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CCME - GH Research 2
CCME - GH Research 2
11/09
12/09
1/10
2/10
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8/10
9/10
The $30MM share buy back program. CCME announced that its board of directors has approved a share
repurchase program for up to $30MM of its common stock. The program is effective immediately and remains
ESTIMATES - US $ (MMs except multiples & EPS)
in effect for one year. At current prices, if the repurchase program is executed in full, will repurchase 3.8MM
FY09 FY10 FY10 FY11 FY11
Prior New Prior New
shares, or 42% of approximately 9MM shares in the public float. We believe this is a highly positive
Revenues development for the stock.
Q1 Mar $ 18.8 A $ 44.5 $ 44.5 A $ 59.0 $ 60.1 E Rumor based selloff. CCME shares have experienced significant volatility recently; shares were down 9.6%
Q2 Jun $ 19.1 A $ 55.1 $ 53.5 A $ 67.0 $ 67.6 E
yesterday and down 27% from a month ago when the company reported strong Q2 results. We believe the sell
Q3 Sep $ 26.1 A $ 55.6 $ 55.7 E $ 78.0 $ 77.7 E
Q4 Dec $ 32.0 A $ 56.3 $ 57.3 E $ 84.0 $ 82.7 E
off is related to negative events at unrelated, but also Chinese, public companies that has created a spector of
FY $ 95.9 A $ 211.5 $ 211.0 E $ 288.0 $ 288.1 E doubt being cast across the entire universe of US listed Chinese companies. We view this type of dislocation
EV/Sales 1.5x 0.7x 0.5x opportunity as an incredibly attractive entrance point to new investors.
Deloitte, Starr, and our channel checks with bus operators and advertisers. In the past two months, we
EPS, Diluted
Q1 Mar $ 0.36 A $ 0.54 $ 0.54 A $ 0.49 $ 0.55 E
have talked to a number of bus operators and advertisers, who have been working with the company for 3-5
Q2 Jun $ 0.40 A $ 0.53 $ 0.80 A $ 0.55 $ 0.62 E years. They have provided positive feedback on their working relationship with CCME. We have also had
Q3 Sep $ 0.56 A $ 0.51 $ 0.59 E $ 0.65 $ 0.71 E discussions with a key executive at Starr International, a New York based private equity firm, who explained
Q4 Dec $ 0.49 A $ 0.46 $ 0.48 E $ 0.61 $ 0.66 E their own thorough due diligence that was conducted before their $30MM investment in the company in
FY $ 1.81 A $ 2.03 $ 2.38 E $ 2.30 $ 2.55 E January 2010. They hired independent third parties to do business due diligence, financial due diligence and
P/E 4.3x 3.3x 3.1x
legal due diligence. Starr International has a board seat, advises on strategic directions and monitors the
EBITDA (Adjusted; see model)
company’s financials on a monthly basis. CCME hired Deloitte Touche Tohmatsu as its independent auditor on
Q1 Mar $ 11.3 A $ 25.2 $ 25.3 A $ 31.9 $ 35.7 E December 4, 2009, who has audited CCME’s 2009 annual report and reviewed its quarterly results in the first
Q2 Jun $ 11.9 A $ 29.5 $ 39.2 A $ 36.1 $ 40.2 E two quarters of ’10.
Q3 Sep $ 16.3 A $ 29.8 $ 30.8 E $ 41.9 $ 46.1 E
Q4 Dec $ 20.4 A $ 30.2 $ 31.5 E $ 45.0 $ 49.0 E
Investor day. The company hosted an investor day on September 7. This event was attended by
FY $ 59.9 A $ 114.7 $ 126.9 E $ 154.9 $ 171.0 E
approximately 20 institutional investors. The format was an introduction to two bus operators, two advertisers,
EV/EBITDA 2.4x 1.1x 0.8x and the market research firm CTR before CCME’s management team gave presentations to the investors. The
group also toured the buses and bus stations which carry CCME’s operation.
Fundamentals remain strong. The company generated $25MM in operating cash flow in Q2 ($38MM in
1H10), and had $139MM cash and no debt (or $3.89 in net cash per share) as of 6/30/2010. The company
generated $46MM in net income in 1H, which exceeded half of the upper end of its full year net income
guidance of $82MM-$85MM. Gross margin was improved to 78.7% due to high ASPs and gross margins from
its new airport bus business. We believe a 65%+ gross margin is sustainable in the next two years.
Compelling valuation. At yesterday’s closing price of $7.83, the shares are trading at 3.3x our ’10 EPS
estimate. If we back out the $139MM net cash, the shares are trading at 1.7x our ’10 EPS, which represents an
unwarranted discount to the double-digit levels in the peer group, in our opinion.
Reiterate Buy. We believe CCME’s fundamentals are intact. We expect CCME’s impressive growth to
continue in 2H given its expansion strategies. We believe the valuation is very compelling; with shares trading
at 3.3x forward P/E at current levels. We view the recent stock volatility as a buying opportunity. We reiterate
our Buy rating and 12- month price target of $21, which is 8.8x our ’10 EPS estimate.
Company Description: China MediaExpress provides TV advertising network on inter-city express buses and
airport buses 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, LLC
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)
Total revenue from inter-city buses 4,035 25,837 62,999 18,769 19,092 26,122 31,951 95,934 37,525 40,411 42,200 43,600 163,736 45,900 54,700 61,220 65,200 227,020
Revenue from airport buses - - - - - - - - 7,000 13,100 13,500 13,700 47,300 14,200 15,200 16,500 17,500 63,400
Total revenue 44,525 53511 55,700 57,300 211,036 60,100 67,600 77,720 82,700 288,120
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
Equity Research
Company Update
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
Company Update
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 23.9 4.9 7.1 N/A N/A 4.8 3.8 2.1 1.9 1.7 1.9 1.5 1.7 1.5 1.3 1.3 1.2
EV/sales (LTM) N/A N/A N/A N/A N/A N/A 1.9 1.4 1.2 0.9 0.8 0.9 0.6 0.8 0.6 0.5 0.5 0.4
EV/EBITDA (LTM adjusted) N/A N/A N/A N/A N/A N/A 3.0 2.2 2.0 1.4 1.2 1.6 1.0 1.3 1.1 0.8 0.9 0.7
EV/unlevered earnings (LTM) N/A N/A N/A N/A N/A N/A N/A 3.2 N/A N/A 1.5 1.7 1.4 1.6 1.5 1.2 1.1 0.9
Price/earnings (LTM) N/A N/A 6.2 N/A 0.0 4.7 4.3 4.3 3.9 3.3 3.2 3.2 3.3 3.2 3.5 3.3 3.1 3.1
I, Jodi Dai, certify that the views expressed in this report accurately reflect my personal beliefs about this company and that I have
not and will not receive compensation directly or indirectly in connection with my specific recommendations or views contained in this
report.
Important Disclosures
GHS does and seeks to do business with the company covered in this research report.
As with all employees of GHS, a portion of this analyst’s compensation is based on investment banking revenues.
See the Company’s most recent SEC filings, including 10-Ks, 10-Qs, 8-Ks and proxy filings, for additional risks and considerations.
$16.00
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Initiated coverage on 7/1/2010 with a Buy rating and price target of $18
Explanation of Ratings
Buy: We expect the stock to outperform the average total return of the stocks in the analyst’s industry (or industry team’s) coverage
universe over the next six to twelve months.
Neutral: We expect the stock to perform in line with the average total return of the stocks in the analyst’s industry (or industry
team’s) coverage universe over the next six to twelve months.
Sell: We expect the stock to underperform the average total return of the stocks in the analyst’s industry (or industry team’s)
coverage universe over the next six to twelve months.
Ratings Distribution
Research Coverage Investment Banking Clients*
Rating Count % of Total Count % of Total % of Rating Category
Buy 75 66.4% 8 80.0% 10.7%
Neutral 31 27.4% 2 20.0% 6.5%
Sell 7 6.2% 0 0.0% 0.0%
Total 113 100.0% 10 100.0% 8.8%
*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 June 30, 2010