VisionChina Media (NASDAQ:VISN)

China isn't transparent enough for me to believe a Chinese company when what it claims is too good to be true.

I am long on VISN.
1. The fundamental business model is good. I traveled to Beijing June 2011 and had good experience with its products installed in the subway and buses.
2 .FMCN bought VISN @3.979/share in Jan 2011. 08/22/2011' price $1.60/ADS is a huge bargain.
2.As of 08/22/2011, its market cap (117M) is less than its cash at the end of Q2 (126 M).
3. It runs the largest mobile digital television network in Chinese public transportation systems. VISN has built strong connections with powerful FMCN, CCTV, Youtube, YouKu, etc.,.
4.The management got a lesson but showed they executed well on cost control at Q2.

I traveled to Beijing this summer and had good experience with VISN's products in the subway. I am long on VISN.
1. FMCN bought VISN @3.78/share in Jan 2011.
2.Now its market cap (117M) is less than its cash at the end of Q2 (126 M).
3. It runs the largest mobile digital television network in Chinese public transportation systems.
4.The management got a lesson but showed they were good at cost control at Q2.
5.The business model is inevitable and profitable.

This stock may be the subject of future fraud claims. Think CCME as they are both in the same business.

First VISN took huge write-offs on its acquisition of six local ad agencies - after insiders cashed out big. See attached link about possible fishy dealings:

http://www.chinalawblog.com/2011/05/us_listed_chinese_company_troubles_hidden_in_plain_sight.html

Next, VISN got engaged in a lawsuit with one of its other acquisition targets - DMG and from my reading of the situation - VISN is likely to lose this lawsuit. See attached link:

http://www.chinalawblog.com/2011/03/us-listed_chinese_companies_lets_watch_the_sausage_get_made.html

Then VISN brought in (duped?) Focus Media to invest US$60 million to shore up VISN's troubled balance sheet.

VISN is definitely poorly managed (no CFO for almost a year now!) and audited by Deliotte Touche in China (which did the audits for CCME and Longtop as well - yikes!).

You may want to short this puppy before Muddy Waters or Citron come out with a scathing report.

rlstc brkt sgnls

China State Agency's newly regulation #61 will benefit mobile digital television providers like VISN a lot in the next 5 years, especially in China's 2nd tier cities. All eyes are on the Q3 result on Oct 27. If it is good, VISN stock is going to fly high.

VISN will benefit Shanghai Expo and Asia Games. It starts partnership with CCTV and will be the next outdoor moble ad gaint.

It was a milestone for VISN to partner with CCTV.

Poor performance over last year, but momentum over last month.

Analyst: Connor Haley (TMFConnor)
Company: VisionChina Media (Nasdaq: VISN)

Concise Investment Thesis

VisionChina Media is set to ride the coattails of the “transportation revolution” in China. A major market opportunity, several competitive advantages, and the recent share drop have us convinced that VisionChina will be a big-time market-beater in the years to come.

Company Overview

VisionChina Media is the largest company in China that uses live television broadcasts to deliver content and advertising on mass transportation systems. Founded in 2005, the Company’s advertising network includes 84,560 digital displays on buses, subway trains and subway platforms in 19 major cities. As of the third quarter 2009, the company had 50.7% market share of video advertising on mass transportation in China. During the fourth quarter of 2009, the company announced the acquisition of its main competitor, Shanghai-based Digital Media Group, for $160 million in cash and stock. While VisionChina is strong in Beijing, Digital Media is dominant in Shanghai and operates digital media in nine Chinese cities' subway systems. With the acquisition, VisionChina Media’s market share is expected to increase their already impressive market share by 10-15%.

The company has several competitive advantages:

• A unique advertising method- They deliver real-time content in addition to advertising
• An early market presence- VisionChina has secured long-term contracts with several key licensed mobile digital television companies, which provides them with a substantial advantage because PRC regulatory authorities typically only permit a maximum of two mobile digital television operators in each city (barrier to entry).
• A large-scale, national network- Because of their ability to reach a wide audience in urban consumer markets throughout China, VisionChina Media offers their clients a one-stop solution for the simultaneous placement of advertising in multiple cities. With this dominant position in the industry, VisionChina is able to demand premium pricing.

Market Opportunities

China is currently undergoing a transportation revolution. According to one estimate, 350 million people will be added to China’s urban population by 2025--- more than the current U.S. population. In addition, 170 mass transit systems will need to be built to support this incredible urban growth. As the clear market leader, VisionChina Media should capture the majority of video advertising on new buses and subway lines. In addition, due to its flexible business model, I think that VisionChina could expand into different advertising media platforms in the near future such as airplanes, airports and other places with affluent captive audience traffic. Each of these growth areas could add significantly to VISN's future bottom line.

Valuation

The stock recently dropped about 50% after poor guidance of revenue in Q1 2010 of "no less than 22 million." While this was bad news, the huge drop in price was overdone. The long-term thesis is still intact and they are better positioned than ever (after the DMG acquisition) to benefit from the long-term transportation revolution in China. I have recently done some heavy valuation work, which has convinced us that the recent drop in price has given value investors an excellent opportunity to buy into these long-term trends at an extraordinary discount to its intrinsic value.

The key driver in the model is "Average Revenue/ Broadcasting Hour." On the latest conference call, management said they expect "no less than" 22 million in Q1 2010 Revenue. They also indicated that they only expect 4-5 million from the DMG Acquistion., which means we can expect 17-18 million from VISN operations. Therefore, I isolated VISN's displays , number of broadcasting hours, and expected revenue to find the implied Average Revenue per Broadcasting Hour, which comes out to be $470-$500, which is similar to the prices in Q4 2007 and Q1 2008. This scared investors out of the stock, but I believe that it is a short-term drop and that as they fully incorporate DMG into their operations, they will have more pricing power.

I have modeled out three different scenarios based on the Average Revenue per broadcasting hour metric, which is the key driver in the model. (current price is $4.91)

General Assumptions:
Number of Displays grow from 8% in 2011 and slowly level off to 4% by year 10
SG&A Expenses grow at 3%/year
Tax Rate Remains Steady at 25%
The company adds 1 million shares/year
Capex Remains at 2% of Revenue
Depreciation & Amort. Remain at 2%/Revenue
14% Discount Rate
3% Terminal Rate

1) Worst case scenario:

2010 ARPH (Average Revenue/Broadcasting Hour) ends up at $470/hour, which would make the company reach the low end of Q1 guidance. This rate, contrary to management's opinion (they think its headed much higer), remains steady throughout the year. ARPH then slowly recovers to the Q4 2009 rate of $796/hour

Resulting IV/share: $2.48

2) Market Expectations Scenario:

Management does believe that they will be able to fully integrate DMG and that they expect year over year growth. To breakeven given my assumptions, they would have to have $600 ARPH in 2010, which under our growth rates, results in an ARPH of $945 by year 10.

Resulting IV/share: $5.49

3) My assumptions (which I believe are conservative)

Management is able to fully integrate DMG, turn around ARPH to $700 in 2010. With this rate and our growth assumptions, ARPH would reach the all-time highs of Q3 2008 by year 10.

Resulting IV/share: $8.50

Below, I have copied the model for scenario #3 (my assumptions), which results in an intrinsic value of $8.50, which provides a huge margin of safety given today's $4.91 share price.
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Year 0 1 2 3 4 5 6 7 8 9 10

Digital Displays
77,782 121,053 130,737 139,889 149,681 158,662 168,182 176,591 185,420 194,69, 202.4
Organic Growth Rate
0.3 0.08 0.07 0.07 0.06 0.06 0.05 0.05 0.05 0.04

Hours/Display
1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75

Broadcasting Hours (thousands)
136.16 211.8 228.7 244.8 261.9 277.6 294.3 309,.0 324.4 340.7 354.3

Ad Rev per Broadcast Hour
$825 $700 $770 $862 $906 $942 $979 $1,009 $1,039 $1,070 $1,102
Change -25.0% 10.0% 12.0% 5.0% 4.0% 4.0% 3.0% 3.0% 3.0% 3.0%

Revenue (millions USD)
120.7 148.2 176.1 211.1 237.1 261.4 288.2 311.7 337.1 364.6 390.5
Rev Growth Rate
23.6% 18.8% 19.8% 12.4% 10.2% 10.2% 8.2% 8.2% 8.1% 7.1%

CoGS
60.0 116.0 119.5 123.1 126.8 130.6 134.5 138.5 142.7 146.9 151.4
3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Gross Profit
60.0 32.3 56.7 88.1 110.4 130.9 153.8 173.2 194.5 217.7 239.2
GP Margin
50.0% 21.8% 32.2% 41.7% 46.6% 50.1% 53.3% 55.6% 57.7% 59.7% 61.3%
SGA
28.2 30.0 30.9 31.8 32.8 33.8 34.8 35.8 36.9 38.0 39.1
3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
EBIT
31.8 2.3 25.8 56.2 77.7 97.2 119.0 137.4 157.6 179.7 200.1

EBIT Margin
26.5% 1.5% 14.6% 26.6% 32.7% 37.2% 41.3% 44.1% 46.7% 49.3% 51.2%
IE 0 0 0 0 0 0 0 0 0 0 0

Tax Rate 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%

NI 23.9 1.7 19.3 42.2 58.2 72.9 89.3 103.1 118.2 134.8 150.1
EPS $0.33 $0.02 $0.24 $0.51 $0.70 $0.87 $1.05 $1.20 $1.36 $1.53 $1.69
Shares Outstanding
73.0 80.5 81.0 82.0 83.0 84.0 85.0 86.0 87.0 88.0 89.0

CapEx as % of Rev
2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
CapEx (subtract)
2.4 3.0 3.5 4.2 4.7 5.2 5.8 6.2 6.7 7.3 7.8
DnA as % of Rev
1.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0

No real earning projected in 2010, but healthy growth should continue after that. Trading just slightly above book value, with low debt, this is a company that can play out nicely ahead.

Been beaten down too far after earnings news. Selling at bargain-basement prices right now.

Oversold.

captive advertising audience in China

Another money maker... If sold at the right time.

Outperform

China long term play

Agree that this stock has been beaten down unfairly.

I don't get it... Anyone know why people think this stock is going to die?