China Mediaexpress Holdin (NASDAQ:CCME)

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)

- Is the company's auditor ranked in the top 100?
- Is the auditor located in the U.S.A? If located in China the PCAOB (Public Company Oversight Board) may be denied access to investigate the practices of the auditing firm.  Short sellers have been using this information as a tool to validate their opinions. 
- Are the company's internal controls satisfactory?
- Are their any outstanding legal issues?
- Do the company's top ten customers represent less than 10% of revenues?
- Operating cash flow divided by current liabilities is greater than one. The higher the better. (we will use annualized cash flow run rate and eliminate non-cash charges from account liabilities ).
- Cash divided by Current Liabilities is greater than one. This is the most conservative liquidity ratio.- Is the company buying back stock?

Criteria	Meets Criteria	Notes
Top 100 Auditor	Yes (Big 4)	Deloitte Touche Tohmatsu; Note that the PCAOB (Public Company Oversight Board) is denied access to conduct inspections. This appears to be a common occurrence for auditing firms located in China, as many reputable auditing firms also share the same issue.
Located in U.S.A	No	Hong Kong
Satisfactory Internal Controls	YES	The Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2010,  disclosure controls and procedures were effective in ensuring that material information relating to us, is made known to the Chief Executive Officer and Chief Financial Officer by others within our company during the period in which this report was being prepared.
No Legal issues	NO	Uncertainty over the need to obtain an advertising license in certain jurisdictions.(We will gain more clarity on this issue).
Customer Concentration	YES	In the three months ended March 31, 2009 and 2010, there was no single customer that contributed for 10% or more of the Group's revenue.
Cash Flow Ratio is Greater then 1	YES	2.29
Cash ratio is greater than 1	YES	5.05
Buying Back Stock/Insider Buying	No	n/a

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.

New independent article available on CCME

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

GeoNuggets® - Quick Check List Highlighting Undiscovered Opportunities

Tm Entertainment & Media (AMEX:TMI)

Company Description: Tm Entertainment & Media is a blank-check company in the process of consummating a share exchange with China MediaExpress (CME). The proposed transaction still needs to be approved by Tm Entertainment 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. 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.

Data Ended 6/25/09

• 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

Reasons for Optimism. We generally do not code stocks as GeoBargains® before the closing of a share exchange transaction of this nature, but our confidence that investors will approve the transaction has been reinforced due to several factors.

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.