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Analyst Research Report Snapshot


SinoMedia (623.HK, Not Rated): Key Takeaways




Sun Hung Kai Financial


23 Jan 2014





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* What’s new: We met with the company recently for a business update. * The Company: SinoMedia is one of the top three CCTV advertising agents, with exclusive selling rights for core CCTV-1/4/5/7 slots and CCTV’s news channel. The company has 10%+ market share of the state broadcaster’s ad time. Most of SinoMedia’s timeslots are for premium programs and it has established a diverse pool of blue chip clients. * 2013 2H affected by budget cuts for liquor ads; 2014 presales on track. Chinese liquor sales have been hit by the government’s crackdown on extravagance, resulting in liquor companies cutting their ad spend amid a tough operating environment. Consumer goods clients, including fast moving consumer goods (FMCG) and liquor, accounted for 22% of total revenues in 1H13. We believe SinoMedia has limited room to continue its margin improvement from 1H13 given declining ad utilization. There was better news on presales. The company has so far reached 60% of its 2014 revenue target. Tourism and city image ads remain stable while auto ads are likely to pick up as auto OEMs kick off TV promotions for their upcoming pipeline of new models. The company will increase the list price for its 2014 ad time slots by a mid-teens percentage to offset rising inventory costs. Management expects 20%-30% bottom line growth in FY14 on improving utilization. * Making strides in Internet sales. The Internet has emerged as a major new ad medium and SinoMedia has acquired several websites in previous years to capitalize on this market. Management says it will focus on developing travel site lotour.com in 2014 and hopes to attract more city/municipal and provincial governments to pay for hosting sightseeing information on the site. SinoMedia will gather and analyze viewership stats as a value-added service. We believe SinoMedia’s competitive edge lies in its established government client base, reflected in municipal governments advertising regularly on CCTV to attract tourists, promote business, and improve their cities’ image. Management targets to have 50 cities on its websites by the end of this year, up from eight currently. * Valuation: The valuation appears undemanding following the pullback last November and the stock trades at 7X FY14E P/E and 6% dividend yield. This is well below the 19X of newly listed CCTV advertising agent Wisdom (1661.HK, Not Rated), despite SinoMedia generating triple the revenues and more than double the profits of Wisdom and having, in our view, more favorable ad slots. With this in mind the big valuation gap does not seem justified. We also note the big cash pile. The company has settled some of its aging A/P to CCTV, which could result in negative OCF for FY13, but it should still have RMB1bn cash on hand or equivalent to one-third of its market cap. Management targets to maintain the dividend-payout ratio. * Risks. 1) Not being able to renew CCTV contracts; 2) Worsening domestic economy resulting in advertising budget cuts, 3) TV ads losing market share to new media such as the Internet, where the company has only small exposure. Analyst contact: (852) 3929 6159, eva.yip@shkf.com Institutional research and sales contacts: (852) 3929 6154, stephen.yang@shkf.com (852) 3920 2676, richard.seaward@shkf.com

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