Zaudio, i completely agree with your sense of befuddlement over the really surprising things going on here and the idea that maybe not all hope is lost....
I confess to some shock and major disappointment over today's news, but i'm not going to say "shorts were right." You see, if shorts--beginning with Seasaw/BusinessEconomicsAnalyst, and later Citron, MW, Chimin, et al.-- had ever made a persuasive argument based on real facts and decent logic, i would have sold out earlier and never amassed such a large position in CCME (about 38% of our portfolio-- ouch!), and i would have been open to the idea that something was seriously wrong with CCME. But the shorts clearly appeared to many of us to be on the wrong side of the argument with their over-the-top negativity, illogic and baseless/refuted allegations, such as
1. misrepresented Chinese website info;
2. willful refusal to see that CCME's margins could easily be as high as FMCN's LCD biz segment-- especially due to free tv content from the two providers, low SG&A costs, and an evidently wide moat;
3. the crazy idea that no one in China knew of them as a peer in the out-of-home adv services space;
etc. etc.
Even longtime shortseller Robert Weinstein came out with 2 articles for S.Alpha in Feb. saying he didn't think the shortsellers had unearthed anything valid and he regarded their methods as deeply flawed.
Plus there was all the bizarre stuff by shortsellers that just reeked of sleazy bullying for the sake of stock manipulation-- the piling on bear-raid antics by some of the "media mob" exposed by DeepCapture.com (Herb Greenberg, et al.), the extensive naked shorting, squadrons of obviously paid bashers on YMB (and S.Alpha?), heavy put-buying, etc.
Meanwhile, Zaudio, as you rightly note, there were independent folks like Global Hunter's Ping Luo and Northland's Darren Aftahi (who had covered FMCN when he was an analyst back at ThinkEquity) risking their reputations giving CCME their strongest "Must Buy" ratings, and neither GH nor Northland were involved in any stock deals with CCME which would represent a conflict of interest. And big name investor M.Greenberg/Starr has their reputation to protect in all this.... Plus Glen Bradford and others showed us that CEO Zheng stands to loses everything if his co. turns out to be a sham.
Those of us who've seen that A.C. Nielsen Co. report for Starr on "Project Oscar" (i.e., Fujian Fenzhong/ CCME) know that this was/is a VERY REAL COMPANY with sufficent ridership "eyeballs" as to be an advertiser's dream. Justin S. has spoken extensively and insightfully about the strengths for advertisers here. We've certainly had enough financial whizzes on this board who've realized what a simple biz model CCME has and how easy it would be for the cash and the transactions with advertisers (and fees paid to bus operators) to be verified... Which Ping Luo evidently did to an impressive sampling extent "beyond sufficient."
So none of the shorts arguments made sense. (Even Rato's passionate critique of the CCME deal with Starr --i.e., "giving away" too much of the co. shares for just $4/share-- can be more charitably contextualized by realizing that in late 2009 and early 2010 CCME did not yet have much free cash and they also needed to "pay" for a big-name investment-backer to lend them some cachet and credibility, given that the earlier IPO plans with Credit Suisse were dashed by the dismal post-Crash economic conditions.)
Zaudio further mentions Switow.org... Not just website sales, but sales via the catalogues on buses could represent a biz expansion that turns into a goldmine for CCME, as everyone was posting about back in mid-January.
GeoInvesting, beyond some of their gaffes (like running some fuzzy math and also getting a competitor to furnish CCME's bus numbers for one area), showed us that CCME definitely DOES have lots of buses in its networks for those several areas that GeoInv sampled. They even showed more intercity buses in one region than CCME specified in an earlier press release.
WCTBills has certainly documented a lot of "real business" for CCME in different cities and regions.
In this way, both GeoInv and WCTBills further verified what Ping Luo and A.C. Nielsen found.
So there's a lot of REAL BUSINESS THERE with CCME.
Now, amidst all the disappointment and befuddlement, everyone wants to know, where do we go from here?
I still remain hopeful that this real business can put up big EPS figures for 2011 and beyond. If CCME had been trading at a P/E of 15 or 25 on a current pps of $11.88, it would deserve to be taken down significantly on the recent news. But, geez, at a pps of $11.88 it's already trading at a P/E of less than 4 on just the two analysts' very conservative expected 2011 EPS of 2.99 (average), on revenues of (avg) $314M and a net profit margin of 49.3%. Even if CCME's revenues are only 280M for 2011 and profit margin is only 42%, if they don't grant CEO Zheng any earnout shares we're still talking about 2011 EPS of over 3.00 and could see CCME's stockprice recover in the medium- to longer-term, i.e., if the stock is not de-listed.
I hear "from the grapevine" that CCME has in fact finally moved a sizeable sum of cash out of China for purposes of a buyback and dividend. I hope this is still valid info. If any buyback shares were retired, that obviously makes for an even smaller float and higher EPS figure.
There are other alternatives or possibilities such as a tender offer for shares and going private.... or a buyout of some or all of CCME's business segments by another co. like FMCN or SINA, etc. These would obviously not bring the attractively high shareprice that many of us originally hoped for, but would not be a complete insult either, and allow a healthy recovery for those who wanted to cash in.
Well... let's see what the coming days/weeks/(months?) bring...
Sincerest good luck to all longs and traders....
--timothy
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Zaudio wrote:
There is a lot here that just doesn't make sense:
Why did CCME hire DTT as it's auditor if it was knowingly committing fraud?... Fraud companies would not do that. What's more DTT signed off on 2009, and oversaw each 10Q for 2010
Switow - genuinely been delivering product from what we've heard... if they are a fraud, why dream up something like that? Why not stick to the buses? No one expected Switow... in fact Switow has to prove itself as profitable still... looks like a real business expansion
Starr - enough said; must be some business substance there for that investment to be made, or the guy [Maurice Greenberg] is crazy.
Global Hunter - Ping's DD seems genuine enough... the Feb work looked deeply into cash, contracts, buses etc etc.... there was enough at did add up there to get GH's stamp... it would be suicide to stamp it such if there was severe fraud going on.
Then there is the case of the bashers and shorts, the fabricated documents on their part, and the constant conficting fud they produced between them... some said the company was a phantom, some said it was there, but with less revenues than published etc etc
I read something a little while back that makes some sense to me.
The shorts have put so much pressure onto the company and DTT that DTT would be forced to try to counter everything the shorts 'claimed' to sign off... maybe they felt they couldn’t do that in time, and wimped out, stating they 'could not depend on management'... could be there is a little wrong here, but DTT not prepared to take the risk.
Jacky CFO - I suspect he either did something dodgy and got caught, OR he thought all was good, and was doing his damnedest to get the company audit through by cooperating with all the bizarre challenges raised via the shorts' fud... but in the end could not convince DTT enough for them to stay onboard. This would account to self failure for him, and as a proud Chinese man, he resigns... wish he hadn't if this is the case!
Time is going to tell... if the cash is there - that's one good thing; GH says it is... The company acts more like it is there, than if it isn't... Their denial of the shorts accusations, the shorts timing etc all make the fraud case seem not too strong to me..
Can’t wait to find out the truth. Maybe CCME isn't a $70/shr company... but maybe it does still have good value. The big problem is that the shorts continue to build FUD [fear, uncertainty, doubt], and erode all opinion in the company... CCME need to get real news out fast, and get someone good in to start repairing the damage... unless they are a total fraud, in which case they should just admit it now.
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