Sinomedia Holding Limited (SEHK:623)

Sinomedia Holding Limited (SEHK:623)

Price 4.30 (52 wk high: 4.73, 52 wk low: 2.70)
Long Term Debt 0
Last 12 months EPS $0.09
Last 12 months Rev $263.4m

Sinomedia is a media advertising operator based in China, focusing on nationwide T.V. advertising coverage predominantly for CCTV (China Central Television). CCTV is a state channel with a viewer reach of over one billion and is the only channel authorised to broadcast statewide. Ratings are around 33%, increasing during sporting events such as the 2012 Olympics and during the New Year galas.

CCTV’s advertising rights are sold via auction before each year begins; Sinomedia along with several other companies bid for these rights. Sinomedia has successfully and consistently won more rights each year since inception (2013: 11.4% of total allotment, +27% YOY); it then resells these to advertising agencies or uses them for clients, 500 Government and 1600 Private.

During 2012 growth in China started to slow, resulting in a GDP of 7.7%. Sinomedia aware of this spent 2012 cost cutting, disposing of inefficient T.V. ads, increasing clients, focusing on prime time advertisement slots and bringing forward their yearly trade shows. All of these helped boost margins in the second half of the year from 22.8% to 43.6% (expected 36.7%) and produced a yearly increase in net profits of 27%.

They have actively been using their $231m in cash for M&A deals, staying focused on advertising but moving into the growing travel advertising arena (15.1% YOY) and growing mobile market arena (Phone sales grew year on year by 4.3%, of those sales 49% were smartphones). This is being done with sites such as Lotour (http://www.lotour.com/) and with investments such as FoneNet Inc. (“100TV”) & (“Zhongtoushixun”).

Financials:

Trading at a P/E ratio of 6.3, in a historic range of 5-13 and with a sector ratio of 14.1, I feel this is an exciting value play. Their cash holding of 231.5m (Equity 197.4m) with zero debt provides a nice safety net. Management are actively buying back shares, 3m (0.5%) in 2012, 7m (1.26%) in 2011, all the while they are retaining earnings and providing an increasing dividend which is currently a yield of 6.38%.

Year 2008 2009 2010 2011 2012
Net Icome($m) 17.7 13.0 25.2 38.4 49.0
EBITDA($m) 22.1 18.3 32.5 57 68.5
Cash($m) 84.2 47.3 120.7 144.9 231.5
ROE 22.7% 12.5% 20.8% 25.8% 27.1%

Risk: Loss of market share for CCTV and slowing growth in China.

Catalysts: Increasing Margins, beating expectations year end and improvements in the advertising industry.

 

A Media forecast going into 2015, as you can see spending will nearly have tripled the 2010 figures and doubled the current 2012 figures.

http://www.iab.net/insights_research/industry_data_and_landscape/1675/1846707

Advertising budget has been spent in the U.S mostly on TV but with Internet fast becoming all other spending.

http://www.businessinsider.com/chart-of-the-day-online-advertising-2012-10

Much the same is happening in China.

http://www.chinainternetwatch.com/1935/china-online-ads-market-review-and-prospect/

http://www.forbes.com/sites/russell...na-is-being-affected-by-new-media-too-update/

SinoMedia is responding to this and has purchased several companies over the last year to take advantage of the growth in internet advertising, some as recently as last quarter.

http://www.4-traders.com/SINOMEDIA-...-Website-and-Office-Premises-As-a-S-15591328/

"We have continued to extend our business to the upstream media industry by investing in internet and mobile new media. We have successfully completed a number of investment projects this year, including leading Chinese mobile video platforms and service providers." - Ms. Liu Jinlan, Chief Executive Officer of SinoMedia.

"the self-construction of the agricultural information portal website “Wugu.com.cn” (􀑈􀔋&#1052771, and the strategic investments in the digital television channel “Super Channel” (􁐑􀬢􀖃&#1054536 and the video clips website “www.boosj.com” (􁅧􀵖&#1052771 were completed. These three projects, coupled with the Group’s investments in such projects as “CNLive” and “100TV” in 2011, further strengthen the Group’s channel layout and constitute a key framework for the Group’s “Channel + Content” development strategy for upstream media business." Mr. Chen Xin, Chairman of SinoMedia.

This is visible from the rankings available from some of SinoMedia's internet media resources.

http://www.examinesite.com/alexa-global-rank/www.lotour.com
http://www.examinesite.com/alexa-global-rank/www.wgool.com

With Record Ad Revenue and Sales from State Controlled CCTV (Think Moat) year after year, their primary source of income, media resource management is still strong.

I expect to see some interim results released around 20th - 25th of August.

I'm not finding much in the way of bad news or warnings, some ratings drops for CCTV on the NY Galas in 2013 and a definite move from traditional Newspaper and other non-TV advertisement towards new media, although SinoMedia is aware of this and is actively pursuing a strategy to capture this.