(Update: see also "2008 China MediaExpress Ad Raises Questions")
On February 17, in a rebuttal to some of the negative claims recently made against China MediaExpress (OTCPK:CCME), Global Hunter Securities issued a new research report by its analyst Ping Luo. This latest report is follow-up to earlier reports on CCME by Ping Luo and describes, among other things, her latest review of the company's bank account statements, tax filings, customer contracts, and interviews with customers, during her visit with the company in China.
Regarding the interviews with customers, the report states:
I work and live in China and happen to have a friend who works at L'Oreal's China headquarters in Shanghai. So I asked her about CCME. She checked with her colleagues in the advertising group, as well as the manager in charge of advertising placement. They all told her that they have never heard of China MediaExpress or Fujian Fenzhong Media. I sent her a copy of CCME's ratecard available from its website, which has CCME's names in Chinese, and we are both native Chinese speakers, so there is no question of confusion about the names of the company. Indeed, she was further told that L'Oreal does not place advertisement on inter-city long-distance buses or airport buses because their passengers tend to be more of a "mobile / transient population". They do place ads in subways and buses within cities. I suspect a related reason is that the passengers on inter-city long-distance buses, in particular, but also airport shuttles, tend to be largely male, whereas L'Oreal's target consumers are mostly urban female office workers.In addition to talking to CCME’s direct customers, we called China Telecom Jiangsu Branch, as well as the exclusive advertising agencies for Coca Cola and L’Oreal in the Shanghai region, who are CCME’s indirect customers but confirmed with us that they have placed ads on CCME’s platform.
After learning this from my friend, I tried to get responses from Ping Luo and Jacky Lam, CCME's CFO. i asked them for the name of the agency responsible for the L'Oreal ads that Ping mentioned in her report so that I could check again with L'Oreal. Ping told me that she was given the contact information on a confidential basis and asked me to get it from Jacky Lam.
Over the course of last two days, I have been exchanging emails with Jacky Lam to get information about the ad agency so I can clear up this conflict. So far, I have been unsuccessful in getting any further information from Jacky Lam.
You can read the emails between Jacky and me below.
Both Jacky Lam and Ping Luo told me that they cannot tell me the name of the ad agency because their client ad agencies have already been contacted by too many longs and shorts in recent days. Considering how secret CCME has been about the names of the ad agencies that are its customers (other investors have also mentioned any inability to obtain customer names from the company), it is difficult to understand how they could have been receiving calls from investors to any significant extent. Bus Online, a competitor to CCME that does advertisements on buses within cities, provides a full list of ad agencies they work with on its website, even though it is still a private company. A publicly listed company should obviously expect to be much more transparent.
Given the lack of responsiveness from the company to my inquiry, I have decided to go public and wait for a public response from the company. Jacky Lam made no attempt to respond to the substance of my findings but instead asked for the contact information of my source, which I was not willing to disclose in the interest of my friend's privacy. This will give the company a chance to give its answer to the all investors. As I mentioned to Jacky, under Reg FD of the US securities rules, a listed company is required to share with the general public all material non-public information it discloses to analysts.
The best course now would be for CCME to release a signed statement from the ad agency handling the L'Oreal ads to confirm the amount of ads they placed with CCME in 2010. In fact, the company could clear up most of the questions about its business if it would release similiar statements from as many of its customers as possible, including the ones Ping Luo mentioned on an anonymous basis in her February 17 report.
Disclosure: I hold a short position in OTCPK:CCME. I have other reasons to be doubtful about the company besides this latest discovery, on the basis of both widely published report and Chinese materials that I found which have not yet been discussed in English language forums. I have not written yet about those other discoveries because they are more in a gray area. They may cast doubt but would not necessarily prove things 100% one way or another. But this latest discovery is much more of a black-or-white issue. I am very confident about my source and felt this was important enough to be brought to the public's attention.
p.s It's true that the account I am giving here is not indepedently verifiable as is (though you could contact L'Oreal Shanghai yourself to check). I am asking others to take my word for it to a degree. The burden of proof and disclosure, however, is on the company. That's the burden a company assumes by going public. It would be easy for the company to provide evidence that L'Oreal is an (indirect) customer and the level of business it does by getting a statement from the ad agency it works. If they had provided that kind of documentary evidence for all their major customers, nobody would be asking all these questions.
If this were the only issue I had with the company, I would not have come forward now. But given all the other questions about the company, I felt trying to get the company's side of the story for two days was long enough.
I happen to have a friend who works at L'Oreal in Shanghai, which is their China headquarters. I asked her about CCME / Fujian Fenzhong and gave her a copy of your rate card. She checked with their manager in charge of advertising and was told that they have not heard of CCME or Fujian Fenzhong and that in any case, L'Oreal does not place ads on long-distance buses and airport buses because their passengers tend to be of a "mobile population". They do, however, place ads on subway and buses within large cities. Could you give me the contact info for the ad agency for L'Oreal you gave to Ping Luo so I could check the name with my friend? This is serious. We need to get to the bottom of this.