Just a few thoughts FWIW.
I think Cheng bringing Pipers/PWC on board suggest he realizes he can’t get away with trying to avoid facing up to the consequences of his greed.
He’s not stupid so he hasn’t missed seeing how the market has shown what it thinks about dishonesty and lack of transparency in this whole space right now.
But he must think the company is worth more than it would be if it went pink, since it seems that he’s trying not to go OTC.
There is no way around the fact that in this environment of mistrust towards these Chinese small caps now, the market will accept nothing less than a forensic audit to validate this company, even if that means ultimately validating a smaller company than the CEO would have had us believe, maybe in his attempt to make his earn outs.
Assuming they ultimately come on board to do a full forensic audit, I think PWC will want to check the DDT concerns first, why reinvent the wheel.
I think it’s highly probable that the cash has been used for his pecuniary gain in some way/s.
I also think it highly likely that the company is smaller than previously stated, either in revenues/ number of buses or likely both.
PWC will have to check out all the bus customers to verify how many buses and how much revenue is derived from them.
I can’t guess if he has sold undisclosed shares, if so, then he knew back then that the Co was not worth what the long market thought it was and profited from that at longs expense. It looks like that’s what the Lin’s did, so why not Cheng also.
I think he’s now realizes that he has no choice about coming clean to stay listed and also realizes that to get full value for whatever his own shareholding remains, he will have to go through the process of a stringent audit process, warts and all. Half an audited Co in compliance on NAS will be worth more than an untested assumed to be scam on the pinks.
I think there has been an assumption by Chinese management that they can just carry on with Chinese business practice ways that contravene accepted standards of listed company practice and also reveal a level of contempt for shareholders interests, if not an actual rip off of other peoples’ money.
I think seeing their own shareholding value decimated has been a nasty surprise and a wake up call for these CEO’s and management teams to the need to moderate and modify their autocratic arrogant and self interested greedy ways, since their actions have come home to drastically hurt them in the pocket also.
At least for the ones that aren’t total scams and CCME does have a business at least 50% of what it has stated I believe at a guess.
I think they have overstated the airport bus margins/used the cash for personal profit/lied and deceived Starr in order for the Lin’s to unload/deliberately kept the previous CFO in the dark to enable the above plus whatever else they may have done.
But if there is still at least a 50% business liable to earn maybe $1.20 – 1.50 in 2011 it will be worth a PE of 10 (once this space has been cleaned up over the next few years) and these numbers will grow with the business.
So giving it an intrinsic 10PE now = $12 – 15 intrinsic value now, even if to be realized only over the next few years or hopefully less time as this sector sorts itself out.
It’s ultimately an advantage to CCME to have to go through such scrutiny as it will end being proven clean (after it has been cleaned up) and this clean up process will have to happen to this whole space, or anyway those that refuse to be thoroughly scrutinized will be assumed as too risky, whilst the others will be rewarded and ultimately trusted, so long as management also realizes the need to be consistently communicative, reliable, honest and shareholder friendly. I hope.
It’s come down to hope. Unfortunately my unquestioning assumption that the market facilitators and regulators would protect and regulate shareholder interests was unfounded. As was my naive assumption that Chinese management would have a certain acceptable level of business ethics and shareholder interest as would be expected from similar US management.
Since they were signed off by DTT in 2009, started SWITOW, are still hiring and investors on the ground have seen their screens in buses, I don’t think the company is a total scam.
Since DTT, Starr and Lam resigned and they got out of compliance and have not been communicative with shareholders, some things are not right or outright bad.
Some well connected shorts (and I don’t believe Carson Block and Andrew Left fit that category) who were prepared to pile on big with puts and naked shares (i.e not retail) realized there are problems in this space and with CCME.
However I think the truth lies somewhere in between the Gorilla/ Scam extremes, as will the ultimate share price. CCME may never be worth $50 or $100 as I have seen both Ratobranco and Bradford post previously here, but nor will it go to zero as Ratobranco’s kneejerk favourite clarion call now.
It probably (but may not, and anyway we will get a better feel for this as events transpire, even before it resumes trading) has a genuinely profitable, growing niche advertising business and probably has substantial cash.
In my opinion on the weight of probabilty(any one's guess!)it probably does not have the stellar margins and metrics it boasted but is still a good investable business.
Assuming it's half of what it has claimed to be and I’d personally be surprised if it was less than this and not surprised if it is 75%+ of what it claims to be, since the DTT concerns are more around the cash and certain possible related party transactions issues though also they raise nefarious unproven and investigated size of business doubts.
Also it will get a more generous PE in the future, at least 10 and maybe as high as 20 or more, as sentiment can and usually does change to the opposite extreme at some time.
Whilst this generation that has seen so much grief in this investment may largely want to get out, a patient hold may yet see a money back type return and a handsome profit for the new generation feeding off the fear and disappointment of now.
IMHO FWIW.
