CCME - Summary
Revenue:
2006 - $4M
2007 - $25.8M
2008 - $63M
2009 - $95M
2009E - $104.2M
2010E - $196.6M
2011E - $305.5M
Net Income:
2006 - $0.9M
2007 - $7M
2008 - $26.4M
2009 - $41.7M
2009E - $42M
2010E - $83.6M
2011E - $130.3M
2012E - $169.2M
Net Margin:
2006 - 22.5%
2007 - 27.13%
2008 - 41.9%
2009 - 43.9%
2009 Q3 - 44.8%
Based on current estimates, CME expects its capital expenditures in the future to primarily consist of:
• approximately $1,000 on equipment and a control system for each bus added to its network as it expands its geographic coverage and increases the number of inter-city express buses within its network; and
• approximately $150,000 per bus station and less than $100 per bus to upgrade CME’s technological capability to change programs and advertisements from a manual system to local wireless network technology; CME’s expects that the number of bus stations and number of buses that will be upgraded with the wireless network technology will be approximately 255 and 31,000, respectively, by the end of 2010.
CCME's portion of market:
'CME believes it operates the largest television advertising network on inter-city express buses in China. According to CTR Market Research, as of July 31, 2008, CME’s advertising network accounted for 81% of all inter-city express buses installed with hard disk drive players and 55% of all inter-city express buses installed with any type of television display.CME believes it has achieved the scale of operations that is not only attractive to advertisers but also allow it to capitalize on cost synergies. CME’s network with over 16,000 inter-city express buses covers all four municipalities and seven economically prosperous provinces in China. The large number of inter-city express buses in CME’s network in economically prosperous regions in China has enabled it to attract a significant number of clients. During 2008, more than 400 advertisers directly or indirectly purchased advertising time on CME’s network.'
Effectiveness of advertising network:
'CME believes its network is a highly effective and efficient. According to a survey conducted by CTR Market Research in July 2008 on bus services originating in eight major cities, on average, 81% of all passengers said they had watched the television displays on CME’s network, and almost 80% said they regularly watched the displays on the network.According to a survey conducted by CTR Market Research in July 2008 on bus services originating in eight major cities, the average duration of a journey on buses within CME’s network took two and a half hours. As CME displays advertisements in ten-minute blocks after every 30 minutes of entertainment content, the audiences can potentially view the same advertisement up to three times per journey. CME believes repeated exposure to the same advertisement significantly increases its effectiveness.'
Advertising Cost Per Minute(CPM):
CCME range - 2.14 to 3.61
Local T.V. Channel range - 59.00 to 317.00
*(In RMB for every 15 seconds)
Methods to increase advertising revenue:
• Sell first few minutes of the advertising time slots at higher rates.
• Expand the coverage and penetration of its advertising network. CME believes expanded coverage and penetration of its advertising network would increase the effectiveness and attractiveness of its network to advertisers, thereby enabling it to increase its average advertising rates.
• Capture increased advertising spending on its advertising network from its clients. CME intends to compete for a larger portion of its clients’ advertising budget relative to other media. CME believes increased demand for advertising time on its network will enable it to charge higher average advertising rates. CME’s network is capable of reaching a large audience in transit who are otherwise more difficult or expensive to reach through conventional media.
• Enhance the effectiveness of its advertising network.
• Attract national and international brand name advertisers to purchase its advertising time.
• Increasing the advertisements to entertainment content ratio. By increasing the length of the advertising time slot relative to the length of entertainment content, CME can increase the amount of advertising time available for sale. CME believes an optimal mix of advertisements and entertainment content will enable it to maximize revenues.
CCME's Annual Advertising Minutes Sold:
'CME’s sales of advertising time slots increased significantly from a total of 196 minutes in the year ended December 31, 2006 to a total of 1,680 minutes in the year ended December 31, 2007 and to a total of the 2,240 minutes in the year ended December 31, 2008.'
Bus Operator Agreements:
CME has entered into long-term framework agreements (including the supplementary agreements, if any) with 40 inter-city express bus operators in China to install its equipment and control systems and display entertainment programs and advertisements for a term ranging from five to eight years. These agreements will begin to expire December 31, 2011.
Future Growth:
'To meet the demand of advertisers for broader network coverage, CME must continue to expand the coverage of its network by increasing the number of inter-city express buses within its network and expanding into new provinces and regions not currently included in its network. By the end of 2009, CME plans to expand into six more provinces: Shandong, Zhejiang, Hunan, Heilongjiang, Jilin and Liaoning. By the end of 2010, CME plans to expand into another three provinces: Yunnan, Guangxi and Shanxi. CME also plans to increase the number of airport shuttle buses and tour buses included in its network. In addition, CME plans to expand its network to other transportation vehicles, such as shuttle buses servicing the commute between supermarkets and residential communities in China and expand its business into other media platforms such as stationary adverting media at bus terminals.'
Other Sources Of Revenue:
• Generate revenues from the display of soft advertisements packaged as entertainment content. CME seeks to generate revenues from displaying entertainment programs which are effectively soft advertisements, for a variety of products and services. Examples of such advertisements include travel programs featuring hotels, restaurants and tourist destinations, and fashion shows featuring lines of clothing being the subject of promotion.
• Establish stationary advertising media. CME intends to establish stationary advertising media at inter-city express bus terminals to complement its business. These include digital billboards or liquid emitting diodes, or LEDs, installed at bus terminals to target passengers during their waiting time. CME expects this expansion would increase the value of its network by increasing the size of the audience reachable and by extending the exposure for advertisers. In addition to providing an additional source of revenue, CME believes this initiative would increase demand for its services and enable it to charge higher rates.
• Offer new services to advertisers and passengers. CME intends to feature hotels, spa resorts, local restaurants on its network while displaying the logo, telephone numbers and other contact information of relevant service providers and charge advertising fees. In addition, CME plans to handle bookings through call centers or short messages for the convenience of passengers who are attracted to relevant services featured on its network. CME plans to share revenues resulting from bookings through call centers or short messages with relevant service providers participating in its value-added service programs. CME may also seek to provide drinks sponsored by advertisers or offer other merchandise for sale on the inter-city express buses carrying its network.
Bus Operator Size:
'For the years ended December 31, 2007 and December 31, 2008, the amount of concession fees paid to the top ten bus operators participating in its network accounted for 62.3% and 61.0%, respectively of total concession fees paid to all bus operators participating in its network. Currently, more than one-fifth of inter-city express buses carrying its network are operated by three bus operators participating in its network.'
Customer Concentration:
'CME derives a majority of its revenues from a limited number of advertising clients. For the year ended December 31, 2008, revenues generated from its top ten clients and the single largest client accounted for 64.3% and 7.6%, respectively, of its total revenues.'
T.V Station Cooperation Agreement:
'On September 1, 2006, CME entered into a cooperation agreement with Fujian SouthEastern Television Channel for a term of nine years starting from September 1, 2006 to August 31, 2015. In addition, on August 25, 2008, CME entered into a cooperation agreement with Hunan Satellite Television for a term of two years starting from September 1, 2008 to August 31, 2010. As a result, CME obtains a wide range of free entertainment programs from Fujian SouthEastern Television Channel and Hunan Satellite Television each month.'
Automation Technology:
'On August 1, 2008, Zheng Cheng, Fujian Fenzhong and Hangzhou Yusong entered into a patent licensing agreement pursuant to which Hangzhou Yusong obtained a license to manufacture its equipment and control systems based on CME’s patented technology. According to the patent licensing agreement, Hangzhou Yusong is subject to confidentiality obligations to keep the production procedures or other information necessary for the production of CME’s patented automated control systems in strict confidence.'
-Adam
