Focus Media Builds Yanhuang Health Media Investment

Focus Media Holding Limited (NASDAQ: FMCN) , China's largest digital media group, yesterday announced a strategic investment in Yanhuang Health Media Limited, a Beijing based operator of a liquid crystal display [LCD] based advertising network for hospitals and healthcare locations in China. Focus Media will make a cash investment of US$5 million to Yanhuang Health Media in return for a 20% equity interest.

In addition to the cash investment, Focus Media will transfer to Yanhuang ownership of Focus Media's healthcare channel. With an installed based of approximately 2,461 LCD displays, the healthcare channel covers hospitals and chain drugstores in 31 cities throughout China.

"There is very significant demand for advertising targeting potential consumers for their healthcare needs. Yanhuang has built a very successful network and operating team to become the leader in the sector," noted Jason Jiang, CEO of Focus Media. "We believe this partnership will create value for our shareholders while building a leading player in an attractive media, in which we have a significant stake."

Focus Media's investment follows on a larger investment announced in October, in which Yanhuang Health Media received US$35 million in venture capital investments from four firms, including Orchid Asia, China Renaissance Capital Investment, investor AB, and HSBC. Yanhuang reported that the investment would be used to expand its nationwide in-hospital LCD network. At the time of the investment the company also announced plans for an overseas IPO in 2008.

Yanhuang Health Media Limited is a leading digital display advertising operator covering healthcare locations in China, including hospitals, chain drugstores and other healthcare locations. Founded by Beijing Yanhuang Times Advertising Corp. in 2005, Yanhuang Health Media is reported to own the largest in-hospital television network in China. Currently, it has an installed based of over 10,000 LCDs in 36 cities throughout China. With displays located in waiting areas and other public spaces within hospitals, the company generates its revenue from selling advertising air-time on its network. Yanhuang reports its present network coverage includes exclusive agreements with more than 2500 hospitals, with over 10,000 LCD screens throughout 35 provinces in China. With Chinese patients visiting the hospital approximately 10 times per year and hospital waiting times estimated at 1.5 hours, the company estimates an audience of 4.4 million people per day. The company's earlier growth has been backed by an investment of US$5 million from Softbank's SAIF in 2006. Although Yanhuang does not release financial reports publicly, CEO Zhao Songqing has estimated that the company has the potential to hit annual revenues of CNY2 billion (US$265 million). This latest investment by Focus Media will assist Yanhuang in its plans to expand its network to 80,000 displays in 6,000 hospitals throughout 60 cities in China by the end of 2008.

Yanhuang appears to be executing well on the Focus Media playbook, and its emphasis on healthcare should provide it additional room to grow. China's hospitals and pharmaceutical companies are under pressure from government efforts to cap drug prices and reduce hospital income from prescriptions. This should provide Yanhuang with a steady supply of hospitals eager to supplement their income, and healthcare suppliers looking to make a favorable impression on Chinese consumers. Yanhuang's heritage is also a plus. Its parent, Beijing Yanhuang Times Advertising, is not only one of China's largest outdoor advertising firms, it is also 50% owned by Tom Group (HK: 2383), a subsidiary of Li Ka Shing's Hutchison Whampoa (HK: 0013). Yanhuang Health Media will be one IPO to watch for in 2008.

Disclosure: none