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Thursday, January 14, 2010

CCME - "The Hangover"

The movie, "The Hangover", was a Las Vegas-set comedy centered around three groomsmen who lose their about-to-be-wed buddy during their drunken misadventures, then must retrace their steps in order to find him. For CCME, my first pick of 2010 that I believe has strong potential to be in the www.super-trades.com 100%+ gainers club, you must retrace their steps to get the full potential of this story.

China MediaExpress Holdings (CCME), operates the largest television advertising network on inter-city express buses in China. CCME's clientele includes local brand names as well as those well-known international and national brands such as Coca Cola, Pepsi, Siemens, Hitachi, China Telecom, China Mobile, China Post, Toyota, Bank of China and China Pacific Life Insurance.

CCME, formerly TMI, was acquired in a SPAC transaction this October. SPAC transactions usually involve warrants which can create an overhang in the common stock until they are converted. CCME's warrrant "hangover" is almost over as they announced that January 29, 2010 is the last day for warrant redemption. According to this article about SPAC warrant overhang, "after the warrants expire and the overhang is over though, all the investors that wanted to own shares of this stock can now buy them without fear that they are over-paying. This can result in significant outperformance in the stock, regardless of the market's performance." Read Article

CCME is targeting exceptional growth. As of the end of Q3 2009, they had already outperformed all of FY2008 revenue and net income. Read Q3 They are targeting 2009 net income of $42m and 2010 net income of $83.5m! Judging by the Q3 report , they are on track to hit the 2009 targets. However, the 100% target for net income in 2010 seemed aggressive. That is until yesterday. Yesterday, CCME announced a $30m private placement with Starr International, Inc. and this gave me great confidence in their 2010 net income target of $83.5m. Read Press Release

The press release told me three things:

1) CCME must be planning a large, accretive acquisition that will enable them to achieve the 100% net income growth in 2010 to $83.5m. From the PR, "In addition to enlarging our market share and geographic coverage through agreements with additional bus operators, we are now exploring possible M&A opportunities." They will now have approximately $100m in cash after this transaction and the warrant conversion.

2) CCME has been planning this acquisition and private placement for sometime. From the press release, Jacky Lam, CME’s CFO added, “We are pleased with the valuation that Starr International offered and appreciate the thoroughness of their validation procedures. Having worked with them over the past several months on negotiating the terms of the investment, we believe that they have gotten to know CME’s business and management and their decision to proceed is a strong vote of confidence in our business model.”

3) CCME has attracted a powerful institution as a major investor. "We are delighted to have Starr International, a respected investment firm with a significant presence in China and the US, as one of our major investors and we are delighted in the firm’s confidence in CME, our business plan and growth prospects.” Starr is headed up by Maurice Greenberg, from AIG.


The numbers show me that CCME is extremely undervalued and has some appreciating to do with the warrant "hangover" ending.

CCME will have approximately $100m of cash with no debt. Revenues grew 65% last quarter and net income grew 43%. Net Income through September 30, 2009 was $27.4m and the Company appears to be on track to take on management's full year target of $42m. CCME had approximately 24m shares outstanding and approximately 10m warrants with a strike price of $5.50 at the end of 2009. Estimated fully diluted shares outstanding using the treasury method will be approximately 29m at the end of 2009. EPS for 2009 should be $1.35-$1.45 if they hit the target. (The CEO said, “Historically, our fourth quarter is seasonally our best quarter. It appears that the 2009 fourth quarter will be no exception.”). For 2010, management is targeting $83.5m in net income and fully diluted shares outstanding should be approximately 38.5m, for a targeted 2010 net income of $2.17 per share.

To apply the forward 2010 P/E of 20 that competitors FMCN and VISN currently have to $2.17 EPS would give CCME a price per share of $43.38.

I am long CCME since $8. I believe the warrant "hangover" is almost over and the real party is about to begin. At a stock price in the $10's, CCME has strong potential to be the first super-trades.com 100%+ gainer in 2010.

37 comments:

jfh86 said...

What are the terms on the preferred shares? How will they impact your estimates for EPS in 2010?

Superman said...

they are already factored in to my EPS estimates

jiang ting said...

thank you for ccme
i follow dgw, rino, trit for sometime, recent pullback those stock, i still buying.
how low will it go?

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financial spread betting said...

How can you go wrong with 'Hangover'? Should do well as a result.

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