China MediaExpress Shares Plunged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of China MediaExpress (Nasdaq: CCME  ) plunged today on high volume, after Citron Research opined the stock was "too good to be true."

So what: Citron asserted that China Media's growth and profits -- on a similar order as Focus Media's (Nasdaq: FMCN  ) -- are implausible given the company's much smaller expenditure base. It further alleged that China Media is a "phantom company" that is conspicuously absent from local media coverage, industry reports, and analyst coverage, in contrast to names like Towona, Bus-Online, and VisionChina Media (Nasdaq: VISN  ) .

Now what: Citron has been a vocal critic of other companies it claimed to be frauds, notably China-Biotics and, more recently, China Valves and Great Northern Iron, and many people take their analysis seriously. If I owned shares of a stock which Citron reported on, I'd want to examine their claims.

Interested in any of these stocks? Add them to My Watchlist:

At the time of publication, Ilan Moscovitz owned shares of Focus Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (21) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 31, 2011, at 3:33 PM, CUinvestor wrote:

    Really? You're adding fuel to this fabricated fire? The Citron hit piece is complete crap, and you're giving credibility to it.

    CCME is a legitimate company, proven by Starr (large shareholder), Deloitte (their auditor), Global Hunter, and Northland.

    Do you really think that Citron did more due diligence than any of those names? Citron didn't even step foot in China (which all of the above names did)!!

    I have been a Fool for years, and your article misrepresents the credibility of The Motley Fool.

  • Report this Comment On January 31, 2011, at 4:04 PM, Medicalrecordman wrote:

    Short-sellers paid a great deal of money to Citron for this "hit piece," as they were buried in millions of dollars in the red. The funny thing ? Citron usually puts out respectable research, but honestly, I think they're a little embarassed with the lame info they put out today. It definitely hurts Citron's credibility for sure, but hey .... they were able to line their pockets. Gotta love capitalism. LOL. At least some of the 6.5 million shorts can now cover and not take such an enormous loss. Gotta love Wall Street shenanigans.

  • Report this Comment On January 31, 2011, at 4:05 PM, JaysRage wrote:

    Classic hit piece. Not a single shred of new information, and everything on this piece has been thoroughly debunked multiple times over.

    The principals of Citron Research most always hold a position in any of the securities profiled on the site. Citron Research will not report when a position is initiated or covered. Each investor must make that decision based on his/her judgment of the market.

  • Report this Comment On January 31, 2011, at 4:11 PM, acimbluedog wrote:

    I suggest it might have been helpful that there are some 6.4 millions shares short that have to be covered by Februrary 4 and a lot of people stand to loose a lot of money if the price isn't driven down.

    I read the Citron piece today and there is NOT A SHRED of evidence in, but there is ample evidence to prove the validity of China Media Express.

    It is interesting to note that Andrew Left, the originator of the piece declines to state where he is directly or indirectly short with CCME. Although, it is clearly obvious. It is too bad that so called 'research companies' can play such havoc on the market and people's investments.

    However, time will tell. CCME will demonstrate why they have attracted the attention they have.

  • Report this Comment On January 31, 2011, at 4:32 PM, griderX wrote:

    First...I am neither long nor short this stock...just an outside observer. I have to say the MOST disturbing part of the Citron write up is "If it's true" below:

    "As for Northland Securities, as a professional courtesy, the editor of Citron phoned analyst Darren Aftahi yesterday, to see if they knew something Citron didn’t. After a nice conversation, Darren admitted the possibility that China Media could be a fraud. Furthermore, Citron believes that Northland and its analyst have become mere cheerleaders for the stock, as this morning they recommended their clients “buy on weakness” without considering the doubts of their own analyst or having the benefit of all available information. It is Citron’s opinion that urging clients to buy without considering important concerns just now surfacing is like encouraging people to drink the Kool Aid without finding out first what’s in it."

    Something like this could destroy a company forever! The analyst and the company could be history if this story has some "meat" to it.

  • Report this Comment On January 31, 2011, at 4:34 PM, lmcatanz wrote:

    The Citron report is totally biased and aimed at helping the 6.4 million shorts. The report does not mention the auditor, the dividend announcement or the launch of SWITOW a new shopping platform or the stock purchase by an insider.

    This is pure stock manipulation by a less than honest reporter!

  • Report this Comment On January 31, 2011, at 4:46 PM, JaysRage wrote:

    Supposedly Northland Securities will be issuing a statement tomorrow.

  • Report this Comment On January 31, 2011, at 5:42 PM, Pirate58 wrote:

    I think either I am misunderstanding Ilan Moscovitz or some others may have misunderstood the article. It sounds to me like he is dissing Citron ;-) By the way in Citron's disclaimer it says they hold positions in most of the stocks they review. I bet they have a huge position in CCME tonight!!!

  • Report this Comment On January 31, 2011, at 7:45 PM, ETFsRule wrote:

    Pirate54: I agree, they probably hold a huge SHORT position.

    Anyway, they were audited by Deloitte and that's good enough for me. If they're a fraud, then any company in the world could be a fraud.

    Here is the news release regarding CCME's SWITOW website:

    SWITOW is a site where you can buy products from CCME's customers, including Apple, Sony, Toshiba, Adidas, Nike, Samsung, Phillips, etc.

    Lastly, CCME is listed on the NASDAQ exchange, which means they have met the listing requirements shown here:

    Do you know of any NASDAQ-listed companies that didn't really exist?

  • Report this Comment On January 31, 2011, at 10:35 PM, poeticJ wrote:

    Mr. Moscovitz,

    It's hard to tell from your article if (1) you are a credible journalist and a little nieve (2) you are an unethical scumbag and part of the Andrew Left/John Bird/Andrew Little contingency that puts out a new ridiculous new hit piece every month, playing on people's fears of unknown China, all of which have proven to be fictitious. For your sake, I hope you are the former. No successful fund manager will ever take you seriously if you keep writing this stuff.

    If you go back through the "research" of these guys, you'll see a pattern- they claim a stock is undoubtedly a fraud, they support it with a series of "evidence", 98% of those claims NEVER prove to be true. See CVVT (their arguments for 3 "fake" acquistions were devious- see CVVT's response), BORN (nothing proved fraudulent, business is going strong), CHBT (again, they reached and made mountains out of mole hills, audit comes out in a month)... and the list goes on and on. NOTHING is ever actually proven. No auditor has ever NOT backed these companies.

    If these companies are fraudulent, then the world's top auditors- like Deloitte or BDO- won't back them. It's that simple. It's the most apocryphal, double-dealing research out there.

    Remember, Andrew Left's long-term China track record is awful, he was convicted and barred from the National Futures Association, and his partner-in-crime John Bird also has a checkered past. Remember, Deloitte/BDO use the same auditing procedures w/ these companies as they do U.S. companies. And most "frauds" (WorldCom, Enron, etc.) are committed when a company's back is against the wall... not during their economic opportunity boom of our lifetime.

  • Report this Comment On February 01, 2011, at 2:06 AM, poeticJ wrote:

    A few other points.

    Deloitte has failed on 3-4 audits out of its last 25,000. That's a 0.00015 failure rate.

    Starr Intl, which invested $30MM, conducted its own independent audit as well as 4 months of due diligence by its buy-side analysts who have spent their entire careers doing due diligence. This is a multi-billion dollar organization.

    Auditing isn't that complicated unless the company's business is complicated (like Enron or a bank). 1) Call the company's customers and confirm their contracts 2) Confirm the bank transfers of payment (from multi-bln$ banks like IndCmrcBk) 3) Check the buses to make sure they exist 4) Confirm the cash on the balance sheet (since the CF statement must add up). This gets you 80% of the way there. 5) Do a lot of anal little things to make sure all the little details add up. Deloitte has been doing this for a century.

  • Report this Comment On February 01, 2011, at 9:24 AM, rru2s wrote:

    Andrew Left was convicted of fraud in the securities business and has other arrest records, too. He is the main writer at Citron.

  • Report this Comment On February 01, 2011, at 9:25 AM, rru2s wrote:

    CCME: Global Hunter 26$ target buy recommendation


  • Report this Comment On February 01, 2011, at 9:27 AM, rru2s wrote:

    SEC Emergency short sale order: CCME:

    Short squeeze will be big by Friday.

  • Report this Comment On February 01, 2011, at 9:56 AM, acimbluedog wrote:

    Response from Analysts covering CCME

    Northland analyst note from this morning,

    CCME; Pricing Power And Bus Network Drive Upside To 2011; Reiterating Top Pick

    We are reiterating CCME as a 2011 Top Pick and believe, at current valuation (3.9x 2011

    EBITDA vs. 38% y/y growth), with a projected 2011 free cash flow yield of ~14.6%, an

    announced dividend, a growing core bus network, and new incremental revenue channel, that

    could add tremendous revenue to its story long-term, that CCME, is a must Buy. We remain

    staunch believers shares are undervalued by a material factor, Street 2011 estimates

    remain conservative based on our belief ad rate increases are likely to be well above our

    revised modeled 12%, and reiterate our $32 price target and Outperform rating, which is

    based on approximately 7.5x EV/ EBITDA multiple, a 30% discount to its Chinese DOOH

    peers, to our $207 million revised estimate.

    Key Points:

    When we initiated last July, we highlighted that as CCME grew its bus network across

    Mainland China (PRC) that its value to the advertiser/agency community would grow,

    giving it stronger “pricing power”. We believe the Company, with approximately 26k+

    buses (although not linear) entering 1Q’11, has reached critical mass, to a point, it can

    raise ad rates more than historical annual rates of 10%.

    According to the China Economic Review, CCTV, the benchmark for advertising

    mediums in China, has increased its ad rates by about 20% for 2011, compared with

    increases of more than 40% at other domestic networks.

    Based on our checks, we believe CCME could increase rates by as much as CCTV in

    2011, however, we believe approximately 10%-15% may be more realistic. As such,

    we recently raised our 2011 ad rate increase from 10% to 12%.

    We recently (01/07/11) raised our estimates for 2011 on CCME driven by 1)

    higher than expected ad rate increases, 2) slightly better than expected ending bus

    count, and 3) incremental revenue (albeit modest) from the Company’s recently

    announced SWITOW B2C channel.

    The combined, resulted in 2011 Revenue/EBITDA/ FD EPS increasing ~9%/4%/3%,


    Of our prior $26.7 million increase in 2011 revenue, we expect it to be comprised of

    ~$5.4 million from SWITOW, ~$2 million from increased bus counts, ~$19.3 million

    from ad rate increases.

    We believe our prior increased revenue estimate will drive gross margin expansion to

    70.3%, an increase of ~1.5% from our old estimate of 68.8%.

    We note, we expect the new SWITOW business to add approximately $2.0 million to

    total cost of revenues in 2011 from fees for exclusive rights agreements. We also

    estimate total 2011 operating expenses could increase approximately $14.0 million due

    to the new SWITOW business. As such, we believe EBITDA margins could compress

    slightly in 2011 from our prior estimate of 65.9%, or $199.5 million, to 62.8%, or

    $206.8 million. However, we believe as SWITOW ramps in 2012, that it will be

    incrementally positive to CCME’s profit structure.

    Global Hunter Securities

    Global Hunter Securities, LLC

    Dallas/Fort Worth ♦ Houston ♦ New York

    Newport Beach ♦ New Orleans ♦ San Francisco

    New York Sales & Trading: (212) 415-4721

    Newport Beach Sales & Trading: (949) 274-8050

    Research: (949) 274-8052

    February 1, 2011

    Company Update


    Ping Luo, CFA


    Jodi Dai


    Rating: Buy

    Price Target: $26.00

    Price Target Metrics: 8.9x P/E (2011)

    Current Price: $17.84

    Float: 10.9MM

    Diluted Shares: 38.4MM

    Short Interest: 6.4MM

    Average Daily Volume: 2,103k

    52 Week Range: $7.58 - $23.97

    Market Cap: $686MM

    Cash and Investments: $170MM

    Debt: $0MM

    Enterprise Value: $516MM

    Net Cash/Sh: $4.42


    02- 2010

    03- 2010

    04- 2010

    05- 2010

    06- 2010

    07- 2010

    08- 2010

    09- 2010

    10- 2010

    11- 2010

    12- 2010

    01- 2011


















    ESTIMATES $ (MMs except multiples & EPS)

    2009 2010 2011


    Q1 (Mar) $18.8A $44.5A $63.5E

    Q2 (Jun) $19.1A $53.5A $71.2E

    Q3 (Sep) $26.1A $57.0A $79.0E

    Q4 (Dec) $32.0A $59.0E $86.0E

    FY $95.9A $214.0E $299.7E

    EV/Sales 5.4x 2.4x 1.7x

    EPS (GAAP)

    Q1 (Mar) $0.36A $0.54A $0.62E

    Q2 (Jun) $0.40A $0.80A $0.70E

    Q3 (Sep) $0.56A $0.81A $0.77E

    Q4 (Dec) $0.49A $0.73E $0.84E

    FY $1.81A $2.88E $2.93E

    P/E 9.9x 6.2x 6.1x


    Q1 (Mar) $11.3A $25.3A $41.1E

    Q2 (Jun) $11.9A $39.9A $46.1E

    Q3 (Sep) $16.3A $43.1A $50.9E

    Q4 (Dec) $20.4A $40.3E $55.5E

    FY $59.9A $148.6E $193.5E

    EV/EBITDAS 8.6x 3.5x 2.7x

    China MediaExpress Holdings, Inc.

    (Nasdaq: CCME)

    Continued due diligence on CCME reinforces our thesis; Reiterate Buy.

    Summary: We are currently on a due diligence trip in China and as part of our ongoing work

    on CCME, we talked again to a number of advertisers and bus operators and observed CCME's

    buses during this trip. We also checked government certificates/documents and the ranking

    from China Advertising Association, which in 2009 ranked CCME #6 in China by outdoor

    advertising revenue. During the last seven months, we have done extensive due diligence on the

    company, including interviews with advertising customers, bus operators, regional managers

    and CTR, an independent market research firm. We have visited Starr International and talked

    to the company’s independent auditor, Deloitte. We feel comfortable with CCME’s business and

    continue to believe in CCME’s growth potential. We maintain our Buy rating and $26 price target.


    Interviews with advertisers and bus operators. In the last few days, we talked to a number of CCME’s

    customers and bus operators. The advertiser customers we spoke to confirmed their 2010 revenues with

    CCME, and stated that they continued working with CCME in 2011. Among the customers, Shanghai

    Apollo, a company owned by Shanghai People’s Fine Arts Publishing House, a state-owned company

    with 50+ years history and strong industry relationships, confirmed that they bought approximately 7

    minutes (~RMB50MM revenue) in 2010 and expect to buy similar amount of advertising time from CCME

    in 2011. These advertisers and bus operators confirmed that CCME is the only inter-city bus media

    company with a national coverage and quality services.

    Experiencing the bus rides. We again rode on the company’s airport buses in different cities. The

    following videos in Guangzhou and Chengdu airports, which are similar to our experiences, we believe

    can give investors a feel of CCME’s operations.

    Checked government documents. We checked with China Advertising Association (CAA),

    an official government agency that all advertising platforms in China must register

    with. In 2007, CAA ranked CCME’s operating entity Fujian Fenzhong Media #15 by

    total advertising revenue

    fe9a5764b33a.htm, and #6 by outdoor advertising revenue in 2009

    news/vision/2010/8/2/578d5f78-6a1a-4ff3-aa7e-d6bf2fcd55d0_3.htm. The company is also a Class I

    Advertising Enterprise; we checked the company’s certificate issued by CAA. We have also reviewed

    the company’s five-year contract with TTAVC, an agency under the Ministry of Transport, which granted

    CCME the rights to operate copy rights protected contents on inter-city buses in the country.

    Reviewed various contracts and other channel checks. We have in the past few months reviewed

    the company’s list of customers and bus operators. We reviewed the company’s contracts with

    advertisers and bus operators, rate cards, and we have also reviewed the company’s bank statements.

    We talked to CTR, an independent market research firm, who monitors over 70% of the media

    companies in China. CTR is conducting a comprehensive research on CCME, which evaluates the

    company’s business model, market share, customer feedback, and media value. We expect CTR to

    issue such research within the next month. We also learned Deloitte has done its initial part of the annual

    audit, and will continue after the Chinese New Year holiday. We expect the company to issue audited

    annual report in early March.

    Maintain Buy. During the last seven months, we have done extensive due diligence. We interviewed a

    number of advertising customers, bus operators, and the company’s regional managers. We also talked

    to CTR, the third-party market research firm, visited Starr International’s office in Shanghai and talked

    to the company’s independent auditor, Deloitte. We have taken CCME’s buses in different cities and

    checked its advertisements and programs. We have also looked at CCME’s contracts with customers

    and bus operators, and government certificates and documents. We feel comfortable with CCME’s

    business and continue to believe in its growth potential. We therefore maintain our Buy rating and $26

    price target

  • Report this Comment On February 01, 2011, at 10:04 AM, rru2s wrote:

    CCME - new videos up

  • Report this Comment On February 01, 2011, at 10:15 AM, TMFDiogenes wrote:

    Thanks everyone for your comments. The article was intended to explain CCME's price decline yesterday. I'm neither endorsing nor dissing Citron's arguments. Some of their past stuff I find persuasive, some not as much. For example, I continue to own shares of a stock Citron has criticized in the past, but only after looking at what they had to say.

    So the "neive journalist" / "unethical scumbag and part of the Andrew Left/John Bird/Andrew Little contingency" distinction is a false dichotomy, as it fails to acknowledge the possibility that I am a part of the Andrew Bird contingency.

    Thanks again, everyone. Fool On,


  • Report this Comment On February 01, 2011, at 11:24 AM, TMFBent wrote:

    Certainly, the quality of the responses here ought to give anyone considering this stock some interesting points to ponder.

  • Report this Comment On February 01, 2011, at 12:04 PM, ETFsRule wrote:

    "On February 01, 2011, at 9:27 AM, rru2s wrote:

    SEC Emergency short sale order: CCME:

    Short squeeze will be big by Friday."

    I was a little too dense to understand this at first... so for people like me, here is another explanation of threshold securities:

  • Report this Comment On February 01, 2011, at 12:27 PM, ETFsRule wrote:

    Here's some more info and due diligence on CCME:

  • Report this Comment On February 04, 2011, at 4:26 AM, goldminingXpert wrote:

    Awesome comment TMFBent. Yeah, retail dupes in a scam stock. What a shame, no?

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