China New Media Corp. (OTC BB: CMDI)
Advertising
| Target price: $4.50 |
CMDI provides clients with advertising opportunities through a diverse media platform. The Company is the largest outdoor advertising provider in Dalian with over 40% market share, twice as large as their nearest competitor. We are expecting CMDI to be a strong growth company with achievable growth of 35% for the next few years. We are forecasting significant growth of revenues and margins based on the very promising launch of City-Navigator and our expectation that this platform will be successful in attracting both new advertisers as well as increased spending from existing clients. We view CMDI as an attractive growth company based on 1) the strength of the overall advertising industry in China 2) the health of the Company’s existing advertising platform and 3) the upside from new growth drivers and the unique opportunity to gain market share from television. We are initiating coverage of CMDI with a Buy rating and a $4.50 price target.
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China New Media has demonstrated its ability to land large contracts for its LCD outdoor advertising platform. Its 100 LCD order in Beijing, when fully built out, will generate revenue of approximately $150 million with net margins of 30%. U.S. listed China media companies have traded as high as 40x EPS. A 30 P/E on fiscal 2011 projected net income would put the stock in the $6.00-$7.00 range. A listing on NASDAQ would most likely give the stock a substantial boost. The Company plans to apply for NASDAQ in the near-term. With only 1.1 million shares in the float, early investors have the opportunity to benefit immensely in 2010. RedChip research target is conservative.
Overview
China New Media (“CMDI” or “the Company”) is an outdoor advertising company principally operating in Dalian, China. CMDI earns the majority of its revenue from their “street furniture” advertising network, which consists of over 600 bus shelters furnished with billboards and displays, 133 taxi stops with displays, and 32 information kiosks. The Company also has a billboard network and a transit advertising network furnishing ads on the interior and exterior of more than 400 buses and 28 metro-trains. The Company’s latest innovation, called “City Navigator”, combines LED outdoor advertising with an internet connected multimedia kiosk for pedestrian use.
China New Media (“CMDI” or “the Company”) is an outdoor advertising company principally operating in Dalian, China. CMDI earns the majority of its revenue from their “street furniture” advertising network, which consists of over 600 bus shelters furnished with billboards and displays, 133 taxi stops with displays, and 32 information kiosks. The Company also has a billboard network and a transit advertising network furnishing ads on the interior and exterior of more than 400 buses and 28 metro-trains. The Company’s latest innovation, called “City Navigator”, combines LED outdoor advertising with an internet connected multimedia kiosk for pedestrian use.
Investment Highlights- Dominant Position in a Fast Growing Advertising Market
CMDI owns the largest outdoor advertising service in Dalian, China, with over 40% market share. According to the Outdoor Advertising Association of America (OAAA), China has become the second largest advertising market in the world. Overall advertising spending in China has grown at a compound annual growth rate of 12% over the last ten years, from $6.5 billion in 1998 to $20.3 billion in 2008 with outdoor advertising growing faster than other advertising channel in recent years. - Expanding into Tier II Cities
The Company’s established presence in Dalian, and expansion into Beijing, Shenyang, and Tianjin, places CMDI in the 4 largest and most economically prosperous cities in northern China. - Industry Giants Makeup Long-Term Client Base
CMDI’s long-term client base includes top companies such as China Mobile, IKEA, China Unicom, Coca-Cola, Pepsi, and UPS. - Innovative New Products
The Company’s innovative City-Navigator system will be China’s first web-based outdoor advertising network. Currently 50 units are installed in Dalian.
- Total revenues grew 95.7% year-over-year to $4.1 million in the three-month period ended March 31, 2010.
- Net income for the third quarter grew to $1.4 million or $0.04 per diluted share, representing 70.6% growth over the same period of last year.
- Net cash provided by operating activities increased 228% to $2.9 million over $0.9 million in the nine-month periods ended March 31, 2010 and 2009, respectively.
- The Company's cash balance at the end of the third quarter was $1.93 million, an increase of 1,212% over their cash balance at the end of their third quarter 2009.
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