Xinhua Finance Media's Less Than Impressive IPO

Xinhua Finance Media Limited (XFML) did not turn out to be another Home Inns (HMIN) or New Oriental (EDU) at its IPO debut last Friday. Besides the difference of market sentiment then and now, I think the fundamental reason lies within the company and the business itself.

First, Xinhua Finance is in the media and advertising business. Note that the media industry is still heavily regulated in China; this is very different from Home Inns’ economy hotel business, which is pretty much a free market (as long as they can secure the building).

More importantly, Xinhua Finance has a very limited operating history - it’s pretty much a holding company of various traditional media and advertising assets. A large portion of the capital raised in its IPO will be used to pay down the debt (due to its parent etc.). On the other hand, we know that New Oriental had an extensive operating history and Home Inns started its business since 2002; both grew organically for an extended period of time (vs. Xinhua’s acquisition strategy).

That being said, should we throw in the towel for Xinhua? It’s still too early to tell. We know that Focus Media (FMCN) is enjoying its good time because its outdoor LCD advertising appears to be very effective for some consumer products in China. Baidu (BIDU), the Google of China, has also done well by helping the small business’ market product more effectively. But a large piece of the advertisement pie is still for traditional media in China. Despite the rapid development of Internet, Internet advertisement in China is still not as significant as in the US. We can get that idea just by comparing the market share of Google (GOOG) and Baidu in each country’s advertising industry.

I believe the real estate, automobile, luxury goods and financial services, will need to reach end consumers (white collars) through traditional media (TV, radio, newspaper and magazine), because that’s where their target audience is.

Xinhua Finance will have the chance. The question is: can they seize the opportunity now that they have the money?

Comments

[Chimin Sang]

Good judgement. It makes me wonder that if Xinhua is a trademark that is protected or not.

XFML is pretty much a wrapper for the underlying conglomorate of business. The COMPLETE lack of organic growth makes it the LEAST promising Chinese stock offers.

One research already questioned the corporate governance of this company. The reading of prospect did not inspire me at all, but apparantely the name of this company offered many people wishful imaginations.

My recommendation of this stock: STRONG SELL before it is too late.

[jigs]

Totally agree with cs_2222, this company is full of crap, a holding company of the parent Xinhua which is again a holding company of some other print company. The CFO of the company is a founder and CEO of his own company SBI something and is also a licensed broker in the US. What is he doing at XFML ? Plus he looks very shrewed and fishy. As if he is in only for the money. Possibly hired for his English speaking skills just to get the IPO done.

This company looks a lot like NINE where there was so many inter-relations of the CEO with other companies he founded. That fked up stock priced at $12 opened at $13 in 2004 and is now trading at $4 something.

And finally remember this equation: Chinese IPO => JP Morgan/Credit Suisse = CRAP, POS, RUN !!!

[STLPlace]

I do feel this thing is more and more like NINE (Ninetowns Digital, recently changed name to Ninetown Internet). Unfortunately, I got some NINE at its IPO day back in Dec 04, and never saw its IPO price again :-(

I also felt a bit suspicious on JP Morgan because I remember they were the underwriter of NINE too. I think they are not as good as Goldman and ML. From now on I will be more careful about JP Morgan.

[Siwei Zhong]

"Xinhua" is a very appealing brand, more specifically people are leveraging the Xinhua News Agency, the PRC government owned official news agency by getting the Agency (in most, if not all cases, a very remote affliated companies of the Agency instead of the Agency itself) as a shareholder, and then they can tell the rosy story saying they have Chinese governemnt support so on and so forth... How true is the Agency "supporting" those companies and in what sense? and how does that help the company in its daily business? I have reservation.

for those who followed US listed Chinese stock long enough, you will know China.com (CHINA) , now renamed as CDC Corp. was also selling a story that they have Xinhua News Agency affliated subsidiary (quite remote indeed, that subsid was a company formed in Hong Kong, but I doubt whether the Agency itself even knew there was such an associated outfit in Hong Kong at all) as its shareholder, turned out CHINA was a very successful listing in NASDAQ during the dotcom era. But how does the stock perform now?

Sorry, this sort of 'brand borrowing' story doesn't appeal to me when there are so many better PRC stocks to choose from, those companies have better fundamentals without the need to brand-borrow elsewhere.

But I do pay very high respect to those underwriters and company founders who can create and arrange those beautiful stories.