China Mediaexpress Holdin (NASDAQ:CCME)

Second Quarter 2010 vs. Second Quarter 2009 :

• Revenue increased by 180% to $53.5 million as compared to $19.1 million.
• Gross margin for the current second quarter was 79% as compared to 62%.
• Income from operations increased by 245% to $38.3 million as compared to $11.1 million. 
• Net income increased by 244% to $28.5 million or $0.80 per diluted share as compared to $8.3 million or $0.40 per diluted share.

First Half 2010 vs. First Half 2009

• Revenue increased by 159% to $98.0 million as compared to $37.9 million.
• Gross margin for the current first half period was 70% as compared to 62%.
• Income from operations increased by 189% to $62.5 million as compared to $21.6 million.
• Net income increased by 196% to $46.6 million or $1.07 per diluted share as compared to $15.7 million or $0.75 per diluted share.
• As of June 30, 2010, the Company had more than $139 million in cash.

Zheng Cheng, CME’s Founder and CEO, commented, “We are very pleased with the record first half results and continuous growth of our business. Our revenue and net income for the first half of 2010 grew by 159% and 196% respectively when compared to the same period of 2009, but more importantly has already surpassed revenue and net income reported for 2009 as a whole. The increase was attributable to several factors including:

• total amount of advertising time sold.
• higher average CPM rates.
• expansion of our advertising base and geographic coverage.

Furthermore, since the third quarter of last year we started to generate additional revenue from the embedded advertisement displayed during the broadcast of the entertainment content and in addition to the revenues generated by the airport express buses, a business which we entered in early 2010. In the beginning of the year, we made the important decision to implement premium advertising rates for airport express buses compared to inter-city bus advertising rates. As a result of these premium advertising rates, we were able to generate $20.1 million of additional revenue for the first half of 2010 (out of which $7 million were generated in the first quarter), as compared to the same period of 2009, when this business was non-existing. Our network today covers the airports of Beijing, Fuzhou, Guangzhou and Qingdao.”

The Company reaffirms its recently revised 2010 net income guidance which is expected to be in the range of $82 million to $85 million (on a non-GAAP basis, exclusive of non-cash charges for (i) share based compensation in connection with the granting of options under the Company’s share incentive plan expected to be adopted later in 2010 and (ii) deemed dividends on outstanding convertible preferred shares). Again, these projections exclude the impact of any possible acquisitions, additional of new buses and new investments in other media projects in 2010.

Mr. Cheng concluded, “We are very proud of our achievements. We have a dedicated management team which continues to work diligently to take advantage of several opportunities to increase our market share and further strengthen our position as China’s largest television advertising operator on inter-city and airport express buses. China's quick economic recovery in 2009, the rapid growth of advertising spending in China (which increased by 13.5% to $74 billion in 2009), and the better-than-expected outdoor advertising market trends, have paved the way for the ads market to reach new heights in 2010.”

As of the end of the second quarter CCME had:

• Zero long-term or short-term  debt
• Current ratio of 6 to 1
• $139.3  cash balance
• Annualized operating cash flow run rate of $76.4 million

China Mediaexpress added another 805 buses to its network.

CME signed these four new contracts to supply entertainment programming along with paid advertising for a period of five years, as follows:

A contract with a bus operator of 356 inter-city express buses originating from the province of Jiangxi, which commenced on June 1, 2010.

Three contracts with the bus operators of 449 inter-city express buses originating from the city of Hangzhou, the capital of Zhejiang province. One of the contracts commenced on June 1, 2010 and the remaining two commenced on July 1, 2010.

This update, coupled with the 1751 additional busses added since the company's original guidance, should ensure that CCME

• is well on its way to easily exceeding its guidance.
• is alleviating some concerns we had with respect to the abilty to achieve consistent quarterly 30% EPS growth.

Our intent over the short-term is to build a check list to assess the risk position of firms in the ChinaHybrid space. For the time being this will consist of the following: (this list is likely to grow substantially)

Short term and risk adverse investors should be aware of the quality issues currently present in the ChinaHybrid Space, questioning the validity of what seem like solid fundamental stories. It is beginning to get ugly so be cautious and understand that more pain may have to be endured, as ChinaHybrids are easy prey for short investors. The broad brush that is being applied to theses stocks appears unfair, but we can’t ignore the psychological impact this can have on investors’ portfolio decisions. If history is our guide, fear will eventually create an immense opportunity to invest in the companies that prove they can meet quality litmus tests enact shareholder friendly moves. Credibility can also be restored if independent legal/SEC opinions validate accounting practices currently in question.

China’s largest television advertising operator on inter-city and airport express buses, today announced that based on the latest developments, including the expanded geographic coverage, increased number of inter-city buses, and higher margins from the airport express buses platform, it is revising its 2010 net income guidance.

The revised guidance calls for 2010 net income to be in the range of $82 million to $85 million (on a non-GAAP basis, exclusive of non-cash charges for (i) share based compensation in connection with grants under the Company’s share incentive plan expected to be adopted later in 2010 and (ii) deemed dividends on outstanding convertible preferred shares), compared to the initial 2010 net income guidance of $71 million to $75 million.

Jacky Lam, CME’s Chief Financial Officer stated, “Our revised 2010 net income guidance reflects the continued growth of our business from existing revenue sources, and excludes the impact of any possible acquisitions, additional new buses, new revenue streams and any new investments in other media projects in 2010.

“We expect to continue to benefit from China’s rapid increase in advertising spending - which is projected to remain one of the fastest growing advertising markets in the world - sustained economic growth, and increases in disposable income and domestic consumption. We plan to continue to grow our business organically and we are also actively looking for acquisition opportunities within our core business platform. Furthermore, we are working hard to finalize several new projects which we believe will further enhance CME’s shareholder value. We have sufficient resources to fund our business expansion plans, including internal growth initiatives as well as potential acquisitions.”

Given the current market environment, The GeoTeam would like to put CCME expectations into perspective.

Normally, we would remove CCME from the GeoBargain list

Based on 2010 guidance, the 2nd Q should be a strong quarter, however dilution will likely impact 2010 3Q and 4Q resulting in EPS growth of less than 30%:

If we take the high end of CCME's guidance of $75.0 million and subtract the first quarter reported net income of $18.1 million, it will report net income of $56.9 million for the remaining 2010 nine months.  This works out to about $19.0 million per quarter or EPS of $0.57.

In 2009 we calculated that CCME reported EPS of:

• $0.40 for its June second quarter. (2010 implied EPS growth= 42.5%)
• $0.56 for its September third quarter. (2010 EPS implied growth= 1.8%)
• $0.49 for its December Fourth quarter. (2010 EPS implied growth= 16.3%)

We are not sure how investors will react to such events.  Short-term investors may choose to revisit CCME as it enters 2011 when, according to the 2011 net income target of $130 million, consistent EPS growth should resume. (2011 EPS could reach $3.88 based on current shares. This compares to about $2.25 for 2010 if objectives are met).

**Please be aware that the the 2010 net income guidance is below the incentive allocation target of $83.5 million. Investors should take this discrepancy into account if they choose to reference the 2011 net income target when formulating an investment decision. Also, if allocation targets are met, the fully diluted share count will rise.

**CCME also was adamant about not providing a 2010 EPS target during its 2010 earnings call.

The good news for dedicated long-term investors is that:

• CCME guidance does not include acquisitions or additional advertising agreements with buses. As it currently stands, CCME has increased its "bus exposure" by 8.3 % (1751 additional busses) since it issued its guidance.
  
• Per the 2010 first quarter conference call, CCME is evaluating potential acquisition opportunities. (We got the impression that such an event could be imminent).
  
• Per the 2010 first quarter conference call, CCME confirmed that its guidance is very conservative.
  
• It appears that management is portraying a strong message that it will not have to dilute its shares anytime soon:

"CME believes that its existing cash resources, the anticipated cash flows from operating activities, will be sufficient to meet both its short-term and long-term liquidity needs, including capital expenditure requirements to achieve its expansion plans and the potential increase in costs as a result of becoming a public reporting company."

We will make an exception and keep CCME coded as a GeoBargain for long-term investors who are aware of some of the possible short-term "perception" hurdles. 

Based on the current customer base, geographic coverage, network of express buses and existing revenue streams, CME’s management reaffirms its 2010 net income guidance which is expected to be in the range of $71 million to $75 million (on a non-GAAP basis, exclusive of share based compensation in connection with the share incentive plan which is expected to be adopted and with options to be granted in the 2nd or 3rd quarter of 2010 or deemed dividend on issuance of convertible preferred shares). As previously announced, these projections exclude the impact of any possible acquisitions, additional of new buses and new investments in other media projects in 2010.” Mr. Cheng concluded,

“Looking ahead, as advertisers are accelerating their efforts to grow their sales beyond the first- and second-tier cities into less developed markets, we believe that we have positioned our Company to benefit from the rapid growth of advertising spending in China. We are very proud of our success which is a result of the dedication and hard work of our management team and all of our employees, and we are confident that our Company has a bright future.”

Excerpt from form NT 10-Q (extension to file 10Q):

We anticipate a significant change in our results of operations from the corresponding period in the last fiscal year due to our former status as a shell company. Based on currently available information, we anticipate reporting net income of approximately $18 million for the quarter ended March 31, 2010, before making any adjustments for the accounting of the preferred shares that we previously issued for the quarter ended March 31, 2010.

GeoMember Drexion's take on CCME 2010 year end conference call:

1) Chairman thinks the CPM rates will equalize with direct competitors in the coming years as they strengthen their client-base (Its currently as low as 1/6th the CPM compared to Visionchina Media Inc (NASDAQ:VISN) in the same geographic area).

2) Direct-ad client CPM is roughly 15% higher than ad-agency clients

3) Ad-Inventory utilization is an amazing 97% giving plenty of pricing power.

4) 10-15% CPM increase in Q1 for some areas. However in short term, they will not raise CPM dramatically until they hit 1000 and more customers base.

5) Guidance only includes current revenue streams/buses/contracts (Includes embedded ads but not soft ads, stationary media at bus-terminals, or new-services with hotels/local-attractions/etc)

6) Bus network still going to 30k by end of 2010.

7) Being prudent to make wise acquisitions since they may very well hit 2010 earn-out without any acquisitions.

8) Margins will remain roughly the same in 2010 (I think they will rise a bit unless they make an acquisition which would lower their margin)

9) Guidance is based on 21k buses we have now, not including any from projected 30k network by end of 2010.

10) No board determination regarding uplisting to NASDAQ yet.

Based on the current customer base, geographic coverage, network of express buses and existing revenue streams, CME’s management projects that its 2010 net income (non-GAAP which is before share based compensation or fair value adjustments for the Company’s financial instruments), will be in the range of $71 million to $75 million. These projections exclude the impact of any possible acquisitions, additional of new buses and new investments in other media projects in 2010.” Mr. Cheng concluded, “We believe that our Company is well positioned to further benefit from the rapid growth in the advertising spending in China, the second largest advertising market in Asia, and one of the largest and fastest growing markets in the world. We are very proud of our success and are confident that our Company has a bright future.”

Source: Business Wire (March 23, 20 10)

Excerpts from super-trades .com

Sunday, December 20, 2009

CCME Should Be The Next Chinese Momentum Stock

This year we have seen many Chinese momentum stocks make runs of $10-$20+ per share: TRIT, RINO, FUQI, CAGC and the list goes on. All of these stocks were in hot sectors with growing sales and EPS.  www.super-trades.com.

Lately, Chinese out of home advertising stocks have been on fire. Focus Media holdings (FMCN), and VisionChina Media (VISN) are both at or near 52 week highs with strong trading volume. FMCN, closed at $16.81 on Friday, December 18, which represents a 20 P/E against the average 2010 EPS estimate of $0.83. VISN, closed at $12.05 on Friday, December 18, which represents a 22 P/E against the average 2010 EPS estimate of $0.54.

I think Wall Street is about to discover a third major player in the same sector and find it incredibly undervalued compared to FMCN and VISN. Enter China MediaExpress Holdings (CCME), which operates the largest television advertising network on inter-city express buses in China. CCME's clientele includes local brand names as well as those well-known international and national brands such as Coca Cola, Pepsi, Siemens, Hitachi, China Telecom, China Mobile, China Post, Toyota, Bank of China and China Pacific Life Insurance.

CCME, formerly TMI, was acquired in a SPAC transaction this October. They have $41m of cash with no debt. Revenues grew 65% last quarter and net income grew 43%.

Net Income through September 30, 2009 was $27.4m and the Company appears to be on track to take on management's full year target of $42m. CCME has approximately 24m shares outstanding and approximately 10m warrants with a strike price of $5.50. Estimated fully diluted shares outstanding using the treasury method will be approximately 29m at the end of 2009. EPS for 2009 should be $1.35-$1.45 if they hit the target. (The CEO said, “Historically, our fourth quarter is seasonally our best quarter. It appears that the 2009 fourth quarter will be no exception.”). For 2010, managment is targeting $83.5m in net income and fully diluted shares outstanding should be approximately 35m, for a targeted 2010 net income of $2.39 per share.

To apply the forward 2010 P/E of 20 that competitors FMCN and VISN currently have to $2.39 EPS would give CCME a price per share of $47.80. What makes CCME even more interesting is it currently has a trading float of only approximately 750k shares with 168k of those shares sold short.

If Wall Street likes FMCN and VISN enough to give them a 20 P/E, they should salivate over CCME once they discover the fundamentals of this Company.

Disclosure - I am long CCME since it was TMI under $8. This blog is my personal opinion and not investment advice. Never chase stocks and always do your own due diligence and be responsible for your trades.

Update: January 14, 2010

CCME - "The Hangover"

The movie, "The Hangover", was a Las Vegas-set comedy centered around three groomsmen who lose their about-to-be-wed buddy during their drunken misadventures, then must retrace their steps in order to find him. For CCME, my first pick of 2010 that I believe has strong potential to be in the www.super-trades.com 100%+ gainers club, you must retrace their steps to get the full potential of this story.

China MediaExpress Holdings (CCME), operates the largest television advertising network on inter-city express buses in China. CCME's clientele includes local brand names as well as those well-known international and national brands such as Coca Cola, Pepsi, Siemens, Hitachi, China Telecom, China Mobile, China Post, Toyota, Bank of China and China Pacific Life Insurance.

CCME, formerly TMI, was acquired in a SPAC transaction this October. SPAC transactions usually involve warrants which can create an overhang in the common stock until they are converted. CCME's warrant "hangover" is almost over as they announced that January 29, 2010 is the last day for warrant redemption. According to this article about SPAC warrant overhang, "after the warrants expire and the overhang is over though, all the investors that wanted to own shares of this stock can now buy them without fear that they are over-paying. This can result in significant out performance in the stock, regardless of the market's performance."

The press release told me three things:

1) CCME must be planning a large, accretive acquisition that will enable them to achieve the 100% net income growth in 2010 to $83.5m. From the PR, "In addition to enlarging our market share and geographic coverage through agreements with additional bus operators, we are now exploring possible M&A opportunities." They will now have approximately $100m in cash after this transaction and the warrant conversion.

2) CCME has been planning this acquisition and private placement for sometime. From the press release, Jacky Lam, CME’s CFO added, “We are pleased with the valuation that Starr International offered and appreciate the thoroughness of their validation procedures. Having worked with them over the past several months on negotiating the terms of the investment, we believe that they have gotten to know CME’s business and management and their decision to proceed is a strong vote of confidence in our business model.”

3) CCME has attracted a powerful institution as a major investor. "We are delighted to have Starr International, a respected investment firm with a significant presence in China and the US, as one of our major investors and we are delighted in the firm’s confidence in CME, our business plan and growth prospects.” Starr is headed up by Maurice Greenberg, from AIG.

The numbers show me that CCME is extremely undervalued and has some appreciating to do with the warrant "hangover" ending.

CCME will have approximately $100m of cash with no debt. Revenues grew 65% last quarter and net income grew 43%. Net Income through September 30, 2009 was $27.4m and the Company appears to be on track to take on management's full year target of $42m. CCME had approximately 24m shares outstanding and approximately 10m warrants with a strike price of $5.50 at the end of 2009. Estimated fully diluted shares outstanding using the treasury method will be approximately 29m at the end of 2009. EPS for 2009 should be $1.35-$1.45 if they hit the target. (The CEO said, “Historically, our fourth quarter is seasonally our best quarter. It appears that the 2009 fourth quarter will be no exception.”). For 2010, management is targeting $83.5m in net income and fully diluted shares outstanding should be approximately 38.5m, for a targeted 2010 net income of $2.17 per share.

To apply the forward 2010 P/E of 20 that competitors FMCN and VISN currently have to $2.17 EPS would give CCME a price per share of $43.38.

I am long CCME since $8. I believe the warrant "hangover" is almost over and the real party is about to begin. At a stock price in the $10's, CCME has strong potential to be the first super-trades.com 100%+ gainer in 2010. Posted by Superman at 3:16 AM

GeoBargain, China MediaExpress Holdings reported stellar third quarter results. Investors may want to take particular note in the following comments that may indicate no immediate needs to raise capital via the issuance of stock.

"As of September 30, 2009 and December 31, 2008, CME’s accounts payable, one of the principal components of its current liabilities, were $2.0 million and $1.6 million, respectively. CME’s accounts payable relate to concession fees payable to the inter-city express bus operators participating in CME’s networks. CME expects its accounts payable to increase as the number of inter-city express buses carrying its network increases.  Moreover, as of September 30, 2009 and December 31, 2008, CME’s accrued liabilities for the purchase of property, plant and equipment were $1.5 million and $1.1 million, respectively.  CME believes the cash it generates from its customers, will be sufficient to fund its expansions and payment obligations to the inter-city express bus operators and CME’s equipment supplier.

CME believes that its existing cash resources, the anticipated cash flows from operating activities, will be sufficient to meet both its short-term and long-term liquidity needs, including capital expenditure requirements to achieve its expansion plans and the potential increase in costs as a result of becoming a public reporting company."

Source: SEC Form 8K (November 16, 2009)

On November 2, 2009 we published "Hidden Clues Yield Opportunities", an article in which we mentioned Amcon Distributing (NYSE AMEX:DIT) and Hong Kong Highpower Technology (NYSE AMEX:HPJ) as companies giving us clues into their future growth prospects.

Some bullish clues we search for are insider buying at 52-week highs (ex. Amcon), substantial increases in dividends, acquisitions made with existing cash balances, lenders amending loan arrangements by accepting equity, news indicating that guidance could surpass estimates (ex. Hong Kong Highpower) and reverse splits during a period of growth. 

This morning, China MediaExpress Holdings (TMI)  repurchased and retired 1.9 million warrants in a private transaction.

We have been following the China MediaExpress / Tm Entertainment & Media story since June 25, 2009.

Today's actions by China Media may be a clue indicating that cash flow is stronger than anticipated since the Company is willing to retire warrants from which it would have otherwise received cash upon exercise.

We still can’t rule out any future capital raise events, but investors may view today's move as management's confidence in its business prospects and a willingness to enhance shareholder value.

We will continue to keep our eyes wide open and ears pressed to the pavement in search of company clues that ultimately lead to certainty in these uncertain times.

On October 15, 2009 Tmi Entertainment & Media approved its business combination with CME media. This is exciting news on two fronts:

1. On June 25 2009 we coded TMI a GeoBargain. We were a little weary of doing so because the consummation of a merger was not yet a done deal. However, based on the Company's aggressive financial performance targets and clean balance sheet, we felt  that TMI offered a nice opportunity to participate in a hot China industry sector. The GeoTeam® thinks that the stock may offer some significant upside from current levels.  [[See valuation scenarios]]

2. The approval of the business combination justified the warrant arbitrage strategy we highlighted on September 1, 2009, thanks to GeoContributor "Drexion".  The warrants saw an increase in price from $0.16 to $1.81 in roughly 6 weeks from our first mention. Ironically, with TMI currently trading at $7.88, the warrants are still mispriced with an intrinsic value of $2.38 (warrant strike price is $5.50). That doesn't even include a premium for time value as the warrants have a two year expiration.

This was a great example of the internet creating a social medium for investors to get together and formulate an incredible opportunity that we all could profit from.  Keep up the good work everyone!

Disclosure: The GeoTeam owns TMI warrants. Our plan is to slowly sell the warrants as they approach intrinsic value.

Valuation Scenarios

Added to Geo Bargain on the Radar list on June 25 2009. ($7.80). 

Data Inputs:

Fiscal Year Ends in December

We are once again updating our financial target table. Our last update assumed that the fully diluted share count for TMI was 45 million. However, to get the business combination done, TMI bought back 9.5 million shares of common stock from certain shareholders. At some point it may be safe to assume that the new entity will issue shares to recoup the money it shelled out to buy back the 9.5 million shares.

China Media Express shareholders may earn up to an additional 15.0 million shares of the Company’s common stock, subject to the achievement of the following net income targets:

Source: SEC Filing (For the quarterly period ended March 31, 2009, page 12).

^a 2009, 2010, 2011 Based on exchange rate of 6.83 RMB/USD. 2008 Based on average exchange rate of 6.95 RMB/USD.

^b The GeoTeam calculated implied EPS figures using 36.0 million diluted shares for 2009 as the initial base amount and (adding incentive shares plus in the money warrants in subsequent years) assuming net income targets are met. We did this only as a frame of reference as the figures do not take into account the possibility of any future dilutive events.

^c Based on closing price of $7.88 on October 16, 2009.

The GeoTeam® is updating TMI valuation scenarios due to information brought to our attention by a GeoInvesting user (Drexion). We originally computed future earnings per share figures using a share base of 32.7 million (as indicated by the company) before the addition of potential make good shares. However, this share count does not take into account the existence of warrants with an exercise price of $5.50. The proper fully diluted share count should be approximately 45 million.

Drexion also highlighted the following potential arbitrage opportunity

• Current Price of Common Stock: $7.83
• Current Price of Warrants: $0.16
• Strike price of Warrants: $5.50
• Implied intrinsic value of warrants: $7.83 - $5.50= $2.33

• Buy the warrants at current price of $0.15.
• If the business combination is completed and the warrants become exercisable then the warrants should approach the implied value.
• Profit = (New Value of Warrant, Properly Priced) minus $0.15.

There is caveat that is likely contributing to current warrant price.

Excerpts from TMI 2008 10K

• An effective registration statement may not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise his, her or its warrants and causing such warrants to be practically worthless.
• An investor will only be able to exercise a public offering warrant if the issuance of common stock upon such exercise has been registered or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the warrants.
• The Company will not be obligated to deliver securities, and there are no contractual penalties for failure to deliver securities, if a registration statement is not effective at the time of exercise. Additionally, in the event that a registration is not effective at the time of exercise, the holder of such Warrant will not be entitled to exercise such Warrant and in no event (whether in the case of a registration statement not being effective or otherwise) will the Company be required to net cash settle the warrant exercise. Consequently, the Warrants may expire unexercised, unredeemed and worthless.

Furthermore, several acquisition deals have fallen through over the past nine months.  If this happens to TMI, the warrants would be worthless upon liquidation.

Drexion's opinion on the likelihood that this deal will not be consummated.

On March 31, 2009, TM announced that it reached an agreement with Opportunity Partners L.P., a fund in the Bulldog Investors (“Bulldog”) group of private investment funds in connection with Bulldog’s then ongoing consent solicitation and proposed proxy solicitation. In connection with the settlement, Bulldog agreed (i) to cease its efforts to effectuate an early windup of TM, (ii) not to oppose the board of directors at the next meeting of stockholders or otherwise seek to exercise control over the management of TM, (iii) to withdraw its demand to force TM to hold an annual meeting of stockholders, and (iv) to enter into a forward contract with TM or a third party whereby Bulldog would not vote its shares against a proposed business combination. As part of the settlement, TM agreed to name Gerald Hellerman to its Board of Directors, who is independent of both Bulldog and TM. In addition, TM reimbursed Bulldog for certain expenses it incurred in connection with its consent solicitation and proposed proxy solicitation. As of the date of this proxy, Bulldog owns 2,340,550 shares of TM Common Stock, representing an 18.7% ownership interest. We believe the fact that Bulldog agreed to enter into a forward contract with TM enhances the likelihood that TM will receive stockholder approval for each of the proposals being voted upon at the Special Meeting.

Thus we already have 18.7% of the vote guaranteed. Another 33% of the public-vote is required and then management's 18% goes along with the majority.

The 18.7% holder agreed to not vote against the acquisition. I am not sure this means a 'Yes' vote or a 'Abstain'. The critical component here is that without voting 'No', that holder cannot choose to be one of the parties liquidating their positions if the measure passes (Must vote 'No' to get that liquidate-option). This is very good due to the 'If more than 30% choose to liquidate, acquisition does not happen' rule that is in place....That was a very high shareholder bar they had to pass, and the bar is now much lower. The Director that the 18.7% holder got to place on the board DID vote for the acquisition, so it is very possible they will vote 'Yes' and have it count towards the majority (Management's 2.1M shares votes along with majority).

I think it is important to note that a number of the major institutional holders of the TMI common also have very large TMI Warrant positions, as of 6/30/09. If they were planning to vote 'No', that warrant position would make no sense. Let me list some of them real quick:

QVT Financial LP 1.0M shares common, 600.0K warrants
HBK INVESTMENTS, L.P. 942.5K shares common, 515.9K warrants
DEUTSCHE BANK AKTIENGESELLSCHAFT 234.1K shares common, 202.7K warrants
BASSO CAPITAL MANAGEMENT, L.P.114.8K shares common, 577.1K warrants

Drexion's opinion on the "warrant caveat".

Fairly common verbiage... It will definitely be exercisable as soon as the acquisition is approved...If it is approved... That's why CME made sure to put in the clause where they get the first 20M raised from warrants.

The GeoTeam® will offer updates when more details become available.

While this strategy does appear attractive, investors must still consider the potential risks associated with the story.

Disclosure: The GeoTeam® has established a position in the warrants due to the favorable risk/reward opportunity.

CME operates the largest television advertising network on inter-city express buses in China. CME generates revenue by selling advertisements on its network of television displays installed on express buses originating in nine of China’s regions, including the four municipalities of Beijing, Shanghai, Tianjin and Chongqing and five provinces, namely Guangdong, Jiangsu, Fujian, Sichuan and Hebei. See Report.

Keep in mind that there are no guarantees that the deal between Tm Entertainment and CME will happen. However, given the current available information and anticipated growth, the GeoTeam® was driven to code this stock as a GeoBargain® due to its favorable valuation, coupled with the Company's efforts to communicate its story by hiring an investor relations firm and attending road shows.

• Price = $7.74
• Implied/Proforma Trailing EPS = $0.81 ^a
• Target EPS based on incentive allocations = $1.28 (2009), $2.47 (2010), $3.19 (2011) ^a
• P/E based on Trailing EPS = 9.5 ^a

1. TMI meets 8 out of 10 GeoBargain® Requirements
   
   

   	Requirement	Comments
   	Recent 52-week High (generally within 3 months)	Must Reach $7.85
   	30% EPS Growth Rate a	Full year 2009 Target implies a Proforma EPS growth rate of 58%
   	10% Revenue Growth	First Qtr. 2009 vs. 2008 revenue growth rate of 23%
   	Strong Balance Sheet	Yes
   	Positive Cash Flow	Yes, But Awaiting Future Filings For Specific Details
   	Debt to Equity Ratio less than 20%	No Long -Term Debt
   	Current Ratio is at least 2:1	3:1 as of First Quarter
   	Return on Equity is at least 15%	110% on Trailing Net Income
   	Minimum Pre-tax Operating Margins of 8%	56.1% as of 1st Qtr. 2009
   	Preferably Under 50 Million Shares	32.7 Million after closing of share exchange
   	High Insider Ownership (generally greater than 15%)	We Anticipate Will be >15% upon closing of share exchange
   	Limited Institutional Ownership (generally less than 20%)	TBA when information becomes available
   	P/E Divided by Growth Rate (PEG Ratio) is Less Than 1. a	0.16

   
   
2. Earlier this week, we outlined net revenue and EPS targets that CME must meet in order for CME shareholders to receive up to an additional 15 million incentive allocation shares. These targets, which imply exceptional growth, may add to investor confidence.
   
3. CME is currently the leader in China for adverting on television in inter-city express buses, a large and rapidly expanding industry. The Company has continuing agreements, ranging from five to eight years long, with 40 bus operating partners and works with well-known international brands such as Coca Cola (NYSE:KO), Pepsi, Siemens (NYSE:SI), Hitachi (NYSE:HIT), China Telecom (NYSE:CHA) and Toyota (NYSE:TM). CME's business model takes advantage of being able to offer flexible advertising packages to both advertising agencies and direct advertising customers. The Company's advertising network can be tracked to over 3000 highways in over 80% of the fastest growing cities in the world. *
   
4. As the out-of-home advertising industry in China continues to grow and become more a widely accepted method to reach the masses, CME is positioned to take advantage of the reputation it has built as the leader. Compared to the United States advertising per capita of ~586$, advertising spending per capita in China was a mere ~$12 in 2007. Out-of-home advertising is currently China's third largest advertising medium and is projected to grow 18% annually to over $5 billion in 2011. *
   
5. The company has experienced a compounded annual growth rate in net income of over 400% since 2006, enabled in part by healthy operating margins. Looking forward and utilizing its incentive financial targets, CME has attractive valuations that may make it a worthwhile long-term investment.*

* Source: Tm Entertainment & Media Report, filed with 8-K, Feb 22, 2009.  Other sources are highlighted in report.

Potential Valuation Scenarios if the company can achieve its EPS growth goals

Short-Term Potential value based on trailing Proforma EPS

P/E 20 * $0.81 = $16.2
P/E 25 * $0.81 = $20.3

Short-term Potential value based on 2009 Proforma EPS target

P/E 15 * $1.28 = $19.2

^a The company did not supply EPS data. The GeoTeam® calculated implied EPS figures using 32.7 million diluted shares for 2009 as the initial base amount and adding incentive shares in subsequent years assuming net income targets are met. We did this only as a frame of reference as the figures do not take into account the possibility of any future dilutive events. (After the closing of the share exchange, there will be approximately 28.9 million basic and 32.7 million fully diluted ordinary shares outstanding).

These scenarios are not intended to be investment advice, but are scenarios based on some commonly used investment guidelines. They are provided to aid investors in making their own investment decisions.

TMI currently meets eight out of ten GeoBargain® requirements.  Please note that The GeoTeam® is awaiting future filings in order to further assess the company's balance sheet.

Tm Entertainment & Med is in the process of consummating a share exchange with China MediaExpress.  The proposed transaction still needs to be approved by TM shareholders.  The closing of the transaction is anticipated to occur in the third quarter of 2009.

CME operates the largest television advertising network on inter-city express buses in China. CME generates revenue by selling advertisements on its network of television displays installed on express buses originating in nine of China’s regions, including the four municipalities of Beijing, Shanghai, Tianjin and Chongqing and five provinces, namely Guangdong, Jiangsu, Fujian, Sichuan and Hebei.

Tm Entertainment & Med, upon closing, will issue 19.5 million common shares and $20.0 million in cash in exchange for 100% of CME for total initial consideration of approximately $174.2 million.  After the closing, there will be approximately 28.9 million basic and 32.7 million fully diluted ordinary shares outstanding.

The GeoTeam® will follow this story closely, due to the company's strong net income growth in 2008 and aggressive net-income incentive targets.

Revenue Highlights

• 2008 net revenue of $63.0 million  increased 123% over 2007
• 269% CAGR (compound annual growth rate) in net revenue from 2006 to 2008

Net Income Highlights

• 2008 net income of $26.4 million, increased 246% over 2007
• 404% CAGR (compound annual growth rate) in net income from 2006-2008

2009 First Quarter Highlights

• Net revenues increased 24% to $18.8 million compared to $15.1 million
• Net income increased 16% to $7.5 million compared to $6.4 million

Please see net income incentive targets.

The GeoTeam® will provide updates concerning the progress of the consummation of the share exchange.