Focus Media: Chinese Ad Market in Full Recovery

Aug.24.10 | About: Focus Media (FMCN)

By David Gibbs

Earnings: Q2 profits of $0.30 vs. consensus $0.23 and $0.22 in Q2 last year.

Revenue: Up 22% to $158.2 million vs. estimates of $143 million.

According to CEO Jason Jiang, the Chinese ad market grew 17% YoY during 1H10. He added that Focus Media (NASDAQ: FMCN) “managed to expand [its] core business 24% during the same period, indicating [that] it continues to gain market share.”

Comment: FMCN, a China-based digital advertising company, continued to benefit from a broad-based ad market recovery in China as the company’s Q2 profits came in well ahead of estimates. After tacking on nearly 2.5% during regular trading, Focus added another 2.5% for good measure after-hours, last changing hands at $19.01. Shares are now up 17% on the year.

In addition to the beat on EPS and revenue, sales of LCD display ads grew 34% YoY and Internet ads grew 41%, both ahead of prior guidance. Gross margins expanded modestly to 51.6% from 51.4%.

Guidance was strong as well, with management forecasting Q3 profits of $48-$49 million on cumulative revenue (LCD, movie theater, in-store and poster frame) of $121.5 million, good for 37% YoY growth. Billboard revenue is expected to come in at $20-$23 million.

There isn’t much to complain about concerning FMCN’s Q, and from a technical perspective they’re looking pretty good too. As you can see on the weekly chart below, FMCN began forming a nice, fairly tight cup-with-handle pattern in mid-April, and it seems poised to break out. The current buy-point stands at $19.36, or $0.10 above the high-point in the handle. If it can get through there on solid volume, a move towards $21, and then $24, may be in order.

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Disclosure: No holdings in FMCN.