Xinhua Finance Media Offers Growth and Value

Xinhua Finance Media Company (XFML) is mainly an advertising company operating in China an Hong Kong. For its investors, it is a great opportunity to enjoy both the expected appreciation of the Yuan and the booming advertising industry in China and Hong Kong.

Fundamentally speaking, Xinhua's market cap is less than $390M while its shareholders' equity is more than $445M. The company is expecting net revenue of between $42M to $47M in the last fiscal quarter of the year - roughly a 100% increase YoY. That follows third quarter margins of 37% and steady growth YoY. According to analysts, Xinhua is expected to report a net income of 67 cents per share for the year 2008 - a P/E ratio of less than 9 based on Monday's closing price of $5.64.

Last time I've seen something like this was with Canadian Solar (CSIQ), which I reported here, when it was trading for less than $10. Today, less than 3 months later, it is trading above $20.

There has been some confusion among the market regarding the price at which Yucaipa acquired XFML's shares. The Yucaipa Company acquired 6.2% of XFML's shares at the price of $3 per common share. As each ADR represents 2 common shares for XFML, the effective purchase price was $6 per ADR share instead of $3. Compared with this price, the 15-day average closing price for XFML prior to the Sep. 26 announcement was actually $5.77 per ADR. Hope this allays your concerns regarding this issue. The danger of holding Xinhua shares is in the fluctuation of the markets, not in the fundamentals of the company itself. Therefore I think holding it for the long haul will be rewardable. In the short run - who knows?

Please be smart enough to do your own research before touching this stock (or any other for that matter).

Disclosure: Author is long XFML.

Comments

[J.D:]

Go long state media in China? Great bet if you can't get to the casino.

2008 Jan 09 07:32 AM

[asaf:]

No. though it has the same name, it has nothing to do with the state's Xinhua. XFML is a fully independant firm in china, and most of its revenue comes from advertising, and not from news as some may think, so even if you talk about that kind of risk - it is limited.

2008 Jan 09 04:49 PM

[J.D:]

I strongly doubt that as lack of transparency does not equate to lack of control, but let's do the research together to be sure. XMFL is controlled by Xinhua Finance in accordance with Chinese domestic regulations, as per below. Now you check who controls Xinhua Finance.

6. Why does the parent Xinhua Finance Limited own 36.9% of equity but control the majority of the voting rights (85.4%)?
The shares held by XFL are class B common shares, which have ten votes per share, compared with one vote per share for our class A common shares, giving XFL effective control of approximately 85.4% of the voting rights. The dual-class common share structure was created to accommodate the regulatory landscape of China's media sector.

2008 Jan 09 06:46 PM

[asaf:]

Xinhua News Agency (XNA) is the largest news and information gathering and release center in China and has bureaus in more than 100 countries and regions worldwide. Its partnership with Xinhua Finance dates back to 1999, when its financial information division, China Economic Information Services, signed a 20-plus-10 year agreement for the formation of Xinhua Financial Network. This agreement is exclusive with a non-compete clause, allowing XFML to create and use its name for the services and products they have today.

2008 Jan 10 05:53 AM

[J.D:]

In other words, XMFL is controlled by Xinhua News Agency (Chinese state media) through Xinhua Finance. I have a standing "sell" recommendation on all state ministries in China until they get reforms back on track.

2008 Jan 10 09:45 AM

[asaf:]

I think it has nothing to do with it since the chinese government is acting towards open markets. I don't see how it can possibly heart XFML. I also think 2008 will be the year of chinese firms, and just look at the outstanding growth in sales of XFML and understand they control a booming market in its initial steps. you can buy a piece of it in less than 90% of book value at the moment.

I wrote about it in $5.64, I think this price reflects all worries. if you want to short stocks, at least do it with stocks with high multipliers.

2008 Jan 10 01:02 PM

[J.D:]

It means there's no point trying to guess the value of the stock, as it has an unquantifiable risk that comes from it's ownership structure and the black-box mix of politics and business common in China. You haven't taken that fact into consideration, as you were not aware of it. So, sell your XFML and take the cash to the casino. Better odds.

2008 Jan 10 03:42 PM

[asaf:]

tell me you're joking... no point of 'guessing'? well, there's a point trying to Estimate a company's value as an investor, isn't it? and it's even more relevant if you have a growth company in your hands which trades at less a half of the price of which it has been IPO'd, isn't it so?

and can you tell me please, what exactly is the danger of being an ally and a business partner to one of the most powerful governments in the world?

and Ron Burkle, one of the richest men alive, is thinking the same as me. he bought 6.2% of XFML at the price of $6 per ADR, and you can be sure that if a businessman like him invested roughly $25M in a company, it was after his lawyers and accountants did their D.D.
and don't forget who's one of his closest friends - the Clintons. it could be nice to have the former and future presidents of the US on your side.

2008 Jan 10 06:26 PM

[J.D:]

The point, Asaf, is that you don't know much about this company, and less about China, so your estimates are just a gamble. Someone will make money of XFML but it's not you. Pump away.

2008 Jan 10 10:39 PM

[asaf:]

thank you for making it clear to me that you are good in babbling, and nothing else. there is no point argue with someone with nothing but propaganda.

2008 Jan 11 03:18 AM

[J.D:]

Bravo on your eloquent additions to your analysis. You're very skilled at moving seamlessly between errors and insults, which makes you fully qualified to work for your friends at Xinhua (though evidently you're not yet sure what they do).

2008 Jan 11 07:00 AM