GEO Investing

I mentioned in my earlier post that there were some evidence available in Chinese language that haven’t been publicly discussed yet.  I had seen some other evidence that have made me suspicious of the company, but they are not as “black or white” as the evidence about the L’Oreal ads.  I had been hesitant about discussing these other evidence, but since I have been accused of hiding things by some longs, I am disclosing one example here and leave you to judge for yourself.
Below is excerpt from an an ad apparently posted by CCME in July 2008 on, a small Chinese B2B website.  You can use Google Translate to get the gist of its meaning.

In the ad, CCME is soliciting “investors” for the video systems it needs to install for its expansion.  The ad states that video system costs RMB 6000 each.  The “investment proposal” was for an investor to buy the systems (minimum of 10 systems per investor) and then lease them to CCME for a term of 5 years, and CCME would pay the investor an annual rent equal to 1/5 of the cost of the system.  At the end of the 5 years, the investor can choose to either sell the system at an unspecified price to CCME or renew the lease.  An obvious problem with this purported investement is that the video system will most likely be obsolete after 5 years of use.  If the video system is worth nothing at the end of the 5 years, then the investment is effectively a 5-year interest-free loan.

A translation of the cash flow table provided in the ad (see original below):

Number of Vehicles Invested Investment Cost Annual Rental Payment Total Rental Payments over 5 years Sum of Five years’ Rental Payments plus Value of Equipment
10 buses 60K yuan 12K yuan 60K yuan 120K yuan
50 buses 300K yuan 60K yuan 300K yuan 600K yuan
100 buses 600K yuan 120K yuan 600K yuan 1.2M yuan
150 buses 900K yuan 180K yuan 900K yuan 1.8M yuan

Some immediate questions that arise from this ad:

(1) With supposed nearly US$30 million in the bank, why did CCME resort to this kind of fundraising scheme?

On its 10-K filed in March 2010, it reported holding $30 million in cash at the end of 2008.  With $30 milliion, it could have purchased 30000 video system at the RMB 6000 per system rate stated in the ad.  With $30 million in cash, it could also have easily obtained a bank loan.

(2)  If CCME still mostly operated in Fujian and Guangdong provinces as described in the ad, could it have had over 15000 buses under contract and earned US$63 million in revenue in 2008?

The ad describes the company as being dominant in Fujian and Guangdong and has just started to expand elsewhere.

Yet CCME reported revenue of US$25 mil in 2007 and US$63 mil in 2008.  (CCME’s 2007 and 2008 financials were audited by the 10-person Denver firm of A.J. Robbins (PCOAB’s report on AJ Robbins.))  In a Sept 2010 presentation to investors, CCME claimed that it had 15260 buses under contract by 2008.

If CCME was still mostly a Fujian and Guangdong operation in 2008, as is described in this ad, these bus and revenue would be implausible.

(3) The ad said that CCME had only 500 video systems installed on buses in Fujian and planned for a total of 2000 in Fujian.  How many buses total had CCME’s video systems installed in 2008, in Fujian or anywhere else?

According to CCME’s rate card, as of July 2010, it had 2200 buses in Fujian province and 2100 buses in Guangdong province.

Yet the ad states: “High-speed Channel (China MediaExpress) headquarters plans to develop a total of 2000 high-speed buses within Fujian province within 2 years, in two steps.  As a first step,  we plan to install our systems on 1000 high-speed buses at our base in the city of Fuzhou (currently already installed on 500 buses). ”

So how many buses really had the video system installed in 2008?  Where did the revenue of $63 million come from?

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