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Valyooo (33.61)

Attempt number two at fundamental analysis



January 15, 2011 – Comments (76) | RELATED TICKERS: CCME.DL

            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? ( ;  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!

76 Comments – Post Your Own

#1) On January 15, 2011 at 12:21 PM, truthisntstupid (77.31) wrote:

You make CCME sound really good, Valyooo.  I just don't trust Chinese companies in general.  I think you're already pretty good at this.

By the way, assets/liabilities is called the current ratio. And 7.86:1 is one heck of a liquidity cushion, which is very good.

I would still be interested in their profitability ratios; particularly the ones that are also the primary components of return on equity, which in the absence of any debt to speak of should pretty much equal return on assets.  

In the absence of any financial leverage factor, then, both return on equity and return on assets should be equal to asset turnover X net margin.  This kind of analysis can help isolate trends in individual components of return on equity, which might be nice to know.

I'm still learning, too.  I just bought a new book that seems really neat!  Babo recommended it on your other blog a week or two ago.  It's called Financial Shenanigans by Schilit & Perler.  

I know I made it sound like I was closed-minded about digging into the notes to the financial statements in comments I made, but actually I just want to remain focused on learning everything I can about how to dig info out of the financial statements before I go any further.

Your posts give me the impression that you'd understand that notion.

I'm making you a favorite, because I'm liking your blogs more and more!

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#2) On January 15, 2011 at 2:36 PM, Valyooo (33.61) wrote:

I responded to this, I guess it didnt respond.

Thanks for telling me its called a current ratio...I can't believe that term slipped my mind.  In what situation is it more important?  Brink of bankruptcy companies? What is a good number?

Also, do you know more about debt? As long as the company has a higher ROE than the interest they pay on debt, isnt more debt better, because the leverage pays off?  Unless they have a bad quarter and it wipes them out?  Why is having NO debt good?  I understand it makes the P/E better, but as far as absolute profits?

ROE is 80% and ROA is 53% according to yahoo...makes no sense

I also just bought Financial Shenanigans...I have not received it in the mail yet, but I am excited to read it.  Did you start it yet?

I am the exact same was as you...the reason I am a momentum trader is because I don't want to try my hand at value investing until I feel I have a better grasp at it, and momentum trading comes first nature to me.  However, reading all of these value books, it doesn't stick automatically...I feel that doing these analyses helps me really understand it since it is a real example and not theoretical.

Thanks for the favorite! I always enjoy your comments, so keep em' coming!

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#3) On January 15, 2011 at 2:58 PM, truthisntstupid (77.31) wrote:


I care a lot more about debt coverage than I do about debt.  And as far as why a company can have no debt, therefore should have no financial leverage factor, yet have a difference in the ROE and ROA, I've yet to figure that one out.  Maybe someone that can help us out on this one will read this and respond.

ROE =  Financial Leverage Factor X Net Margin X Asset Turnover

Assets/Equity               =        Financial Leverage Factor

Net Income/Revenues =        Net Margin

Revenue/Assets           =         Asset Turnover

 Now, also, Net Margin X Asset Turnover, by themselves, is Return On Assets.

What I am wondering is if a business that has simply accumulated more assets than equity (a capital-intensive business?)  will have a"financial leverage" factor even though it has no debt, simply because of the way it's calculated.

I'd like an answer too, and although I have confidence that I will figure it out by myself if I have to, it would be nice if someone out there could enlighten us!

Less debt is simply good for financial strength and liquidity...for me, it's an indicator that a company can make it through some rough times without cutting its dividend.

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#4) On January 15, 2011 at 3:08 PM, truthisntstupid (77.31) wrote:

PS -  Financial Shenanigans is really good! I'm on page 60 or so. 

 Have you had any accounting classes?  Can you take an intro to accounting class as an elective?  It would really help to make some of the things you're wanting to learn stick.  I still have all my accounting textbooks from college, but I can almost never bring myself to try to read them.  Especially the parts about making journal entries, and posting debits and credits to ledgers.  

There's a wealth of information in those books, but there's also a lot of information I'm rusty on after 15 years that I really don't think I  need to analyse and evaluate a company.

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#5) On January 15, 2011 at 3:17 PM, amassafortune (29.09) wrote:

I agree with truth, one can't trust the official reporting of these Chinese-based companies. The SEC has been having a difficult time keeping up with its domestic oversight responsibilities, so it's unlikely they'd do a better job checking on a company in Shenzhen.

That said, I do have small positions in American Lorain ALN (chestnuts and MREs) and TPI (pharma). They have high growth, high current ratios, low PE, high growth and presumed high growth prospects, and a nice dividend. I looked into them when they appeared in a stock search that filtered down to solid companies like CVX, MRO, SCCO, and SYY. 

I was happy with ALN until a news article revealed a debt placement, perportedly for this year's chestnut harvest. Why would a $100 million market cap company with a current ratio greater than 2.0 need a loan to perform a normal, annual function to bring its core product to market? It could be they want to expand the business or buy something and don't want to make a public declaration that will drive up the price. Or, maybe the balance sheet is not as strong as reported.

TPI looks great, too, but a story outside of the standard business reporting outlets claims the CEO pledged or maybe even transferred many millions to a real estate deal. The claim has not been absolutely confirmed, but the stock dropped and remains lower. 

In both cases, I don't know if I can trust the balance sheets or income statements of these companies. Chinese companies are a little like the Old West, lots of potential, but plenty of danger to go along with the adventure.  

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#6) On January 15, 2011 at 3:33 PM, Valyooo (33.61) wrote:

I don't trust most of them either but they have a big 4 auditor and were in forbes so that seems legit. Also, I took accounting freshman year but furing that tine I hated school. Thos my last semester and I'm already taking 17 credits so I can't. Believe me I've tried to squeeze it in

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#7) On January 15, 2011 at 3:53 PM, truthisntstupid (77.31) wrote:

I'm glad you had an accounting class.  Even if you hated school back then, you probably retain enough to make it ten times easier for you to read the kind of books you want to read than it would be for someone who never had one.

I think many people would be intimidated by much of the material many CAPS members actually enjoy reading.

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#8) On January 15, 2011 at 3:57 PM, TMFBabo (100.00) wrote:

Financial Shenanigans has quickly become one of my favorite books.  It does take accounting knowledge beforehand to fully grasp everything, but I think someone who's read that book several times and knows how to check for earnings quality of companies could've spotted major red flags in many of the prominent bankruptcies of our day: Enron, WorldCom, Sunbeam, and others as detailed in the book. 

Note: I said they could've spotted red flags and not that they could've seen the fraud coming.  

At TMF, I was presented with a company's financial statements (without knowing who it was) for an in-house financial statement analysis class.  I was able to detect MAJOR red flags in the company's statements and I concluded the company was manipulating its operating cash flow by engaging in financial shenanigans.  The company (revealed to me after I shared my findings): Satyam Computer Systems. 

I was not able to spot fraud, but I correctly spotted the red flags that would make investors who care about earnings quality to run for the hills.

By the way, Enron made Fortune 500's top 10 list two years in a row and I'm sure it was repeatedly highlighted for its so-called "brilliance." I'm also sure that Jeff Skilling, Ken Lay, or Andrew Fastow appeared in several financial publications for their purported awesomeness.  I do not trust a company just because it's listed on a public exchange and has been featured in Forbes.

The thing I like most about CCME is Hank Greenburg's stake - I think they have access to the company's books and such. CCME would make the short list of Chinese micros I would think are "legit" and don't worry me much.  

I've been a big supporter of Chinese micros over the past year or two, but their quality of earnings is horrendous (not all of them - some of them still look okay) and just because an auditor signs off that their statements followed US GAAP does not mean the red flags aren't there.  

Knowing what I know now about assessing earnings quality, there are many Chinese (and American) companies I've owned before that I wouldn't touch again.

Sorry about hijacking the thread - I'll offer actual comments about your analysis later.  I'm heading out and I probably can't tonight, but I have Monday off and I'll get to it by then.

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#9) On January 15, 2011 at 4:27 PM, truthisntstupid (77.31) wrote:

I believe in #3 I proposed an idea that makes no sense.

If a business has no debt, how then, could it accumulate more assets than equity?  The value of the assets which would be owned free and clear, would be part OF the equity!

So what I proposed can't be the answer.  For ROE to be 80% and ROA to be 53% means there has to be a financial leverage factor of 1.51.  

Assets/Equity = 1.51.

I was hoping Babo would answer this for us.  It's really bugging me.

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#10) On January 15, 2011 at 4:43 PM, TheDumbMoney (79.22) wrote:

Great thread.

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#11) On January 15, 2011 at 5:00 PM, Valyooo (33.61) wrote:


If a companies really a fraud, can't they do things that wouldn't even show red flags? Like just claim that their earnings is a lot more than they are? There are obvious flags sometimes, but other times they could just inflate the numbers and there would be no way to know.

I know that Enron was highly respected...I saw the smartest guys in the room. However, most companies with a major accounting firm that are on Forbes are a lot more legitimate than other chinese nicro caps.

How do you assess quality of earnings?

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#12) On January 15, 2011 at 5:10 PM, truthisntstupid (77.31) wrote:

Hi, DTF's the answer.

The CAPS "status" page lists CCME as having no long-term debt.  I'm not going to interrupt myself and go look right now, but I believe the CAPS "status" page listed CCME as having no debt at all.  

Not true.

As always, when I run into something that really bugs me, I head for

Here's what we're looking at:

For 2009, CCME:

Total Assets............................................................$83M


Total Current  Liabilities.............................$29M

Total Non-Current (Accrued) Liabilities......$  7M

Total Liabilities........................................................$35M

 Total Equity............................................................$48M


Assets/Equity =   $83M/$48M  =  Financial leverage factor of 1.73 for 2009.

The figures they show for ROA and ROE are a little different, so it doesn't come out to 1.51, like I figured.

Now, their actual Total Debt/Equity =   $35M/$48M  =  0.73.


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#13) On January 15, 2011 at 5:43 PM, truthisntstupid (77.31) wrote:


I don't have really good answers to many questions without looking them up somewhere.  But, I believe they have to at least put in some kind of effort at appearing to follow the accepted protocol  for if they don't want to be delisted.

You know the old saying "What a tangled web we weave..."

It's up to us to try to untangle it sometimes...

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#14) On January 15, 2011 at 6:11 PM, truthisntstupid (77.31) wrote:

As for CCME, its trailing twelve months' numbers are looking very nice compared to its 2009 numbers...


                                              2009                  TTM

Net Margin.........................     43.48                 49.26

Asset Turnover..................       1.17                   1.24

ROA...................................     50.75                 60.98

Financial Leverage.............       1.74                  1.37

ROE....................................     82.52                 86.40

You can tell a lot from this.   Good things to see here.  Look, they must have paid some of that debt down, lowering their financial leverage to 1.37 from 1.74.   I didn't look at a balance sheet for the trailing twelve months.  These figures just came off Morningstar's CCME quote page.

Revenues must have increased a little.  At any rate, asset turnover increased 6%, and net margin increased 13%, resulting in a 20% increase in return on assets which raised return on equity by 5% even though they lowered their financial leverage by 21%.

They appear to be doing pretty good. 

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#15) On January 15, 2011 at 6:32 PM, Pennyperson (< 20) wrote:

Well my turn to get yelled at Valyooo

Forget CCME and go with CRTP

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#16) On January 15, 2011 at 6:47 PM, truthisntstupid (77.31) wrote:

I'm embarrassed.  I didn't mean to take up so much of your blog.  I'm sorry...I was just trying to figure out why ROE and ROA were so different if there was no debt.  Anyway, now we know.

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#17) On January 15, 2011 at 7:00 PM, Valyooo (33.61) wrote:

Haha, don't be embarrassed...comment as much as you like...the more you do the more I learn.

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#18) On January 15, 2011 at 7:03 PM, Valyooo (33.61) wrote:

Where on morningstar do you find the debt?

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#19) On January 15, 2011 at 7:14 PM, truthisntstupid (77.31) wrote:

After you go to the quote page for the company you're researching, click on "Financials."  Then click on "Balance Sheet."

While you're there, look around.  Explore.  Click on "Valuation"  and "Key Metrics"  too.  

There is more free information at than I've found anywhere else.  Key metrics including ROE and all its components going back ten years. 

Cash Flow From Ops, Capex, and Free Cash Flow too - going back ten years. 

Net Margin and Gross Margin, going back ten years.

You probably won't even see everything the first time.  Kinda like a financial Smithsonian.

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#20) On January 15, 2011 at 7:16 PM, HarryCaraysGhost (57.40) wrote:


Don't tell me I've picked three Chinese losers in a row.

At least the gains from ccme, made up for losses on nep and heat.

aww, I'll check it out tomorrow. Commericials over!

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#21) On January 15, 2011 at 7:28 PM, truthisntstupid (77.31) wrote:


What loser?  Everything I've looked at on CCME looks good.  

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#22) On January 15, 2011 at 8:11 PM, truthisntstupid (77.31) wrote:


You told me to keep going.  It's good practice due diligence.


Comparing CCME's EO3Q2010  balance sheet with the balance sheet from the  end of 2009,

Debt/Equity  =  $38M/$183M  =  Debt/Equity has dropped from 0.73 to 0.21..  That's good.

Assets/Equity  =  $221M/$183M  =  Financial leverage factor = 1.21.  So it has further dropped.  Financial leverage was 1.74 for 2009, 1.37 for TTM, and 1.21 at end of Q32010.   

Total current liabilities = $28M, down $1M from 2009.

Total noncurrent (accrued)  liabilities are $9M, up $2M from 2009.

 Retained earnings at the end of 2009 were $39M.  At the end of Q32010, retained earnings are $76M.  Almost, but not quite, double.

 What's not to like?

But all we've looked at is mostly balance sheet information, margins, and DuPont breakdown of ROE. 

I feel like I'm hogging your blog.  


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#23) On January 15, 2011 at 8:35 PM, truthisntstupid (77.31) wrote:

After giving some attention to the income statement and statement of cash flows, if I didn't find anything I didn't like, that's about as much research as I've been doing.  As I learn more, I'll do more.  It's fun and it pays well.  If my hobby was fishing I'd be spending money on it instead of averaging 25-30% returns from it. 

The only thing I don't like about CCME so far is probably not important.  I'd like to know more about that growth in noncurrent (accrued) liabilities.  Right now it seems kind of immaterial in comparison to everything else, though.

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#24) On January 15, 2011 at 8:53 PM, truthisntstupid (77.31) wrote:

One more thing included in the above numbers I forgot to point out. 

In comment #12, the total equity for 2009 = $48M.

In comment #22, I used this number twice, but forgot to point it out.  It's significant.  

At end of Q32010, total equity  = $183M.  Quite a change.  

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#25) On January 15, 2011 at 9:04 PM, truthisntstupid (77.31) wrote:

Very tempted to forget I'm a dividend investor.  Very.

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#26) On January 15, 2011 at 9:14 PM, Valyooo (33.61) wrote:

Why not throw some money into non dividend payers?  Think of it as diversification...instead of across sectors, across stock classes.  If dividend payers go out of favor, these will help you out.  They said they will pay a dividend soon, if that helps you.

What is the one thing you dont like that isnt important?


Ive never used morningstar before, its great.


Youre not hogging my blog at all, keep it coming.


Now, tell me if I am wrong or right.  Since screeners show only basic valuation, it is not practical to compare every companies numbers.  For instance, it doesnt matter what the improvement in current ratio is, or the % improvement of less liabilities, % improvement of just matters that the earnings grow.  Sorry, I am having a hard time putting this into words.  What I mean is, the only numbers that have to be specific are P/E, dividend (if applicable), growth rate, and net total assets.  After that, every other significant fact (which there are a lot of) does not need to be specific (for example, the exact current ratio doesn tneed to be a certain number, just the higher the better) it only needs to ensure that the company can keep those earnings, dividends, growth, and assets that about right?

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#27) On January 15, 2011 at 9:47 PM, truthisntstupid (77.31) wrote:

That's the way I see it.  The current ratio, supposedly the higher over "one"  the better.  But you said you have Warren Buffet And The Interpretation Of Financial Statements, and just haven't read it yet.

I'm sure you've flipped through it.  You know how short the chapters are - just a couple pages apiece.  So if I tell you to grab it up and read chapters 28 and 39, you know we're only talking about a couple minutes.   Those two chapters are about the current ratio, and why some companies can ignore this convention without their shareholders needing to be overly concerned, while other companies can't and shouldn't.

I don't like not knowing more about that $2M growth in noncurrent (accrued) liabilities.  I want to know the nature of the accrued liabilities, and know they aren't putting off recognizing expenses/liabilities they should be recognizing  sooner rather than later.   It's from reading that book.   Financial Shenanigans.  

Like I said, it's probably nothing, and $2M is pretty much immaterial compared to the rest of the numbers we're looking at.

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#28) On January 15, 2011 at 10:52 PM, HarryCaraysGhost (57.40) wrote:

What loser?  Everything I've looked at on CCME looks good.  


I've figured out the exact # of beers I  should have before I stop posting on caps...


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#29) On January 15, 2011 at 11:38 PM, truthisntstupid (77.31) wrote:


You sure it's 9.3? Haha ... Must be nice to catch a buzz.  I haven't had one in 15 years or so.  At some point, though, I will get tired of waiting.  I'll be damned if I'll go to my grave never having caught a buzz again just because a bunch of "small government"  hypocrites want to make damn sure government is never too small to try to keep me from doing a couple bong hits in front of my TV at night.

If I live to age 65 and they still won't let me relax hell with them..I'm buying some grow lights.

 Meanwhile...I never did enjoy I've made a hobby out of being frugal and saving money.

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#30) On January 15, 2011 at 11:40 PM, truthisntstupid (77.31) wrote:

Oh crap!! I hit "post?" 

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#31) On January 15, 2011 at 11:43 PM, Pennyperson (< 20) wrote:

I want  a coupon or send me a calendar damn it  !!!

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#32) On January 15, 2011 at 11:53 PM, truthisntstupid (77.31) wrote:


But I only have 70 or 80 of them!  hehe

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#33) On January 16, 2011 at 12:31 AM, Valyooo (33.61) wrote:


i am with you...except i am not waiting for what the government has to say, hehe

I am starting school again this week (ugh) and i plan on reading the warren buffett book, financial shenanigans, security analysis, a tax book, and the intelligent investor in the next 6 weeks...lets see if i can pull it off.

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#34) On January 16, 2011 at 12:53 AM, truthisntstupid (77.31) wrote:


I really did mean to hit the "delete" button...oh, well....

Wish I could use mental impairment as an excuse, but around 15 or sixteen years ago I made up my mind I'd give them 20 years to fix this injustice...age 65 will mean I gave them more like 25 or 30 years.  After that when I've got one foot in the grave they can shove their unfair law where the sun never shines.

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#35) On January 16, 2011 at 1:00 AM, checklist34 (98.73) wrote:

cool thread.  I gotta feeling that the universal chinese small cap fear is going to lead to some really good returns in that sector for people who find the right ones.

this quote was awesome, valy, and ... a cool expansion to a blog I've been thinking about writing:

Why not throw some money into non dividend payers?  Think of it as diversification...instead of across sectors, across stock classes.  If dividend payers go out of favor, these will help you out.  They said they will pay a dividend soon, if that helps you.

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#36) On January 16, 2011 at 1:04 AM, truthisntstupid (77.31) wrote:

That's some pretty heavy reading for that amount of time Valyooo.

When you get maybe 40 or 50 pages into Financial Shenanigans  you'll see what I'm talking about with those "Noncurrent (Accrued) Liabilities"  of CCME's.

But it's probably just an overeager mind wanting to find a use for new knowledge.

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#37) On January 16, 2011 at 1:18 AM, truthisntstupid (77.31) wrote:

What do you think of CCME, checklist?  I really like these numbers.

Valyooo, where did you read that they may start paying a dividend soon?  I find this company very compelling.

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#38) On January 16, 2011 at 1:31 AM, Valyooo (33.61) wrote:

I read it on many comments on recent caps pitches, some on another message board, and the CEO says so in the most recent conference call...something like 5-10% of net income, so it will not hinder growth...probably only a yield of about 1%, but hey, it might be enough to squeeze the shorts.

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#39) On January 16, 2011 at 1:51 AM, truthisntstupid (77.31) wrote:

Thanks!  Good analysis!  I'll spend a lot more time looking at it, and I may step out of my comfort zone.  It looks pretty good so far.

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#40) On January 16, 2011 at 2:43 AM, Valyooo (33.61) wrote:

Anything and everything you find, add to this blog...I want to know as much as I can about this company (I already pulled the trigger on Friday, by the way).

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#41) On January 16, 2011 at 2:51 AM, truthisntstupid (77.31) wrote:

This is why I never get around to digging into the Notes.  I'm continually finding MORE in the financial statements even after I thought I was done.

Once again... look at comments #12 and #22.

In comment #12, "Total Assets" is listed at $83M.

Now look at comment #22.  Where I've listed "Assets/Equity, look at the assets. 

Total assets increased from $83M at the end of 2009 to  $221M at the end of Q32010.

In comment #14 I said "Revenue must have increased a little."

What an understatement that must be.  I'll go to and check after I'm done typing this.  

See, "Asset Turnover"  =  Revenues/Assets.

 Total assets went from $83M to $221M in 9 months - yet "Asset Turnover still increased by 6%.

Revenues had to skyrocket upwards too.

I'll go look - but I know they did.

Ok. I looked.  Revenues for the trailing twelve months are almost double what they were for 2009.

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#42) On January 16, 2011 at 2:57 AM, TMFBabo (100.00) wrote:

@Valyooo: When I say Chinese micros in general have poorer earnings quality and many of them exhibit red flags in their financial statements, I am not saying they are fraudulent – I am saying there’s more than meets the eye in their financial statements and one should be careful about holding companies with these red flags.  Companies with poor earnings quality and major red flags might only be in store for earnings misses, not necessarily a big uncovering of fraud. 

Yes, companies can do things (like lying outright) that can’t be detected on financial statements.  However, many of the major frauds of the past (including Enron, WorldCom, and Sunbeam) actually exhibited major red flags in their financial statements that would at least have made someone assessing earnings quality to think twice about holding the companies. 

I have been careful to say that the existence of red flags does NOT mean fraud is present.  Red flags do, however, mean that business is not quite as rosy as it seems for these companies.

I’m currently 2/3 through Financial Shenanigans (2nd read through) and have read Quality of Earnings (first recommended to me by leohaas) once.  I plan on reading David Einhorn’s Fooling Some of the People All of the Time and Creative Cash Flow Reporting (forget the author) in the future.  I hope to read every book I just mentioned 3 or 4 times over the next several years.

Onto the red flags! This is off the top of my head (I could go on for pages and pages if I were to cite directly from Financial Shenanigans):

1. Is cash flow from operations generally higher than net income? If a company is earning money, you want actual cash to come in.  What’s more, cash coming in should be higher than net income because there are non-cash charges such as depreciation and amortization that lowers income. 

2. Are accounts receivable rising faster than revenue? Increased Days’ sales outstanding (DSO: AR / Revenue * days in period) might mean business conditions are deteriorating and management is doing things such as extending more favorable payment terms to customers or accepting business from customers who have a lower probability of paying down their payables.

3. Is inventory rising faster than revenue? If so, are finished goods rising faster than raw material and work in process inventory? Higher raw materials and work in process inventory signal high expected future demand.  If revenue is going up 20% sequentially and inventory just spiked 35% (and finished goods is a lot of inventory compared to raw materials and work in process inventory), you might start having a pile up of inventory that will eventually have to be written down. 

4. Does the company have one-time charges every quarter? The company is probably misclassifying expenses as one-time charges.

5. Is the company improperly capitalizing expenses? WorldCom capitalized line costs, which should have been expensed.  Capitalizing makes something an asset that goes on the balance sheet.  If something is expensed, it counts directly against earnings on the income statement. 

6. Does the company have loss reserves of some kind and are they going up at the appropriate rate? For example, banks have loan loss reserves.  Near the tail end of the housing boom, NPLs (non-performing loans) as a % of total loans started to go up.  This means banks should have been raising their loan loss reserves because they should’ve deduced that maybe they needed more money set aside due to the new trends in NPLs.  What did (some) banks do? They lowered loan loss reserves as necessary because they thought nothing of the NPLs, or they wanted to meet/exceed analysts’ expectations. 

7. Does management publicly brag about its consistent streak of meeting or beating analysts’ earnings estimates - and do these companies have ridiculous streaks of meeting or beating those estimates? One should be extremely careful with these companies (something may or may not be up, but the chances go way up when management goes out of its way to brag about it and the company itself has a ridiculous streak of never missing estimates - I'm talking 20+ quarters straight for some companies).

I’ll stop there – I have more, but at that point you should just read the books I’ve mentioned. 

I am going to say this again: you should have a pretty good understanding of accounting before reading those books or you will not appreciate them properly.  These are not beginner level books.  You’ve stated before that your accounting is not up to snuff, so you should get up to speed BEFORE reading the books.

I believe I’ve mentioned Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports by Thomas R. Ittelson as a great introductory accounting book somewhere on CAPS before – I recently read it and found it a great way to get up to speed pretty quickly. 

You'd be surprised to find that many vaunted Wall St. analysts don't do these things.  

One last example: I've been told that in the last earnings call Enron had, an analyst (may or may not have been Jim Chanos, famed short seller) asked: "could you file a balance sheet, please" and Jeff Skilling, CEO, said on the call that the analyst was an a-hole and moved on.  Remember, these conference calls are often archived and listened to by analysts, money managers, and random joes. 

Apparently, Enron had only provided an income statement.  That should've been a MAJOR "run for the hills" moment.  

Another note on Enron: Enron went from just over $10 billion revenue in 1996 to over $100 billion in revenue in 2000.  How often do companies grow revenue from $10 billion to $100 billion in 4 years? (Read: never)

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#43) On January 16, 2011 at 3:12 AM, Valyooo (33.61) wrote:


Thanks a lot!  I am going to purchase those books right now on eBay, as I have for most books you have recommended to me.  At first I wasn't reading a lot...a combination of laziness and schoolwork and girlfriend...but I have been doing a lot of reading lately...I plan to read another 15 books by the time I graduate in May.

 I listened to the Enron conference was so freakin funny.  Idk about you, but I think a 4 year old could have noticed the red flags going on at Enron.

Could you elaborate on point 5?  I am not quite sure I understand.

Also, if companies are in fact frauds (I am not saying all red flags are frauds), why don't they just outright lie about their numbers instead of doing it in a detectable way?  It seems like it would be easy to do...I am surprised not more companies do it.

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#44) On January 16, 2011 at 3:13 AM, Valyooo (33.61) wrote:

How was the analysis I did though?  Be honest.

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#45) On January 16, 2011 at 3:18 AM, Valyooo (33.61) wrote:

Also, I am a little tight on cash right now, but am always willing to spend it to advance my learning if truly neccessary...If I read Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports, The Intelligent Investor, Security Analysis, Financial Shenanigans, and The Interpretation of Financial Statements (both the Buffett one and the Graham one)

Do you think I should also buy Quality of Earnings or is that redundant?

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#46) On January 16, 2011 at 3:22 AM, TMFBabo (100.00) wrote:

Okay, you asked me to be as critical as possible (finally getting to your analysis), so I'll be much more critical than usual (although I'm exhausted, so I may cut this a bit short)

1. I'd appreciate subheads or something to separate each section. This is not required, but helps the reader (remember, you must think of your audience). 

Sample subhead: Valuation

2nd sample: Risks


2. I know I said it in my above post, but I'm going to consider this one separate: I suggest you read that accounting book I mentioned.  Saying a ratio "seems really good" is not very convincing to someone who's listening to your stock pitch.  

3. I'd explain more about each separate risk and how they might affect the stock.  

4. "Asian people love media" - that statement isn't bad, but I remember one of your Phillip Morris International statements in which you said either that Asians smoke a lot, or that Koreans smoke a lot (implying growing future demand for PM's cigarettes). 

I am a non-smoking Korean and actually laughed at that statement, but if I were interviewing you in a professional setting, I might've disqualified you from contention right there for not being PC.

5. I have a general problem with flow - sometimes (within the same paragraph at times), you change gears quickly without starting a new paragraph.  It's hard to follow and I don't think that really flows.  In fact, I would suggest more mini-paragraphs in general - it's easier to read 3 to 5 sentence paragraphs than it it is to read massive blocks of text.

6.  I personally don't like how there are 3 spaces or so between paragraphs.  You probably typed the blog in Word, but you could stand to paste it in and then play around with the formatting (delete extraneous spaces and line breaks) 

Some positives:

1. You're improving.  I'm sure after you do this a while, you'll get to a higher level.  I still remember when you were Buffetsmentor and everyone was criticizing you for having that name and asking too many questions.  

2. CCME does sound nice the way you've put it.  throwerw (one of the more knowledgeable Chinese company investors here on CAPS) and many others do love this company.  

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#47) On January 16, 2011 at 3:32 AM, TMFBabo (100.00) wrote:

Wow, you commented 3 times while I was writing my "analysis" comment.

I listened to the Enron conference was so freakin funny.  Idk about you, but I think a 4 year old could have noticed the red flags going on at Enron.

EXACTLY! It takes a bit more digging to notice the red flags in the other major frauds of the past, but I guarantee you that you would at least have had a pessimistic view of the companies, even if you did not see the frauds coming.

Based on that comment about the books, you probably don't need two books on financial statements right away (though it wouldn't hurt).  You can hold off on Quality of Earnings - Financial Shenanigans is a very comprehensive, systematic breakdown of how to spot accounting trickery.

The Intelligent Investor is best for its margin of safety and market psychology sections.  It also smacks you in the face with "buy at a discount" about 5000 times as you read it.  If you do not think it's the best thing since sliced bread, then you are not a deep value investor (which does not mean you won't make money).

Security Analysis is probably the most comprehensive book on investing that I can find - it's an incredibly dry book and it put me to sleep many nights.  It will take you a LONG time to read and you won't absorb much of it on the first read.  I've only read it once and I know I should probably do it again, but I don't have that time right now...

Point #5: 

I do remember there was an example on AOL: basically, acquiring subscribers was extremely costly for AOL and charging those expenses against revenue (like it's supposed to) would have wiped out operating earnings completely in its early years.  What did AOL do? It capitalized them and put them on its balance sheet as an asset.  The intent was to do a non-cash amortization charge each quarter (or was it year?) slowly, instead of expensing it all at once.  

What's worse, I do remember that AOL changed the amortization period from 12 months to 24 months (or something like that - the important part is that AOL extended the period).  When a company lengthens an amortization or depreciation period, that is a major red flag and you must investigate it.

I don't have the numbers for this example because while I remember it after having read it twice in Financial Shenanigans, I don't have the book on me and I'd be a freak if I remembered the exact figures as well.

If you didn't fully and completely understand what I just typed, I highly recommend going for the accounting books first.

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#48) On January 16, 2011 at 3:58 AM, truthisntstupid (77.31) wrote:

TMFBabo -

If Revenue increases by 95%  (from $96M for 2009 to $187M for TTM) and Total Assets increase 166% (from $83M end of 2009 to $221 at end of Q32010), how can Asset Turnover have increased instead of decreased?

Don't they use the last available quarter-end results plus the three quarters before that  for the "trailing twelve months?"

So if the revenue for the trailing twelve months is for the month ending in Q32010, why doesn't the asset turnover come out right?

($187M/$221M doesn't come out to 1.24 as in Morningstar's figure in comment #14)

Is it because they take the total assets at the beginning of the period, and the total assets at the end of the period, and average them or something?

According to Morningstar's figures, Asset turnover was supposed to have increased by 6%, going from 1.17 to 1.24.

But the figures I looked up ($187M/$221M) come out to  0.85.


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#49) On January 16, 2011 at 4:12 AM, truthisntstupid (77.31) wrote:

I notice that if I divide $187M by 1.24, I do get 150.81.  If I put a $ sign in front of it, that could very well be an average total asset figure for the period.  Am I right?

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#50) On January 16, 2011 at 4:17 AM, truthisntstupid (77.31) wrote:

$83M + $221M =  $304M.

$304M/2 = $152.

Pretty close.  I bet that's how it's done.  

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#51) On January 16, 2011 at 4:20 AM, truthisntstupid (77.31) wrote:


$304M/2 = $152M

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#52) On January 16, 2011 at 4:24 AM, truthisntstupid (77.31) wrote:


I hope I've helped you more than I've confused you. 

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#53) On January 16, 2011 at 5:02 AM, truthisntstupid (77.31) wrote:

I may have a suggestion you might like, Valyooo.  I carry them with me all the time.

Even as I'm sitting here, there are five 3X5 index cards in front of me.

On one side of one of them are the words,  Return On Assets.   On the other side, all the formulas I can think of for return on assets.

   1) Net Income/Assets

    2) Asset Turnover  X  Net Margin

    3) Revenue/Assets   X   Net Income/Revenue

 The other 4 cards are for Net Margin, Return On Equity, Asset Turnover, and Financial Leverage.

Creating flash cards to carry around and look at whenever I have an idle moment helps me a lot.

It may help you with accounting terms/concepts, if you need it.

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#54) On January 16, 2011 at 11:54 AM, Valyooo (33.61) wrote:

I may do that. Currently, I have a microsoft word document labeled "effective learning for my investing life" with everything I need written down.


Again, thanks for all of the help and criticism.  As for the "asians love" this, I would never say that in a professional setting...I was joking about the media thing, but I am serious about the smoking.  I hope you don't think I am racist, but I see no problem in stereotyping as long as I don't use it in a way that would downplay others (i.e., I would never see somebody of another race and close my mind about their personality, I would just make an assumption which I would allow to be proven wrong- I actually consider myself the most open minded person on the planet, rarely do I have an opinion on things, I just like to learn).  There was roughly 900 asians in my high school, and almost all of them smoked.  Every picture and video I watch of Asia (mostly China) everybody seems to be smoking.  From what I can tell, from my personal experience, asians seem to have addictive personalities (I have also learned this in my marketing classes-even one by a teacher from China) and cigarettes are the most addictive thing I could profit off of expansion in Asia. I hope you didn't take it the wrong can start spouting off stuff from "" at me for sweet revenge, haha.

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#55) On January 16, 2011 at 11:58 AM, Valyooo (33.61) wrote:

Damn it...I thought I put breaks in that text....I wish there were an edit button.

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#56) On January 16, 2011 at 3:07 PM, TMFBabo (100.00) wrote:

Valyooo, I wasn't offended and I wish I could've heard you say it in person - you can't convey tone and facial expressions in text so I can't tell if you're serious or not.  Again, I thought it was funny and did laugh out loud (because I actually agree).  I was just emphasizing that it's definitely not PC, even if I agree with you. 

Lol, I wonder if has stuff I don't understand (because I seriously might not have been brought up with the same cultural references and such).   I may speak pretty good English, but there are random childhood stories that I don't know...and some other random cultural references and sayings that elude me.

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#57) On January 16, 2011 at 3:37 PM, Valyooo (33.61) wrote:

Were you born in Korea?  I know you were raised in Philly.

That website is hilarious by the way and completely captures the yuppy hipster white people of America, haha.

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#58) On January 16, 2011 at 10:29 PM, truthisntstupid (77.31) wrote:

Backing out the cash from the last quarter's balance sheet ($4.96/share) drags the P/E down to barely over 4.1.

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#59) On January 16, 2011 at 11:00 PM, truthisntstupid (77.31) wrote:

Never mind comment #58...  That was from Wikinvest, and I trust more.  If I go to and use Friday's closing price of $19.63, back out $4.86 in cash (not $4.96), and divide by the TTM earnings of $2.63,  I get a P/E of 5.62 after backing out the cash on the last quarter's balance sheet. 

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#60) On January 17, 2011 at 1:50 AM, Valyooo (33.61) wrote:

Either way, it is an absurdly good number

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#61) On January 17, 2011 at 2:17 AM, truthisntstupid (77.31) wrote:

What is the average P/E for Chinese small-caps? 

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#62) On January 17, 2011 at 3:09 AM, Valyooo (33.61) wrote:

I don't know, but I believe it is higher than that...but either way, comparing this to the general market, that P/E would be good even if their was no growth, which there is plenty of.

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#63) On January 17, 2011 at 3:09 AM, Valyooo (33.61) wrote:

I don't know, but I believe it is higher than that...but either way, comparing this to the general market, that P/E would be good even if their was no growth, which there is plenty of.

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#64) On January 17, 2011 at 4:29 AM, Starfirenv (< 20) wrote:

Val- Is it just me? Ah, the beauty of CAPS- a supportive community that educates and amuses. I think too kind at times. I am assuming that what you seek is a critique on your fundy but it seems this has become an argument for the stock you chose. I will be as gentle and supportive as possible while also painfully honest. I will deal with literary merit. Fundy is easily achieved following a simple outline.
  1. "CRITICIZE THE HELL out of me"
Ok- the first thing I noticed- "bare in mind". If you are "bare" of clothes you have none. If your cupboards are "bare" they are empty- so "bare" in mind, to me means no brain.
  2.  " 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."
 Um, is this sarcam- ENRON was totally fraud and their auditor was Arthur Andersen, who were at the time top tier. Were you just kidding?
  3.  " I can’t say that I really know a lot about China, so it could not be."
Is this a joke? This is analysis?
  4.  Racist, prejudiced statements have no place in critical thinking, but that has been addressed.
  5. " 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?"
No, that's ok, unsubstantiated unreliable sources from "message boards" that have not been fact checked are good enough for who?
  6.  "Anyway, the website is nice."
Excellent! That's got to count for something!
  7.  " they are  relatively new…this is always a plus.."
Really? Always? Did you get that from a book or figure it out yourself? Kind of a rule of thumb?  
  8. "Let me start off by saying I don’t really know much about balance sheets."
Then don't waste my time.
  9. "I don’t know if theres a name for this ratio but..."
 10. " 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."
Sounds logical to me.

Valyooo- You fail. I would guess you are about right out of high school. You have a great start. Keep reading, stay in school, and take some journalism. Best regards.



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#65) On January 17, 2011 at 9:51 AM, Valyooo (33.61) wrote:

1- I guess that is what I get for doing this draft at 3 AM

2- I was just kidding, I know Enron was audited by a Top 5 Firm and I knew somebody was going to say " a big auditor does not mean they are not a fraud" so I decided to take the honest abe route.

3- I am not going to do 500 hours of analysis on China, because the company seems good enough to me...the point of this thread was to find out if people thought I was analyzing the right ratios and metrics and stuff, hence me asking questions in it, admitting what I don't know, and not proof reading.

5. The stuff I got from message boards was more China related stuff...I fact checked the company.

6- A lot of time you can go on a website and it is a mess, and the links are broken, and you can tell if hey don't care about that they probably don't care about the shareholder.

7- I got that from a book and it makes sense to me, that a new company has more room for growth

8- You don't have to read my blog, you could just as well piss off.

I am in a senior in college, and I really only started getting into investing in June 2010....I obviously still have a lot to learn, I was just trying to figure out which ratios I missed, and which were unneccessary, and which parts of the growth story I overlooked...why the hell would I put questions in the analysis if I wanted them to be answered with "you should know this"?

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#66) On January 17, 2011 at 11:05 AM, JaysRage (78.31) wrote:

Since I've done some fundamental analysis on CCME, I'll throw in a few tidbits.   If you are going to invest in a company fundamentally, it is important to understand the business, how it makes money, who competes, is the industry growing/shriking.

Industry -- Advertising/Sales

Primary Business -- Bus Advertising -- Two segments, inner city buses and airport buses.  Airport buses have higher profits than inner city buses, but both are high-margin businesses, with net margins over 70%.   This is decreasing, but should stay near 70% for 2011, even with the projected growth into other verticals. The company buys exclusive rights to display programming and advertising on these two bus platforms and then sells advertising against these exclusive platforms.   Advertising is a growing market in China, particularly in large Chinese cities, particularly with multi-national companies that are looking to increase market share.  The company has increased its bus network to over 26,000 buses.   They have a near monopoly on their niche in the advertising market, and they are continuing to grow into other niches within the overall market, which is growing rapidly.   

Secondary Business -- The company has recently introduced a new sales network to complement its pure advertising network.

The SWITOW shopping platform includes: a) the SWITOW magazine that will be distributed in CME's network, b) the SWITOW website ( and c) boutiques to be opened in certain major cities. Through the SWITOW platform, our advertisers will be able to promote a wide range of their products including popular consumer items such as electronic appliances, computers, mobile phones, apparel, fragrances and cosmetics, and household items. Customers may place orders by either calling the SWITOW hotline, or via the SWITOW website.

The contracted advertisers will provide the "lowest price guarantee" for all the items sold on the SWITOW platform. Moreover, some items sold through SWITOW will offer a longer warranty period than the traditional sales platform. CME has already signed contracts with many prestigious global and Chinese domestic companies or their distributors such as Apple, Sony, Toshiba, Adidas, Nike, Samsung, Phillips, Skyworth, Supor and others, to feature their most popular products on SWITOW and we expect others to join the platform. CME has hosted the SWITOW launching ceremony today in Fuzhou, where the press and representatives from China Enterprise Directors Association, HuaXia Bank and the contracted advertisers attended.

SWITOW orders will directly pass to the contracted advertisers who are solely responsible for order fulfillment and bear all inventory risks, as well as all post-sale obligations. A percentage of the sale of the listed items will be earned by SWITOW. SWITOW will reward the contracted advertisers by broadcasting the advertisements of the contracted advertisers on CME's media network. CME's expenses consist primarily of the cost of printing and distributing the shopping magazine, website management, and staffing and equipping the hotline center. CME will also pay a moderate monthly fee to bus operators, airports and other locations for the exclusive right to distribute the magazine.  

Current Bus Network (no growth)

Numbers -- Approx 26,548 buses x $590 x 12 mo = $187.96M
658 Shuttles x $7,800 x 12 mo = $61.59 M
Total Gross Rev : $249.55M
Add the step-up in rates (15%) in Jan: $249.55 x 1.15 = $287M 

Margin of approx 70%...$287M x 70% = $201M

Less Taxes of 25% = $201M x 75% = $150.75M
Using a FD share count of 47M equals about $3.20 per share

Shopping Network  -- Current analyst projections estimate between .45 and .55 year one earnings on the new platform, which has the look and feel of a SkyMall type of opportunity.  A lot of this is projection, but I am willing to accept these numbers.  

Tour Bus Network-- 2011 Expansion to include buildout of a Tour Bus Network.  Unknown revenue and earnings potential.  I currently have this projected at 0, but any growth here is additional earnings. 


At a price of 20 per share, forward earnings based on this current business is 5.5.   Growth projections with additional bus contracts and expansion into tour bus network have the potential to push this forward number to nearly 4.  

Add in a dividend (5%-10% of net profits).   Add in the cash on hand.   Motley Fool recently did an analysis of cash flow that included CCME.   It is excellent.   In addition to that, cash on hand $169 million.

Fraud Risk -- my lowest rating for Chinese small cap

Auditor = Deloitte-Touche (Big Four)

Institutional Investing -- (Starr International) with heavy buying, including as recently as October

Dividend = 5%-10% of net profits (frauds don't usually give away cash and if the profits are fake, where would the money come from?)

Forbes China = Highly reputable investment coverage, would do additional due diligence before making them their top choice for 2011.

Partnerships-- Apple, Sony, Toshiba, Adidas, Nike, Samsung, Phillips, Skyworth, Supor


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#67) On January 17, 2011 at 11:21 AM, JaysRage (78.31) wrote:

The metric that is probably going to be less eye-popping for CCME is going to be Price to Sales.   Since their margins are so good, anyone evaluating on Price to Sales will think it is less of a deal.  

An additional risk factor includes possible capital expenditures to build out kiosks for their new sales platform.  

As you mentioned "Fraud fear" is a greater risk than fraud itself.   Casual investor fear factor in any Chinese small cap can cause an irrational push-down in price, which can last much longer than it should using logic. 


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#68) On January 17, 2011 at 12:11 PM, Valyooo (33.61) wrote:


As always, thanks for commenting.  Where did you find that they have a near monopoly?  And where did you get all of that other information?  Not saying I can't find it, jus wonderingf what source you like to use.

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#69) On January 17, 2011 at 1:17 PM, JaysRage (78.31) wrote:

I accumulate my information anywhere I can get it.   Official filings, analyst coverage, investor boards, message boards (with obvious filtering, as necessary).   There are a few web sites completely dedicated to Chinese small cap investing that I sometimes use as a secondary filter off of screens.    

My synopsis of near monopoly is a bit of extrapolation.   They control approximately 50% of the market, but they are levering their government advantages to create a near-monopoly. 

CCME controls over 32% of the China inter-city express bus television advertising market and by the end
of 2010 CCME should control over 45% of the market. At the end of 2009 CCME had 20,000+ buses on
its network, with 41,000+ television displays and a monthly audience of over 100 million people.
Management expects to grow CCME’s network to over 30,000 buses by the end of this year. The
estimated total market is 65,000+ buses with 27+ passengers.CCME’s large network is highly attractive to advertisers who want to work with a supplier who has substantial scale to provide access to China’s growing middle class in high growth 2nd and 3rd tier cities. A key factor in CCME’s success is a five year cooperation agreement it signed with the Transport
Television and Audio-Video Center, an entity affiliated with the Ministry of Transport of the People’s
Republic of China. The agreement designates CCME as the sole strategic alliance partner in the
establishment of a nationwide in-vehicle television system on buses traveling on highways in China. The
agreement gives CCME preferential status as the only authorized inter-city bus advertising company by
the government and serves as a strong tool to sign new bus operators to CCME’s network and to deter
new competitors from entering the inter-city bus advertising market. The cooperation agreement expires
in October 2012. In the unlikely case the agreement is not renewed it would obviously be a negative
development but not a disaster. The majority of CCME’s 47 bus operators have signed five to eight year
contracts in the past year and several new bus operators are expected to be signed to long term
contracts between now and the end of 2012.


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#70) On January 17, 2011 at 1:47 PM, JaysRage (78.31) wrote:

I'm the first to admit that a FULL fundamental analysis of a company like CCME is a lot of work.  Because they are a small company in another country that is expanding and growing their core business, as well as entering into new businesses, putting numbers to all of this requires some estimation.....and with the new business, it requires some very rough estimation.  The good news is the value proposition is SO GOOD with CCME that it's easy to come to the conclusion that it is an outstanding value play without fully completing the fundamental analysis.   While that is lazy and dangerous, I did it too.   In fairness, my "lazy analysis" is a lot more than most people care to do.   I probably did what I consider to be a 60-70% fundamental analysis before I went ahead and pulled the trigger.  

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#71) On January 17, 2011 at 6:18 PM, Valyooo (33.61) wrote:

about how long did that take you, and what websites did you use?  I would like to get into more of these companies if i can navigate the minefield.

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#72) On January 18, 2011 at 9:39 AM, Valyooo (33.61) wrote:

Also if they control so much of the market already, isn't that bad because where is the room for growth?

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#73) On January 18, 2011 at 9:59 AM, JaysRage (78.31) wrote:

Yes, it will cease to be a source of exponential growth when they reach market saturation, but they are already expanding to complementary markets.  You can expect nearly 100% growth just in their core business as they lock up the rest of their niche market prior to 2012. Their moat is really strong in their core business, which is good.   Their medium-term growth will be from entering similar complementary markets, such as tour buses and SWITOW, and I suspect they have other similar possibilities in the pipeline as well.    In addition, they will continue to add advertisers and get 15% step level increases in revenue annually.    If they execute well on their business plan, my expectations are the SWITOW will meet or exceed the market cap of their fully extended core niche business within a 5-year span.   

Just like any other business, there are other alternatives for growth as well.    How does any large company continue to grow?   Expand into other markets!  

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#74) On January 19, 2011 at 1:54 AM, Valyooo (33.61) wrote:

What about the fears that china is in a bubble?  Surely this business is very cyclical

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#75) On January 27, 2011 at 3:28 PM, truthisntstupid (77.31) wrote:

Well Valyooo

Looks like we picked a good one!  I didn't have any money in it.  I hope you did!

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#76) On January 27, 2011 at 3:33 PM, truthisntstupid (77.31) wrote:

I shouldn't really say "we" picked a good found it!  Good find!

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