Replies to post #127351 on Value Microcaps Motherboard

[v80alue]

CCME, agreed about their ability to maintain their margin from 10k

The ability to maintain and enhance CME’s leading market position

CME believes it has the following competitive strengths that would allow it to maintain and enhance its position as the largest television advertising network on inter-city express buses in China:

· Early entrant advantage ....

· Long-term agreements with a large number of bus operators . CME has entered into long-term framework agreements with a large number of bus operators, enabling it to occupy a significant market share and to create significant entry barriers for potential competitors. CME has entered into long-term framework agreements with 40 inter-city express bus operators for terms ranging from five to eight years. As of July 31, 2008, the number of buses within CME’s 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, according to CTR Market Research.


· Scale of operations . 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 2009, more than 450 advertisers directly or indirectly purchased advertising time on CME’s network.


· The sole strategic partner designated by an entity affiliated with the Ministry of Transport . In October 2007, CME entered into a five-year cooperation agreement with an entity affiliated with the Ministry of Transport of the People’s Republic of China to be the sole strategic partner in the establishment of a nationwide in-vehicle television system displaying copyrighted programs on buses traveling on highways in China. The cooperation agreement gave CME exclusive rights to display advertisements on the system. In November 2007, this entity issued a notice regarding the facilitation of implementation of the system contemplated under the cooperation agreement to municipalities, provinces and transportation enterprises in China.

Futher,

To implement a nationwide in-vehicle television system that displays copyrighted programs on buses traveling on highways in China, TTAVC is obligated to reaffirm CME’s status as the sole strategic alliance partner in documents it enters into with relevant bus operators. TTAVC is also obligated to notify and coordinate meetings with relevant bus operators to facilitate CME in the implementation of a nationwide in-vehicle television system that displays copyrighted programs on buses traveling on highways in China. TTAVC has the right to inspect whether content displayed on the system is copyrighted, whether CME performs its obligations to provide content and whether the equipment and systems CME provides function properly.

TTAVC is obligated to ensure CME’s status as its sole strategic alliance partner. In the event TTAVC enters into agreements with third parties to engage in the same type of project in breach of such obligations, it is liable for damages at ten times the value of the equipment and systems, which is equivalent to RMB40,000 per unit.


The chance for them to renew the "Sole" strategic partner in 2012 looks very good so far. By then, it would be hard for newcomer to gain this government endorsement. Even if bus operator likes to negotiate more, it will be confined within the contratual annual 10-30% concession increase. Margin will be decreased by certain percentage but they certainly can raise CPM rate to offset that. The key here is once they established the scale CCME are in great position to get more cost saving and bargain chip against customers. It certainly is not the case of degrading margin Q after Q.

In a word, possible margin decrease can not be a significant reason for shorts. It maybe a concern for institutional buyer not to commit large investment. but at this level, it is matter of time for some one to step in big and bid up...