Focus Media (FMCN) is a Hong Kong-based advertising company that has positioned itself to capitalize on China’s growing urban population and the increasing disposable income of that country’s households.
The company is China’s leading multi-platform advertising company, operating the largest LCD display network in China using audiovisual digital displays in commercial locations to target business professionals that have higher-than-average incomes.
As of March 31, 2011, Focus Media’s advertising network had an installation base of approximately 170,000 LCD displays placed in the lobbies and elevators of approximately 90,500 commercial buildings throughout more than 90 cities in China, including the country’s major cities of Beijing, Shanghai, Guangzhou, and Shenzhen.
The company also targets shoppers at the point-of-purchase through 49,000 flat-panel displays placed at prominent locations in 2,700 hypermarkets, supermarkets, and convenience stores in China.
In addition, Focus Media provides outdoor billboards and it operates a movie theater advertising network.
The company’s billboards consists of 95 digital billboards located in prime commercial and shopping areas, as well as in other locations that have heavy pedestrian traffic, and 250 large traditional billboards located along China’s national and provincial highways.
Its movie theater business leases screen time from movie theaters located in urban cities throughout China and then sells those time slots to advertisers. As of March 31, 2011, the company’s movie theatre network consisted of approximately 1,700 movie screens in approximately 280 movie theaters in mainland China and Hong Kong.
Revenues and earnings
Although Focus Media’s revenues and earnings fell sharply during 2009 as a result of the substantial slowdown in China’s economic growth during that year, the company returned to profitability in 2010 after growing its revenues by 30 percent compared to the prior year.
The company continued to increase its revenues and earnings at a healthy pace during the first two quarters of this year, with its revenues growing by more than 13 percent during each of the past two quarters, and its net earnings more than doubling to 32 cents per diluted share, from 14 cents during the same quarter a year ago.
Looking forward, the company announced on Aug. 22 that it expects its adjusted net income during the third quarter of this year to rise to a range of between $68 million and $70 million on revenues of between $186 million and $190 million. In comparison, Wall Street analysts expect the company’s adjusted net income to rise to only $67 million on revenues of $184 million. If Focus Media is able to meet its revenue and earnings guidance, its stock price would probably gap higher after the company announces its third-quarter earnings during November of this year.
Other positive factors
Several other factors and developments also bode well for the direction of the company’s stock.
For example, on June 22, 2011, Focus Media announced that it plans to increase in the size of its previously announced share repurchase program to $450 million and to extend the termination date of its stock repurchase plan to Dec. 31, 2013. As of Aug. 22, 2011, the company had cumulatively spent approximately $306 million in share repurchases.
Meanwhile, the company is in a very favorable position to continue to acquire other companies that would add synergistic value to its offerings, with its cash and short-term financial investments alone equal to more than three times the company’s total financial obligations.
Yet the company’s stock appears to trading at a bargain price, with a price-to-earnings growth (PEG) ratio of only 0.75 as of Sept. 1, 2011.
Even more encouraging, my research indicates that FMCN is currently in overbought territory and that its stock will pull back over the next few trading days in response to a likely decline in the major stock market indices.
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