China MediaExpress Should Be Next Chinese Momentum Stock

Includes: CCME, FMCN, VISN
by: super-trades

This year we have seen many Chinese momentum stocks make runs of $10-$20+ per share: TRIT, OTC:RINO, OTCPK:FUQI, OTCPK:CAGC and the list goes on. All of these stocks were in hot sectors with growing sales and EPS.

Lately, Chinese out of home advertising stocks have been on fire. Focus Media holdings (NASDAQ:FMCN), and VisionChina Media (NASDAQ:VISN) are both at or near 52 week highs with strong trading volume. FMCN closed at $16.81 on Friday, December 18, which represents a 20 P/E against the average 2010 EPS estimate of $0.83. VISN closed at $12.05 on Friday, December 18, which represents a 22 P/E against the average 2010 EPS estimate of $0.54.

I think Wall Street is about to discover a third major player in the same sector and find it incredibly undervalued compared to FMCN and VISN. Enter China MediaExpress Holdings (OTCPK:CCME), which operates the largest television advertising network on inter-city express buses in China. CCME's clientele includes local brand names as well as those well-known international and national brands such as Coca Cola (NYSE:KO), Pepsi (NYSE:PEP), Siemens (SI), Hitachi (HIT), China Telecom (NYSE:CHA), China Mobile (NYSE:CHL), China Post, Toyota (NYSE:TM), Bank of China and China Pacific Life Insurance.

CCME, formerly TMI, was acquired in a SPAC transaction this October. They have $41m of cash with no debt. Revenues grew 65% last quarter and net income grew 43%. Net Income through September 30, 2009 was $27.4m and the Company appears to be on track to take on management's full year target of $42m. CCME has approximately 24m shares outstanding and approximately 10m warrants with a strike price of $5.50. Estimated fully diluted shares outstanding using the treasury method will be approximately 29m at the end of 2009. EPS for 2009 should be $1.35-$1.45 if they hit the target. (The CEO said, “Historically, our fourth quarter is seasonally our best quarter. It appears that the 2009 fourth quarter will be no exception.”). For 2010, managment is targeting $83.5m in net income and fully diluted shares outstanding should be approximately 35m, for a targeted 2010 net income of $2.39 per share.

To apply the forward 2010 P/E of 20 that competitors FMCN and VISN currently have to $2.39 EPS would give CCME a price per share of $47.80. What makes CCME even more interesting is it currently has a trading float of only approximately 750k shares with 168k of those shares sold short.

If Wall Street likes FMCN and VISN enough to give them a 20 P/E, they should salivate over CCME once they discover the fundamentals of this Company.

I have been long CCME since it was TMI at $8.

Disclosure: Long CCME

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