FMCN Notes

5/18/07 Reports (WR Hambrecht & Lehman)

• Q1 revenue $68.2m, $0.21 EPS – Revenue up 75% EPS up 62% YOY

• Q2 guidance 17% higher than consensus.

• Lehman expects revenue growth of 61% & EPS growth 56% through ’09 (405.8m & 655m for 07 & 08)

• 2 recent acquisitions:

  • Allyes – serves internet ads

  • Framedia – places poster ads in public places

• Expect further growth into tier 2 cities, moving toward more digital displays (3x the ad space inventory)

• Occupancy rate moved from 36.4% to 39.3% in total – company has much room to improve (capacity increased by 80% at same time for Framedia)

• Occupancy for tier1 cities 90% - ASP $12k versus 77% and ASP 11.7k in Q1 ‘06

• Q1 Framedia did acquisitions in 5 more cities to expand footprint to over 30 from 7 in 06

• Acquisition of Allyes opens focus’ client base of 2,900 to what was only 300 to 400 for Allyes previously.

• WR Hambrecht estimates Allyes acquisition will contribute $12m revenue in Q2

• Pricing picking up in tier II cities

• Q1 seasonally weak so Q2 could be a significant boost.

• Company has no debt.

IBD article (5/30/07)

• 40% of Chinese will reach “middle class” versus 19% just 4 years ago

• Top tier list of clients such as NOK, TM, PG, CHA, GM, MCD

• Tier 1 sold 6,414 time slots up from 3,904 last year

• Set up partnerships in the Tier II cities to begin with until they have the available capital to move in.

 

CIBC report (7/3/07)

-          Postponing filing annual report – short seller raising questions about related party transactions in 2005

-          CIBC thinks fundamentals still strong – notes pricing power.

 

IBD 10/18/07

-          Advertises 2,000 brands on network of > 250,000 digital displays in China

-          Feeds ads to cell phones

-          Strong fundamental growth trends

 

1/2/08

-          Announced completion of acquisition of CGEN Technology Company for $168m

o        Significantly expanded coverage of digital ad displays in large chain stores

 

Pali Report 1/8/08

-          Completed acquisition of QGEN (formerly duopoly competition)

o        Expect to be accretive both short and long term

o        Immediate margin improvement – long-term pricing power

-          New 2008 estimate $2.16-$2.20 and 2009 estimate $2.83 - $2.98

-          Separate listing of wireless and internet business in 2008 will increase value

-          Digital TV business a huge potential

-          Widespread margin improvement expected in 2008

 

Seeking Alpha Article – Barak Paztal – 11/16/08

-          Acquired 4 companies in rapid succession

o        Mobile marketing, in-store ads, internet agency, poster ads

o        Written off value for most of first two investments

-          Entrepreneurs who build company have left – loss of innovation

 

EPS Release 11/10/08

-          Revenue $224.8m, up 63.7%, GAAP EPS $0.38, non-GAAP EPS $0.53

o        Digital out-of-home advertising revenue 153.8m – up 62.4%

§         From commercial locations – grew 44.1% to $93.1m

§         From in-store network – grew 136.6% - $16.8m

§         From in-elevator posters – grew 90.6% to $44.0m

o        Internet advertising revenue $70.8m, up 66.5% y/y

-          Extremely challenging advertising environment towards end of third quarter and into fourth quarter

o        Customer issues in US and Europe has affected China Economy and decision makers in China business

o        Macro Headwind most severe in modern history of China advertising industry

o        Internet advertising slowing after Beijing Olympics

-          Plan to further restructure QGEN acquisition – material one time non-cash charges in Q4

-          Based on client discussions, expect overall advertising growth in 2009

o        Urban population will continue to grow

-          Total LCD and digital frames, 120,131 – non-digital 273,813

-          Cash equivalents of $373.1m and operating cash-flow positive

-          As of 11/10- repurchased 1.6m ADRs in open market

-          Guiding Q4 revenue $190-200m, EPS $0.45-0.46

Press Release 12/22/08

-          Definitive agreement with Sina – Sina will acquire assets of digital out of home advertising networks (LCD, Poster frame and in-store network).

o        FMCN will retain internet advertising network, move theater advertising and certain traditional billboards

o        “Combine the forces of the two most powerful new media advertising platforms in China” –Carles Chao – President and CEO of Sina

-          Related businesses accounted for 52% of revenues and 73% of gross profits

-          Sina to issue 47 million shares to FMCN.  FMCN will then distribute these shares to its shareholders after the close of the transaction

 

*128.6 mil FMCN shares, so 0.365 shares of SINA per FMCN share. 

        At $23, the SINA shares account for $8.40 of FMCN price