCCME the rights to operate copy rights protected contents on inter-city buses in the country.
Reviewed various contracts and other channel checks.
We have in the past few months reviewedthe company’s list of customers and bus operators. We reviewed the company’s contracts withadvertisers and bus operators, rate cards, and we have also reviewed the company’s bank statements.We talked to CTR, an independent market research firm, who monitors over 70% of the mediacompanies in China. CTR is conducting a comprehensive research on CCME, which evaluates thecompany’s business model, market share, customer feedback, and media value. We expect CTR toissue such research within the next month. We also learned Deloitte has done its initial part of the annualaudit, and will continue after the Chinese New Year holiday. We expect the company to issue auditedannual report in early March.
Maintain Buy.
During the last seven months, we have done extensive due diligence. We interviewed anumber of advertising customers, bus operators, and the company’s regional managers. We also talkedto CTR, the third-party market research firm, visited Starr International’s office in Shanghai and talkedto the company’s independent auditor, Deloitte. We have taken CCME’s buses in different cities andchecked its advertisements and programs. We have also looked at CCME’s contracts with customersand bus operators, and government certificates and documents. We feel comfortable with CCME’sbusiness and continue to believe in its growth potential. We therefore maintain our Buy rating and $26price target.
Company Description:
China MediaExpress provides TV advertising network on inter-city express buses and airport expressbuses in China.
SEE ANALYST CERTIFICATION AND OTHER IMPORTANT DISCLOSURES AT THE END OF THIS REPORT
China MediaExpress Holdings, Inc. (Nasdaq:CCME) Financial Model
Global Hunter Securities, LLCResearch Department: 949-274-8052Fiscal periodFY'06 (A)FY'07(A)FY '08(A)Q1 '09(A)Q2 '09(A)Q3 '09(A)Q4 '09(A)FY '09(A)Q1 '10(A)Q2 '10(A)Q3 '10(A)Q4 '10(E)FY '10(E)Q1 '11(E)Q2 '11(E)Q3 '11(E)Q4 '11(E)FY '11(E)FY '12(E)Period endsDec '06Dec '07Dec '08Mar '09Jun '09Sep '09Dec '09Dec '09Mar '10Jun '10Sep '10Dec '10Dec '10Mar '11Jun '11Sep '11Dec '11Dec '11Dec '12Income Statement (U.S.$000s)Revenue 4,035 25,837 62,999 18,769 19,092 26,122 31,951 95,934 44,525 53,511 56,95659,005213,997 63,500 71,200 79,02086,020299,740350,400
Cost Of Goods Sold1,446 12,427 23,002 7,133 7,229 8,630 6,736 29,728 17,931 11,398 13,198 16,10858,635 19,939 22,286 24,812 27,01094,047113,803
Gross Profit 2,589 13,410 39,997 11,636 11,863 17,492 25,215 66,206 26,594 42,113 43,75842,897155,362 43,561 48,914 54,20859,010205,693236,597
Selling General & Admin Exp.916 1,657 2,813 1,101 778 1,959 2,516 6,354 2,353 3,815 2,509 4,45013,127 4,400 4,842 5,300 5,60020,14222,100
Other Operating Expense/(Income)87 737 2,063 - - - 3,209 3,209 - - - -- - - - ---
Operating Expenses1,003 2,394 4,876 1,101 778 1,959 5,725 9,563 2,353 3,815 2,509 4,45013,127 4,400 4,842 5,300 5,60020,14222,100
Operating Income 1,586 11,016 35,121 10,535 11,085 15,533 19,490 56,643 24,241 38,298 41,249 38,447142,235 39,161 44,073 48,908 53,410185,551214,497
Interest Expense- - - - - - - - - - - -- - - - -Interest and Invest. Income8 24 100 22 21 27 43 113 61 84 106 110361 120 125 130 140515500 Net Interest Income (Exp)8 24 100 22 21 27 43 113 61 84 106 110361 120 120 120 120515500
EBT 1,594 11,040 35,221 10,557 11,106 15,560 19,533 56,756 24,302 38,382 41,355 38,557142,596 39,281 44,193 49,028 53,530186,031214,977
Income Tax Expense689 4,073 8,854 3,102 2,825 3,896 5,222 15,045 6,160 9,878 10,224 9,83236,094 9,820 11,048 12,257 13,38246,50853,744
Net Income 905 6,967 26,367 7,455 8,281 11,664 14,311 41,711 18,142 28,504 31,131 28,725106,502 29,461 33,145 36,771 40,147139,523161,233
Tax rate43.2%36.9%25.1%29.4%25.4%25.0%26.7%26.5%25.3%25.7%24.7%25.5%25.3%25.0%25.0%25.0%25.0%25.0%25.0%Dividend to shareholders------
-
----4,4894,489-4,695-5,76910,46412,092
Dividend per share- - - - - - - - - - - 0.110.11 - 0.10 - 0.120.22 0.22
Basic EPS NA 0.33 1.26 0.36 0.40 0.56 0.61 1.93 0.58 0.86 0.92 0.83 3.20 0.62 0.70 0.77 0.84 2.93 2.96Diluted EPS NA 0.33 1.26 0.36 0.40 0.56 0.49 1.81 0.54 0.80 0.81 0.73 2.88 0.62 0.70 0.77 0.84 2.93 2.96
Weighted Avg. Basic Shares Out.NA 20,915 20,915 20,915 20,915 20,915 23,542 21,588 31,275 33,290 33,82334,70333,273 47,545 47,550 47,55547,55947,55254,550
Weighted Avg. Diluted Shares Out.NA 20,915 20,915 20,915 20,915 20,915 29,137 22,998 33,500 35,831 38,43039,31036,930 47,545 47,550 47,55547,55947,55254,550
Margins
GAAP gross margin64.2%51.9%63.5%62.0%62.1%67.0%78.9%69.0%59.7%78.7%76.8%72.7%72.6%68.6%68.7%68.6%68.6%68.6%67.5%Sales, General and Administrative22.7%6.4%4.5%5.9%4.1%7.5%7.9%6.6%5.3%7.1%4.4%7.5%6.1%6.9%6.8%6.7%6.5%6.7%6.3%GAAP operating margin39.3%42.6%55.7%56.1%58.1%59.5%61.0%59.0%54.4%71.6%72.4%65.2%66.5%61.7%61.9%61.9%62.1%61.9%61.2%Net income margin22.4%27.0%41.9%39.7%43.4%44.7%44.8%43.5%40.7%53.3%54.7%48.7%49.8%46.4%46.6%46.5%46.7%46.5%46.0%Adjusted EBITDA margin42.6%46.9%60.3%60.2%62.2%62.6%63.7%62.4%56.9%74.6%75.7%68.4%69.4%64.7%64.7%64.4%64.5%64.6%63.6%
Growth Y/Y
RevenueN/A540.3%143.8%24.3%24.3%65.5%90.6%52.3%137.2%180.3%118.0%84.7%123.1%42.6%33.1%38.7%45.8%40.1%16.9%Gross profitN/A418.0%198.3%25.8%27.6%87.6%108.0%65.5%128.5%255.0%150.2%70.1%134.7%63.8%16.2%23.9%37.6%32.4%15.0%Operating incomeN/A594.6%218.8%23.3%29.4%83.0%104.7%61.3%130.1%245.5%165.6%97.3%151.1%61.5%15.1%18.6%38.9%30.5%15.6%Net incomeN/A669.8%278.5%15.9%29.4%83.3%99.6%58.2%143.4%244.2%166.9%100.7%155.3%62.4%16.3%18.1%39.8%31.0%15.6%Adjusted EBITDAN/A547.7%200.7%N/AN/A76.7%102.2%57.6%124.1%236.2%163.7%98.1%148.2%62.4%15.4%18.1%37.5%30.2%15.1%EPSN/AN/A278.5%N/AN/AN/A43.3%43.9%51.9%100.9%45.3%48.8%59.0%14.4%-12.4%-4.5%15.6%1.8%0.7%
Growth Q/Q (sequential)
Revenue11.9%1.7%36.8%22.3%39.4%20.2%6.4%3.6%7.6%12.1%11.0%8.9%Gross profit-4.0%2.0%47.5%44.2%5.5%58.4%3.9%-2.0%1.5%12.3%10.8%8.9%Operating income10.6%5.2%40.1%25.5%24.4%58.0%7.7%-6.8%1.9%12.5%11.0%9.2%Net income4.0%11.1%40.9%22.7%26.8%57.1%9.2%-7.7%2.6%12.5%10.9%9.2%Adjusted EBITDA12.1%5.1%37.7%24.6%24.3%57.6%8.0%-6.4%1.9%12.0%10.5%8.9%EPS4.0%N/AN/AN/A10.3%46.9%1.8%-9.8%-15.2%12.5%10.9%9.2%
China MediaExpress Holdings, Inc. (CCME)Company UpdateFebruary 1, 2011Global Hunter Securities, LLCEquity ResearchPage 2
China MediaExpress Holdings, Inc. (Nasdaq:CCME) Financial ModelGlobal Hunter Securities, LLCResearch Department: 949-274-8052Fiscal periodFY'06 (A)FY'07(A)FY '08(A)Q1 '09(A)Q2 '09(A)Q3 '09(A)Q4 '09(A)FY '09(A)Q1 '10(A)Q2 '10(A)Q3 '10(A)Q4 '10(E)FY '10(E)Q1 '11(E)Q2 '11(E)Q3 '11(E)Q4 '11(E)FY '11(E)FY '12(E)Period endsDec '06Dec '07Dec '08Mar '09Jun '09Sep '09Dec '09Dec '09Mar '10Jun '10Sep '10Dec '10Dec '10Mar '11Jun '11Sep '11Dec '11Dec '11Dec '11Selected Cash Flow Items
EBIT (GAAP)1,58611,01635,12110,53511,08515,53319,49056,64324,24138,29841,24938,447142,23539,16144,07348,90853,410185,551214,497
Depreciation and amortization3651,6212,8757607838088753,2261,0721,5991,8461,9006,3671,9501,9802,0002,0507,9808,280
Adjusted EBITDA1,95112,63737,99611,29511,86816,34120,36559,86925,31339,89743,09540,347148,60241,11146,05350,90855,460193,531222,777
Cash flow from operation (CFFO)1,71712,10527,3968,4959,19712,17216,38046,24412,94625,26430,75325,57594,53826,36130,04533,67137,047127,123148,163
Capital expenditures(800)(6,600)(4,200)(500)(200)(800)(500)(1,900)(1,875)(645)(1,090)(2,000)(5,610)(3,000)(3,000)(3,000)(3,000)(12,000)(15,000)
FCF (CFFO - capital expenditure)9175,50523,1967,9958,99711,37215,88044,34411,07124,61929,66323,57588,92823,36127,04530,67134,047115,123133,163
Dividend payout-----------4,4894,489-4,695-5,76910,46412,092
Selected Balance Sheet Items
Cash and equivalent1,4856,36429,99720,41629,43740,85557,15157,151114,396139,321169,947190,140190,140215,226237,238267,521294,484294,484414,796
Accounts receivable1862,7166,0657,2887,41211,29312,56912,56918,80520,66420,33725,93625,93627,91231,29734,73437,81137,81148,918
Restricted cash313593536262512511,9293,3723,7663,9543,9544,1524,3604,5784,8064,8066,125
Total current assets1,6749,09336,12127,73936,88552,17469,97169,971135,130163,357194,050220,031220,031247,291272,895306,832337,101337,101469,839
Property plant and equipement (Net)3,2698,84811,41710,91010,13710,86411,06511,06511,52512,01811,7349,8689,86812,11614,64217,15420,64220,64233,425
Total assets4,94318,70749,11640,30948,77564,94882,97982,979157,311188,655220,927245,799245,799276,101305,066342,393377,254377,254527,524
Accounts payables877691,5651,7821,8002,0302,1792,1792,5712,8392,9043,5403,5404,3824,8985,4535,9365,9367,066
Accrued expenses2487141,2301,3801,3782,6724,5734,5736,8016,5056,6716,6716,6716,6716,6716,6716,6716,6716,671
Short term borrowings------10,00010,000-----------
Tax payables3411,8543,0723,7003,4264,5675,7655,7658,3339,98010,52910,52910,52910,52910,52910,52910,52910,52910,529
Other current liabilities2,6544,6901,9411,9742,0433,3366,0916,0914,9437,9898,2218,2218,2218,2218,2218,2218,2218,2218,221
Total current liabilities3,3308,0277,8088,8368,64712,60528,60828,60822,64827,31328,32528,96128,96129,80330,31930,87431,35731,35732,487
Convertible perferred stock--------22,09522,09522,09522,09522,09522,09522,09522,09522,09522,09522,095
Total common equity1,6137,61734,99624,83133,11544,80547,73247,73299,958128,855161,221185,457185,457214,917243,366280,137314,516314,516463,656
Total Equity1,6137,61734,99624,83133,11544,80547,73247,732122,053150,950183,316207,552207,552237,012265,461302,232336,611336,611485,751
Total Liabilities And Equity4,94318,70749,11640,30948,77564,94882,97982,979157,311188,655220,927245,799245,799276,101305,066342,393377,254377,254527,524
Valuation & Other Financial Information
DSOs17383535353936483835324040404040404045
Days payables outstanding22232523232129271323202020202020202020
Net cash per shareN/AN/AN/AN/AN/AN/A1.62.13.43.94.44.85.14.55.05.66.26.27.6
Tangible book value per shareN/A0.31.61.1N/AN/A1.62.13.64.24.85.35.65.05.66.47.17.18.9
Price/Tangible bookN/A54.511.216.1N/AN/A10.98.64.94.23.73.43.23.63.22.82.52.52.0
EV/sales (LTM)N/AN/AN/AN/AN/AN/A4.93.84.03.22.82.42.22.72.42.11.81.81.6
EV/EBITDA (LTM adjusted)N/AN/AN/AN/AN/AN/A7.96.16.54.94.03.43.23.83.63.32.92.92.5
EV/unlevered earnings (LTM)N/AN/AN/AN/AN/AN/AN/A8.7N/AN/A5.14.54.44.554.34.04.03.5
Price/earnings (LTM)N/AN/A14.2N/A0.010.89.99.89.07.56.86.26.26.06.26.36.16.16.0Dividend yieldN/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.7%N/A N/A N/A N/A 1.2%1.2%
China MediaExpress Holdings, Inc. (CCME)Company UpdateFebruary 1, 2011Global Hunter Securities, LLCEquity ResearchPage 3
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