Attempt number two at fundamental analysis
January 15, 2011
– Comments (76) |
RELATED TICKERS: CCME
Yes, I am writing a blog about a small Chinese company, the kind I ususally hate. When something catches my eye though, I can’t help but check it out. Bare in mind this is only my second attempt at fundamental analysis ever, so please CRITICIZE THE HELL out of me…I want to get good, the best, so I need to know everything I did wrong and everything I did right. What did I forget to include? What did I include that I didn’t need to?
First and foremost, CCME is audited by Deloitte and was in Forbes, plus it is listed on Nasdaq; the chance of it being a fraud is very low, probably about the same chance as Enron being a fraud.
So, what do they do? Why put it in my own words when they have a website? (www.ccme.tv) ; CCME, through contractual arrangements with Fujian Fenzhong, an entity majority owned by CCME's former majority shareholder, operates the largest television advertising network on inter-city and airport express buses in China. While CCME has no direct equity ownership in Fujian Fenzhong, through the contractual agreements CCME receives the economic benefits of Fujian Fenzhong's operations. Fujian Fenzhong generates revenue by selling advertisements on its network of television displays installed on inter-city buses and airport express originating in China's most prosperous regions, including the municipalities of Beijing, Shanghai, Tianjin and Chongqing and economically prosperous regions, namely Guangdong, Jiangsu, Jiangxi, Fujian, Sichuan, Hebei, Anhui, Hubei, Shandong, Shanxi, Inner Mongolia, Zhejiang, Hunan and Henan.
So is this a good business? I can’t say that I really know a lot about China, so it could not be. But the numbers are good, and from what I can tell they have a near monopoly. All signs point to eventual revaluation of RMB, which would greatly strengthen this company being that it does business in China and is not an exporter. Also, China is becoming more urbanized from what I have read, so buses should become more popular. Also from what I have gathered, Asian people love media and I know if I was on a bus with nothing to do I would be watching the advertisements (well, I would probably be reading an investment book, but if I didn’t have one I would be watching the TV). Seems unique enough that there wont be much competition. I can’t really determine further if this is a great field to be in, but this seems like enough for me to be a basis for wanting to inspect the company and the financials. On to the story!
All of my information on this company has come from message boards (mostly CAPS) and the website itself…is this enough sources of information, or where else should I be looking? Anyway, the website is nice. They were established in 2003, so they are relatively new…this is always a plus.. It has the Ministry of Transport’s document as its strategic partner. I will be honest, I don’t quite know what that is, but I think it is like the department of transportation in America, so they have the government on their side which is definitely a plus especially in China. If you click on their rewards page, it is flooded with awards they have received, which is great. Their most recent: China MediaExpress was set as "First Model for Innovation" in 2010 Global Innovative Economy Summit Forum. They just signed a crapload of new contracts, putting them in most major airports. As far as I can tell, I have already established a bullish case. A good company, expanding, in a good industry, in a good country, with no competition…correct me if I am wrong, and if I need to dig deeper into the story. On to the balance sheet!
Let me start off by saying I don’t really know much about balance sheets. But there is zero debt, zero goodwill, declining accounts receivable. I don’t know if theres a name for this ratio but their ratio of assets to liabilities is 7.86:1…seems really good. There is also no redeemable preferred stock. As far as I can tell, this is about as clean a balance sheet as they come. On to the numbers!
Price to book ratio is irrelevant in a media company, as their isn’t a lot of equipment or liquid assets. Current P/E is 8.29, forward is 6.63, and the PEG is 0.34…these are very impressive numbers. I find ROA, profit margins, and operating margins to be irrelevant here considering a large part of their assets is cash. Quarterly revenue growth at 118%. Cash equal to roughly ¼ of the current share price. So if you back the cash out, the P/E is RIDICULOUS. Again, zero debt. It is a growing company, and CAPEX outpaces depreciation. On to the stock itself!
Starr investment invested $30m into this company and already redeemed all warrants. 40% of float is short (!!!!!) so once the dividend price is announced (which should be coming soon) a lot of those shorts will probably cover, sending this thing flying. Small chinese companies are out of favor, which is also a plus, because if they become in favor this company will probably be at the front of the line. Insiders hold a lot of this company, which is awesome. One of the few things I learned from Peter Lynch is that insiders sell for all kinds of reasons, but they only buy for one reason, and that is they are very bullish on the company. Only 9.4% held by institutions, which isn’t a lot, which is what I like to see. The chart does not seem to follow a pattern, but the 50 MA performed a golden cross on the 200 MA in November, which is bullish. At a market cap of $673M, this company is still tiny, and could be a multi-bagger within the next few year. Only 2 analysts cover it, so it is relatively off the radar. Plus I have never heard about it on TV. As far as I can go back, it has always met analysts earning expectations, except for the last 2 quarters where it beat earnings. They are buying back shares as well. On to the risks!
What are the risks? Chinese inflation, the perceived risk of fraud leading shorts to attack it, eventual competition. I am not sure how I could possibly tell the future of any of those things, so I think they are not a huge factor. On to the conclusion!
I listened to the most recent earnings call (the guy has a heavy accent and I can’t fully understand him, so I cannot listen to another). Only good stuff, no negative stuff. This only took me 2 hours, and I can’t help but think “how the hell can I feel like I know enough about a company in 2 hours to invest” but I don’t know what I missed. On to the criticisms!
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