Impart Media Group Inc fkaa IMMG

[mavnews]

Focus Hikes Revenue And Profit (Again), But Impart Prepares To Strike

20 May 2007

Chinese digital-out-of-home giant Focus Media Holding this week recorded more-than-70-percent increases in both revenue and profit for the first quarter – but the company faces new competition from U.S. firm Impart Media Group, which has filled in details of its plans for China hinted at earlier in the week.

The company reported total gross revenue (before deduction of sales taxes) of $63.3m for the first quarter ending 31 March, up 74.1 percent on the same period a year earlier, although the figure was down 15.8 percent on the previous quarter’s revenue, a seasonal drop that Focus attributed partly to the Chinese New Year holiday during the first quarter.

Gross profit was $33.7m, up 82.2 percent on the year-ago quarter, and net profit was $16.3m, up 72.7 percent.

In the first quarter, more than half of Focus’s revenue came from its commercial-location network, which includes its screens in office buildings, its outdoor LED screens and cinema advertising. The network, which brought in $35.7m in revenue – up 51.4 percent year on year – by the end of the quarter comprised 83,256 screens directly operated by Focus, a figure slightly up on the end of 2006, and a further 4010 operated by partners.

However, average advertising revenue per 30-second-equivalent time slot in the network’s principal cities of Beijing, Shanghai, Guangzhou and Shenzhen was down to $12,092 from $13,507 in the previous quarter, thanks to the Chinese New Year reducing audiences in office buildings. Focus’s Premier Office Building Channel A contributes about 70 percent of the commercial-location network’s revenue.

Focus’s in-store network saw revenue grow 26.6 percent year on year to $7.4m. By the end of the quarter the network was installed in 1196 hypermarkets – producing “substantially all” the in-store revenue – as well as 842 supermarkets and 1897 convenience stores, with a total of 40,736 displays.

Focus said the commercial-location and in-store networks had gained about 187 new advertisers in the quarter, bringing the total to date to some 2800.

The in-elevator poster-frame business grew 108.1 percent year on year to produce $13.9m revenue, with total inventory reaching 124,542 frames – an increase of almost 25 percent over the previous quarter.

And Focus Media Wireless saw revenue grow by 62.1 percent quarter-on-quarter to $6m, a dramatic increase after three quarters of almost flat revenues in 2006. (The wireless division was not trading through the first quarter of 2006.)

Focus stock, traded on the U.S. NASDAQ market under the ticker symbol FMCN, rose sharply on Friday after the late-Thursday publication of its financials, climbing 7.7 percent to end the day at 42.92.

Analysis: Focus’s future
Aiding that climb may have been Focus’s prediction of steep increases in both revenue and profit in the second quarter, with $103-107m of revenue generating $40-41m profit, forecasts that are likely to incorporate strong contributions from Allyes Information Technology Company, China’s biggest online ad agency, for which Focus paid up to $300m in a late-February deal.

The significance of Allyes to Focus’s future underlines the company’s gradual shift away from its digital-signage pure-play roots into a broader media-ownership role. While still contributing the bulk of both revenue and profit, the well-established commercial-location and in-store businesses are declining in importance for Focus.

In the latest quarter, Focus Media Wireless contributed about ten percent of gross revenue – against five percent in full-year 2006 – and about nine percent of gross profit, compared with three percent for 2006. Even allowing for the fact that the division only started to make an impact on Focus’s financials in the second quarter of 2006, its growth – and to a less spectacular extent that of the poster-frame business – contrasts with the gradually declining shares of both revenue and profitability attributable to the commercial-location and in-store operations.

However, while its importance to the group as a whole is likely to decrease over the medium to long term, the commercial-location business remains a cash cow for Focus, with its 65 percent gross margin only slightly behind that of the poster-frame division (69 percent) and ahead of wireless (57 percent). It is the in-store network, with only a 32 percent gross margin and the smallest contribution to gross profit of all Focus’s core businesses, that is the weak link.

And the commercial-location division may find its margins improved further by new technology, for Focus also this week introduced a new generation of LCD display, Frame 2.0. The first stage of its rollout will see 10,000 displays going into elevators in up-market office and apartment buildings. Enhanced data-storage capacity enables the Frame 2.0 units to loop a series of different digital posters, thus allowing each to serve multiple advertisers.

Credible competition
Focus’s seemingly unstoppable march has partly been made possible by the lack of credible competition in China. Now, however, U.S. firm Impart Media Group and Shanghai-based China Media (USA) may be preparing to provide just that.

The two companies last week signed a non-binding agreement that could lead to the establishment of a new firm, Impart China Networks, with China Media providing capital and operational facilities while Impart contributes its management expertise and technology.

Impart Asia Pacific VP Laird Laabs said that the increasing disposable income of Chinese consumers “dramatically impacts and accelerates the demand for new housing, stores, banks, malls, restaurants, theatres, anything and everything, that plays into our strengths in the alternative out-of-home space.”

He added that Impart’s technology is “already mass-assembled, to our design specifications, in nearby Taiwan, so our entry into the Asian market is not surprising”.

Laabs also cited the upcoming 2008 Olympics in Beijing and Impart’s strong relationships with Chinese advertising firm SMPG and retailer Shanghai Lotus Supermarket Chain Store as further justification for the move.

China Media’s Goodwin Wang, who will run the proposed joint venture day-to-day, pointed to Impart’s technology and sector knowledge “coupled with China Media’s municipal contacts throughout China”, suggesting that the duo’s out-of-home plans would have the Chinese authorities’ blessing and hinting that there might be public-sector projects in the pipeline.

He also said that the Impart/China Media model would differ from Focus’s by being “more scalable and flexible” and based on IP networking.

After the Thursday revelation, Impart stock – traded on the U.S. OTC market under the ticker symbol IMMG – rose 22.6 percent to finish Friday at 0.65. China Media is privately owned by Wang; Robert L. Mazzeo, who will sit on the board along with Wang and Laabs; and an unnamed third investor.

http://www.aka.tv/articles/article.asp?articleid=1112