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fees ranging between RMB600 and RMB1,500 per bus per month, which we view as considerably low
as compared to its peers in other outdoor media markets. We believe the low cost is due to a lack
ESTIMATES $ (MMs except multiples & EPS) of major competitors in this niche market as well as weak bargaining power from bus operators who
2009 2010 2011
operate in a highly fragmented market. Concession fees typically account for 70%+ of COGS of a media
Revenue
Q1 (Mar) $18.8A $44.5A $60.1E company. Continuing to control concession fees is a key task for a media company. We believe this low
Q2 (Jun) $19.1A $53.5A $67.6E level of concession charges explains CCME’s high margin profile.
Q3 (Sep) $26.1A $55.7E $77.7E Taking the rides. We took CCME’s buses in Beijing, Fuzhou and Guangzhou to view its operation
Q4 (Dec) $32.0A $57.3E $82.7E
and programs. The programs were rotated with 30 minutes of entertainment content and 10 minutes of
FY $95.9A $211.0E $288.1E
advertisements. We saw brands including multinational names such as Pepsi-Cola, P&G, Coca-Cola,
EV/Sales 3.8x 1.7x 1.3x
Siemens, and Samsung, and well-known domestic brands such as China Mobile, China Post, Wanglaoji
EPS (GAAP) Beverage, Tongyi Green Tea, Huangjin Dadang Nutrition and Yili Dairy, among others. Bus operators
Q1 (Mar) $0.36A $0.54A $0.55E expressed favorable feedback from passengers; we believe the availability of various entertainment
Q2 (Jun) $0.40A $0.80A $0.62E content makes passengers more receptive to advertising programs.
Q3 (Sep) $0.56A $0.59E $0.71E
Meeting regional managers. We met with regional managers in charge of sales and customer service
Q4 (Dec) $0.49A $0.48E $0.66E
FY $1.81A $2.38E $2.55E
in Beijing, Guangdong, Sichuan, Jiangsu, Hubei and Fujian. We cross checked with them the number
P/E 7.7x 5.9x 5.5x
of buses, top agency customers and total revenues in each region. Currently there are ~30 people in
each region who provide customer service to existing customers and develop new local customers (esp.
EBITDAS direct advertisers) in the region.
Q1 (Mar) $11.3A $25.3A $35.7E
Visit to Starr International. We visited Starr’s Shanghai office and met with directors who stated
Q2 (Jun) $11.9A $39.2A $40.2E
they have done a thorough due diligence before their $30MM investment in January, including hiring
Q3 (Sep) $16.3A $30.8E $46.1E
Q4 (Dec) $20.4A $31.5E $49.0E
ACNielsen to conduct due diligence and market research, and Deloitte to audit CCME’s financials. They
FY $59.9A $126.9E $171.0E indicated that they monitored CCME’s operation and financial results on a monthly basis and continued
EV/EBITDAS 6.1x 2.9x 2.1x to believe in its fundamentals, which is further evidenced by Starr’s additional investment of $13.5MM
announced earlier this week to purchase 1.5MM common shares from early investors of the company.
Reiterate Buy. We have spent substantial time and effort in our ongoing due diligence over the last
three months, the results of which reinforced our thesis. Shares are currently trading at just 6x our ’10
EPS (or 4x after backing out $139MM or $3.89/share in net cash). We expect more positive catalysts
in the near term as the company continues to expand its network. As such, we reiterate our Buy rating
and $21 price target, which is 9x our ’10 EPS of $2.38.
SEE ANALYST CERTIFICATION AND OTHER IMPORTANT DISCLOSURES AT THE END OF THIS REPORT
China MediaExpress Holdings, Inc. (CCME) Company Update October 15, 2010
Fiscal period FY'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(E) Q4 '10(E) FY '10(E) Q1 '11(E) Q2 '11(E) Q3 '11(E) Q4 '11(E) FY '11(E)
Period ends Dec '06 Dec '07 Dec '08 Mar '09 Jun '09 Sep '09 Dec '09 Dec '09 Mar '10 Jun '10 Sep '10 Dec '10 Dec '10 Mar '11 Jun '11 Sep '11 Dec '11 Dec '11
Income 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 55,700 57,300 211,036 60,100 67,600 77,720 82,700 288,120
Cost Of Goods Sold 1,446 12,427 23,002 7,133 7,229 8,630 6,736 29,728 17,931 11,398 20,331 20,628 70,288 21,035 23,660 27,202 28,945 100,842
Gross Profit 2,589 13,410 39,997 11,636 11,863 17,492 25,215 66,206 26,594 42,113 35,370 36,672 140,749 39,065 43,940 50,518 53,755 187,278
Selling General & Admin Exp. 916 1,657 2,813 1,101 778 1,959 2,516 6,354 2,353 3,815 5,500 6,100 17,768 4,300 4,732 5,440 5,789 20,261
Other Operating Expense/(Income) 87 737 2,063 - - - 3,209 3,209 - - - - - - - - - -
Operating Expenses 1,003 2,394 4,876 1,101 778 1,959 5,725 9,563 2,353 3,815 5,500 6,100 17,768 4,300 4,732 5,440 5,789 20,261
Operating Income 1,586 11,016 35,121 10,535 11,085 15,533 19,490 56,643 24,241 38,298 29,870 30,572 122,981 34,765 39,208 45,078 47,966 167,017
Interest Expense - - - - - - - - - - - - - - - - -
Interest and Invest. Income 8 24 100 22 21 27 43 113 61 84 90 90 325 100 100 100 100 400
Net Interest Income (Exp) 8 24 100 22 21 27 43 113 61 100 100 100 361 100 100 100 100 400
EBT 1,594 11,040 35,221 10,557 11,106 15,560 19,533 56,756 24,302 38,398 29,970 30,672 123,342 34,865 39,308 45,178 48,066 167,417
Income Tax Expense 689 4,073 8,854 3,102 2,825 3,896 5,222 15,045 6,160 9,878 7,492 7,668 31,198 8,716 9,827 11,294 12,017 41,854
Net Income 905 6,967 26,367 7,455 8,281 11,664 14,311 41,711 18,142 28,520 22,477 23,004 92,143 26,149 29,481 33,883 36,050 125,562
Tax rate 43.2% 36.9% 25.1% 29.4% 25.4% 25.0% 26.7% 26.5% 25.3% 25.7% 25.0% 25.0% 25.3% 25.0% 25.0% 25.0% 25.0% 25.0%
Basic EPS NA 0.33 1.26 0.36 0.40 0.56 0.61 1.93 0.58 0.86 0.64 0.48 2.50 0.55 0.62 0.71 0.66 2.55
Diluted EPS NA 0.33 1.26 0.36 0.40 0.56 0.49 1.81 0.54 0.80 0.59 0.48 2.38 0.55 0.62 0.71 0.66 2.55
Weighted Avg. Basic Shares Out. NA 20,915 20,915 20,915 20,915 20,915 23,542 21,588 31,275 33,290 35,288 47,545 36,850 47,600 47,600 47,600 54,545 49,336
Weighted Avg. Diluted Shares Out. NA 20,915 20,915 20,915 20,915 20,915 29,137 22,998 33,500 35,831 37,828 47,545 38,676 47,600 47,600 47,600 54,545 49,336
Margins
GAAP gross margin 64.2% 51.9% 63.5% 62.0% 62.1% 67.0% 78.9% 69.0% 59.7% 78.7% 63.5% 64.0% 66.7% 65.0% 65.0% 65.0% 65.0% 65.0%
Sales, General and Administrative 22.7% 6.4% 4.5% 5.9% 4.1% 7.5% 7.9% 6.6% 5.3% 7.1% 9.9% 10.6% 8.4% 7.2% 7.0% 7.0% 7.0% 7.0%
GAAP operating margin 39.3% 42.6% 55.7% 56.1% 58.1% 59.5% 61.0% 59.0% 54.4% 71.6% 53.6% 53.4% 58.3% 57.8% 58.0% 58.0% 58.0% 58.0%
Net income margin 22.4% 27.0% 41.9% 39.7% 43.4% 44.7% 44.8% 43.5% 40.7% 53.3% 40.4% 40.1% 43.7% 43.5% 43.6% 43.6% 43.6% 43.6%
Adjusted EBITDA margin 42.6% 46.9% 60.3% 60.2% 62.2% 62.6% 63.7% 62.4% 56.9% 73.3% 55.3% 55.0% 60.1% 59.5% 59.4% 59.3% 59.2% 59.3%
Growth Y/Y
Revenue N/A 540.3% 143.8% 24.3% 24.3% 65.5% 90.6% 52.3% 137.2% 180.3% 113.2% 79.3% 120.0% 35.0% 26.3% 39.5% 44.3% 36.5%
Gross profit N/A 418.0% 198.3% 25.8% 27.6% 87.6% 108.0% 65.5% 128.5% 255.0% 102.2% 45.4% 112.6% 46.9% 4.3% 42.8% 46.6% 33.1%
Operating income N/A 594.6% 218.8% 23.3% 29.4% 83.0% 104.7% 61.3% 130.1% 245.5% 92.3% 56.9% 117.1% 43.4% 2.4% 50.9% 56.9% 35.8%
Net income N/A 669.8% 278.5% 15.9% 29.4% 83.3% 99.6% 58.2% 143.4% 244.4% 92.7% 60.7% 120.9% 44.1% 3.4% 50.7% 56.7% 36.3%
Adjusted EBITDA N/A 547.7% 200.7% N/A N/A 76.7% 102.2% 57.6% 124.1% 230.6% 88.6% 54.8% 112.0% 41.2% 2.4% 49.5% 55.3% 34.7%
EPS N/A N/A 278.5% N/A N/A N/A 43.3% 43.9% 51.9% 100.9% 6.5% -1.5% 31.3% 1.4% -22.1% 19.9% 36.7% 6.9%
Fiscal period FY'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(E) Q4 '10(E) FY '10(E) Q1 '11(E) Q2 '11(E) Q3 '11(E) Q4 '11(E) FY '11(E)
Period ends Dec '06 Dec '07 Dec '08 Mar '09 Jun '09 Sep '09 Dec '09 Dec '09 Mar '10 Jun '10 Sep '10 Dec '10 Dec '10 Mar '11 Jun '11 Sep '11 Dec '11 Dec '11
Selected Cash Flow Items
EBIT (GAAP) 1,586 11,016 35,121 10,535 11,085 15,533 19,490 56,643 24,241 38,298 29,870 30,572 122,981 34,765 39,208 45,078 47,966 167,017
Depreciation and amortization 365 1,621 2,875 760 783 808 875 3,226 1,072 940 950 960 3,922 970 980 990 1,000 3,940
Adjusted EBITDA 1,951 12,637 37,996 11,295 11,868 16,341 20,365 59,869 25,313 39,238 30,820 31,532 126,903 35,735 40,188 46,068 48,966 170,957
Cash flow from operation (CFFO) 1,717 12,105 27,396 8,495 9,197 12,172 16,380 46,244 12,946 25,264 19,077 19,654 76,941 22,829 26,181 30,633 32,850 112,492
Capital expenditures (800) (6,600) (4,200) (500) (200) (800) (500) (1,900) (1,875) (645) (5,000) (5,000) (12,520) (3,750) (3,750) (3,750) (3,750) (15,000)
FCF (CFFO - capital expenditure) 917 5,505 23,196 7,995 8,997 11,372 15,880 44,344 11,071 24,619 14,077 14,654 64,421 19,079 22,431 26,883 29,100 97,492
Net cash per share N/A N/A N/A N/A N/A N/A 1.6 2.1 3.4 3.9 4.1 3.6 4.5 4.1 4.5 5.1 5.0 5.5
Tangible book value per share N/A 0.3 1.6 1.1 N/A N/A 1.6 2.1 3.6 4.2 4.6 4.1 5.1 4.7 5.3 6.0 5.9 6.5
Price/Tangible book N/A 42.8 8.8 12.7 N/A N/A 8.6 6.8 3.8 3.3 3.1 3.4 2.8 3.0 2.6 2.3 2.4 2.1
EV/sales (LTM) N/A N/A N/A N/A N/A N/A 3.8 2.9 2.9 2.3 2.0 2.3 1.7 2.1 1.9 1.6 1.7 1.5
EV/EBITDA (LTM adjusted) N/A N/A N/A N/A N/A N/A 6.0 4.6 4.8 3.6 3.2 3.9 2.9 3.4 3.3 2.8 2.9 2.5
EV/unlevered earnings (LTM) N/A N/A N/A N/A N/A N/A N/A 6.6 N/A N/A 4.1 4.3 4.0 4.1 4.2 3.8 3.6 3.4
Price/earnings (LTM) N/A N/A 11.1 N/A 0.0 8.5 7.8 7.7 7.1 5.9 5.8 5.8 5.9 5.8 6.2 5.9 5.5 5.5
Explanation of Ratings
Buy - The stock should be purchased aggressively at current prices. The stock is expected to trade higher on an absolute basis and be a top performer relative to
peer stocks over the next 12 months.
Accumulate - The stock should be purchased at current prices. The stock has an attractive risk/reward and is expected to outperform peer stocks over the next
12 months.
Neutral - The stock has average risk/reward and is expected to perform in line with peer stocks over the next 12 months.
Reduce - The stock should be sold at current prices. The risk/reward has become less attractive and is expected to underperform peer stocks over the next 12 months.
Sell - The stock should be sold aggressively at current prices. The stock is expected to trade lower on an absolute basis and be a top underperformer relative to
peer stocks over the next 12 months.
Ratings Distribution
Research Coverage Investment Banking Clients*
Rating Count % of Total Count % of Total % of Rating Category
Buy 92 82.9% 9 90.0% 9.8%
Accumulate N/A N/A N/A N/A N/A
Neutral 18 16.2% 1 10.0% 5.6%
Reduce N/A N/A N/A N/A N/A
Sell 1 0.9% 0 0.0% 0.0%
Total 111 100% 10 100% 11.1%
*Investment banking clients are companies from whom GHS or an affiliate received compensation from investment banking
services provided in the last 12 months.
Note: Ratings Distribution as of September 30, 2010
This material has been prepared by Global Hunter Securities, LLC ("Global Hunter") a registered broker-dealer, employing appropriate expertise, and in the belief that it
is fair and not misleading. Information, opinions or recommendations contained in the reports and updates are submitted solely for advisory and information purposes.
The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore except for
any obligations under law, we do not guarantee its accuracy. Additional and supporting information is available upon request. This is not an offer or solicitation of an
offer to buy or sell any security or investment. Any opinion or estimates constitute our best judgment as of this date, and is subject to change without notice. Global
Hunter and our affiliates and their respective directors, officers and employees may buy or sell securities mentioned herein as agent or principal for their own account.
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