CHINA MEDIAEXPRESS HLDGS INC CCME
March 17, 2010 - 2:00am EST by
rjm59
2010 2011
Price: 12.16 EPS $1.06 $2.11
Shares Out. (in M): 39 P/E 11.0x 6.0x
Market Cap (in M): 468 P/FCF 11.0x 6.0x
Net Debt (in M): -100 EBIT 60 119
TEV: 368 TEV/EBIT 6.0x 4.0x

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Description

Introduction and history of going public via SPAC in Oct 2009

China MediaExpress (CCME) is a remarkable business, as I will describe, that I wrote about back when it was going public via a SPAC in October 2009 (ticker was TMI then). The key to the original SPAC idea at the time was the warrants (TMI-WT, exercisable at $5.50, since redeemed once the stock hit the $11.50 redemption cap) which were trading at $0.65 with the stock at $8.00 - they had no chance the deal wouldn't go through (and the warrants to $0) due to an amendment they made. The company was clearly worth more than $8 but that was then and now the stock is at $12.16 and much has transpired over the last 5 months. The stock is easily worth $30, I don't know exactly what it's worth, it depends on things that can't easily be predicted, but as they say you don't have to know a man's exact weight to tell he is fat!

After the deal closed in October, people seemed skeptical that it was a good one, especially considering that there was a 93% redemption rate (i.e. 93% of the public SPAC shareholders, mostly hedge funds, chose to redeem for $8 cash rather than get ownership in the business - providing little cash to the business) - how good could the deal be that 93% didn't want to be in on? Well almost all of them were in on the deal for the "discounted cash" trade where if you bought the SPAC shares in March at $6, you were getting $8 worth of t-bills in October with certainty - maybe add some leverage and that's a pretty good risk-free return.

Of course, "hypothesis drift" is frowned upon by many intelligent investors, as it can mean avoiding to face up to being wrong by weaving new facts into your previous story, but it didn't work well here. Personally I like to think I don't have any problem changing my mind when there's new information and like to just think my opinion is the path of least resistance through the facts but we all make mistakes of course! Interestingly I called several funds in this and other SPAC deals and - sticking to their original thesis of the discounted T-Bill trade - they hadn't even looked at the deal and didn't even know the business being brought public. I think the definition of opportunity in investing is when some people know more than others, legally, of course.

There was much skepticism on the legitimacy of the deal and at the time of the SPAC I was confident enough to take a reasonable position ~10-15% (which alone ended up making the investment partnership I run return 83% overall in Q4! Our 2nd best quarter of 2009), though the fraud risk wasn't zero with the company being new and in China. The fact that the SPAC managers, who had the cash and a reasonable amount of time to work with, chose this business and did the DD as opposed to a private company-initiated, shell-company reverse merger reduced the fraud risk by a factor substantially in my mind. After all there's no such thing as a bad risk, just a mispriced one and you have to think how much you are being compensated by taking the China/fraud risk - in this case it was a large amount of compensation. Since then, they have had 2 substantial events: Deloitte is their auditor and Starr International made a PIPE investment of $30M after months of DD (they are run by former AIG head Greenberg and have made some $500M of investments in Asia). This appears to have now eliminated the fraud risk and I think if the numbers turned out to be bogus it would be one of the more elaborate schemes ever.

So, with that introduction of the past and why the business as it stands can be looked at without the cloudy risk of it just being fabricated, what is this business?

The Business - Overview

China MediaExpress, founded in 2003, is in the business of installing TVs; providing programming and selling advertising on inter-city buses in China. They show 30 minutes of programming followed by 10 minutes of advertising; the bus trips average 2.5 hours so the same ad loop is played more than once per trip (the programming changes though). Their revenue comes from advertising agencies primarily now (~84% in Q3 2009) though they have some direct revenue from advertisers (~16% in Q3 2009) - Coke for example.

In general, my framework for business always boils down to two key points:

1) What value do you provide to society?

2) How difficult would it be for someone else to copy that value proposition?

If you have both of these, profit follows.

1) Value proposition: If you're on a bus for 2 hours with nothing else to do and nowhere else to go, I expect you're probably a lot happier having some programming and willing to listen to ads (maybe even enjoy them vs. staring at the seat in front of you!) compared to some other situations in life where you would really not be bombarded by ads (like say watching a tv show?).

2) How difficult to copy this: While I expect many people on these buses have cell phones and many are getting Internet (I'm not sure how good reception is on the Chinese inter-city highways though), I don't know about you but I cannot easily read on a bus. CTR Market research says that 80% of people on the buses regularly watch the TV displays (note also they are unobstructed, unlike ads in subways where people walk in front of them), which is consistent with this intuition. So - while people are on the bus, they watch the ads, so the general model makes sense, but how easy would it be for some other company in the same business to copy their proposition?

CME currently has a 5 year agreement with the Ministry of Transport in the PRC that goes through Oct 2012 making them the only authorized inter-city bus advertising company in China. Clearly the people here are favored by/friendly with the government and the risk of being hurt by the government seems minimal. They have long term (5-8yr) agreements with 49 bus operators now that cover about 21,000 buses (up from 10,000 in 2007) with 80M passengers/month - the whole market is estimated at 65,000 buses. There are substantial benefits to scale in dealing with advertisers, particularly in an advertising market as immature and fragmented as China. While maybe quite as extreme as this, imagine if the government had given eBay a 5 year exclusive agreement to do online auctions back when the Internet was starting - do you think that once that agreement ended there would be any way that an outsider could dislodge them from their leadership position given the cumulative advantages of scale there? I think it's somewhat similar for this niche, though again not as extreme. When this contract expires in Oct 2012, even if it's not renewed, it seems unlikely it will matter.

To summarize, it would be nearly impossible to copy their value proposition in this sharply defined niche. I view this as one of the strongest competitive positions of any company I know at the moment.

The numbers

Growth factors

The two big growth factors are: 1) Growing their network of buses to get a larger chunk of the market - they expect to have 30,000 buses in their network by the end of 2010. and 2) Raising prices. The inter-city highway system and advertising market are both growing from a macro perspective, but the growth factors specific to this company are quite a bit stronger than the macro growth rates.

Adding buses to their network

is where they'll go first, they won't likely raise prices substantially since it makes more sense to get a dominant hold on the market through 2012 while they have the government exclusivity agreement. If you are a bus operator and some company (the only one) authorized by the government comes to you and says they will PAY you to install TVs that will show entertainment for your passengers (with ads of course) and then pay you a concession fee on an ongoing basis, are you going to reject this deal? I don't think CME will have a difficult time growing their base based on their value proposition to the bus operators.

-CME has over $100M cash on hand and will probably spend $30M or so this year for this purpose. Acquisitions are another option and the CFO has stated they expect their growth this year will be 50/50 organic/acquisition based.

Pricing

- I find this part very interesting, though I expect it won't be a big factor for a year or two and will drive growth for this company for some time. Currently their CPM (cost per 1000 views for 15 seconds of ad) is about 3 RMB, this compares to about 180 RMB for TV - they are priced 98% below TV ads - even though they have a CAPTIVE audience that can't flip channels or go to the kitchen when the commercial comes on! Compared to someone like VISN with intra-city ads on subways, who charge 21 RMB per CPM it is also a huge discount for advertisers. Interestingly again, this is reflected in their DSO / receivables which is only about 40 days vs 120 days for someone like VISN. I expect the primary reason their pricing is so much lower is because it is "new media" that isn't as well established and conventional as TV or newspaper advertising, though the new media fraction of advertising dollars is growing (it was some 15% last year in China I believe).

- Pricing will also improve as they build up their own sales force which they are currently doing and go after direct advertisers instead of using wholesale ad agencies. Will be interesting to see how much they annoy their agencies with this, but I think the balance of power is heavily in CME's favor due to the long term bus operator contracts.

Despite this hugely discounted pricing relative to other mediums, their gross margins are over 60% (main cost is concession fees to bus operators) and the CFO has said they are likely to report net income of $41M on March 23 on revenue of $95M, up from $63M ($27M net income) in 2008 and $26M ($7M net income) in 2007. That's 50% growth from 2008 to 2009 despite many other Chinese advertisers reporting 20%+ revenue declines in 2009 with the global recession.

2010: o/s 39.6M(32.6+1 earnout+1.5 mgmt warrants+4.5 financing deal)
Net Income - $83.5M
EPS - 2.11

2011: o/s 47.6M(39.6+7 earnout from 2010)
Net Income - $130M
EPS - 2.73

2012: o/s 55.3(47.6+7 earnout from 2011)
Net Income - 169.2M
EPS - 3.06

Here is o/s including earnouts for future years based on the earnout targets from the SPAC (Starr's deal has make-goods from management at net income of $42M, $55M, $70M in 2009, '10, '11 respectively):

Why is it so cheap? Near Term Catalyst

They are releasing earnings on March 23 and their 10-K will be filed shortly after. If you look up CCME currently in any of the popular databases (Edgar, CapIQ, Yahoo Finance) it still shows the SPAC numbers, i.e. no revenue. After the 10-K is filed (their first full filing as the true business), it will all be updated and the world will finally see this hidden company with an incredibly strong competitive position and fantastic earning power and inevitable growth you aren't even paying a dime for at current prices.

Other positive factors:

-Management / founders own over 60% of the company so there are very aligned incentives, especially through 2012 with the earn outs.

-I expect the Yuan/RMB will not depreciate against the USD going forward and it has risen 5% or so per year recently, if this continues, consider it an extra 5% growth in your net income projections. Most economists seem to think the Yuan is undervalued 20-40% relative to the USD, I am not worried about currency risk on this investment.

Valuation Summary / Appendix

Sorry I'm terrible at copying tables into this so here are some expanded numbers, please check the original SPAC presentation for a summary on the earn outs and of course, always read all the SEC filings before investing.


Revenue:

2006 - $4M
2007 - $25.8M
2008 - $63M
2009 - $64M(first nine months)
2009E - $104.2M
2010E - $196.6M
2011E - $305.5M

Net Income:

2006 - $0.9M
2007 - $7M
2008 - $26.4M
2009 - $27.4M(first nine months)
2009E - $42M
2010E - $83.6M
2011E - $130.3M
2012E - $169.2M


Net Margin:

2006 - 22.5%
2007 - 27.13%
2008 - 41.9%
2009E - 40.3%
2009 Q3 - 44.8%

Catalyst

They are releasing earnings on March 23 and their 10-K will be filed shortly after. If you look up CCME currently in any of the popular databases (Edgar, CapIQ, Yahoo Finance) it still shows the SPAC numbers, i.e. no revenue. After the 10-K is filed (their first full filing as the true business), it will all be updated and the world will finally see this hidden company with an incredibly strong competitive position and fantastic earning power and inevitable growth you aren't even paying a dime for at current prices.

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    Description

    Introduction and history of going public via SPAC in Oct 2009

    China MediaExpress (CCME) is a remarkable business, as I will describe, that I wrote about back when it was going public via a SPAC in October 2009 (ticker was TMI then). The key to the original SPAC idea at the time was the warrants (TMI-WT, exercisable at $5.50, since redeemed once the stock hit the $11.50 redemption cap) which were trading at $0.65 with the stock at $8.00 - they had no chance the deal wouldn't go through (and the warrants to $0) due to an amendment they made. The company was clearly worth more than $8 but that was then and now the stock is at $12.16 and much has transpired over the last 5 months. The stock is easily worth $30, I don't know exactly what it's worth, it depends on things that can't easily be predicted, but as they say you don't have to know a man's exact weight to tell he is fat!

    After the deal closed in October, people seemed skeptical that it was a good one, especially considering that there was a 93% redemption rate (i.e. 93% of the public SPAC shareholders, mostly hedge funds, chose to redeem for $8 cash rather than get ownership in the business - providing little cash to the business) - how good could the deal be that 93% didn't want to be in on? Well almost all of them were in on the deal for the "discounted cash" trade where if you bought the SPAC shares in March at $6, you were getting $8 worth of t-bills in October with certainty - maybe add some leverage and that's a pretty good risk-free return.

    Of course, "hypothesis drift" is frowned upon by many intelligent investors, as it can mean avoiding to face up to being wrong by weaving new facts into your previous story, but it didn't work well here. Personally I like to think I don't have any problem changing my mind when there's new information and like to just think my opinion is the path of least resistance through the facts but we all make mistakes of course! Interestingly I called several funds in this and other SPAC deals and - sticking to their original thesis of the discounted T-Bill trade - they hadn't even looked at the deal and didn't even know the business being brought public. I think the definition of opportunity in investing is when some people know more than others, legally, of course.

    There was much skepticism on the legitimacy of the deal and at the time of the SPAC I was confident enough to take a reasonable position ~10-15% (which alone ended up making the investment partnership I run return 83% overall in Q4! Our 2nd best quarter of 2009), though the fraud risk wasn't zero with the company being new and in China. The fact that the SPAC managers, who had the cash and a reasonable amount of time to work with, chose this business and did the DD as opposed to a private company-initiated, shell-company reverse merger reduced the fraud risk by a factor substantially in my mind. After all there's no such thing as a bad risk, just a mispriced one and you have to think how much you are being compensated by taking the China/fraud risk - in this case it was a large amount of compensation. Since then, they have had 2 substantial events: Deloitte is their auditor and Starr International made a PIPE investment of $30M after months of DD (they are run by former AIG head Greenberg and have made some $500M of investments in Asia). This appears to have now eliminated the fraud risk and I think if the numbers turned out to be bogus it would be one of the more elaborate schemes ever.

    So, with that introduction of the past and why the business as it stands can be looked at without the cloudy risk of it just being fabricated, what is this business?

    The Business - Overview

    China MediaExpress, founded in 2003, is in the business of installing TVs; providing programming and selling advertising on inter-city buses in China. They show 30 minutes of programming followed by 10 minutes of advertising; the bus trips average 2.5 hours so the same ad loop is played more than once per trip (the programming changes though). Their revenue comes from advertising agencies primarily now (~84% in Q3 2009) though they have some direct revenue from advertisers (~16% in Q3 2009) - Coke for example.

    In general, my framework for business always boils down to two key points:

    1) What value do you provide to society?

    2) How difficult would it be for someone else to copy that value proposition?

    If you have both of these, profit follows.

    1) Value proposition: If you're on a bus for 2 hours with nothing else to do and nowhere else to go, I expect you're probably a lot happier having some programming and willing to listen to ads (maybe even enjoy them vs. staring at the seat in front of you!) compared to some other situations in life where you would really not be bombarded by ads (like say watching a tv show?).

    2) How difficult to copy this: While I expect many people on these buses have cell phones and many are getting Internet (I'm not sure how good reception is on the Chinese inter-city highways though), I don't know about you but I cannot easily read on a bus. CTR Market research says that 80% of people on the buses regularly watch the TV displays (note also they are unobstructed, unlike ads in subways where people walk in front of them), which is consistent with this intuition. So - while people are on the bus, they watch the ads, so the general model makes sense, but how easy would it be for some other company in the same business to copy their proposition?

    CME currently has a 5 year agreement with the Ministry of Transport in the PRC that goes through Oct 2012 making them the only authorized inter-city bus advertising company in China. Clearly the people here are favored by/friendly with the government and the risk of being hurt by the government seems minimal. They have long term (5-8yr) agreements with 49 bus operators now that cover about 21,000 buses (up from 10,000 in 2007) with 80M passengers/month - the whole market is estimated at 65,000 buses. There are substantial benefits to scale in dealing with advertisers, particularly in an advertising market as immature and fragmented as China. While maybe quite as extreme as this, imagine if the government had given eBay a 5 year exclusive agreement to do online auctions back when the Internet was starting - do you think that once that agreement ended there would be any way that an outsider could dislodge them from their leadership position given the cumulative advantages of scale there? I think it's somewhat similar for this niche, though again not as extreme. When this contract expires in Oct 2012, even if it's not renewed, it seems unlikely it will matter.

    To summarize, it would be nearly impossible to copy their value proposition in this sharply defined niche. I view this as one of the strongest competitive positions of any company I know at the moment.

    The numbers

    Growth factors

    The two big growth factors are: 1) Growing their network of buses to get a larger chunk of the market - they expect to have 30,000 buses in their network by the end of 2010. and 2) Raising prices. The inter-city highway system and advertising market are both growing from a macro perspective, but the growth factors specific to this company are quite a bit stronger than the macro growth rates.

    Adding buses to their network

    is where they'll go first, they won't likely raise prices substantially since it makes more sense to get a dominant hold on the market through 2012 while they have the government exclusivity agreement. If you are a bus operator and some company (the only one) authorized by the government comes to you and says they will PAY you to install TVs that will show entertainment for your passengers (with ads of course) and then pay you a concession fee on an ongoing basis, are you going to reject this deal? I don't think CME will have a difficult time growing their base based on their value proposition to the bus operators.

    -CME has over $100M cash on hand and will probably spend $30M or so this year for this purpose. Acquisitions are another option and the CFO has stated they expect their growth this year will be 50/50 organic/acquisition based.

    Pricing

    - I find this part very interesting, though I expect it won't be a big factor for a year or two and will drive growth for this company for some time. Currently their CPM (cost per 1000 views for 15 seconds of ad) is about 3 RMB, this compares to about 180 RMB for TV - they are priced 98% below TV ads - even though they have a CAPTIVE audience that can't flip channels or go to the kitchen when the commercial comes on! Compared to someone like VISN with intra-city ads on subways, who charge 21 RMB per CPM it is also a huge discount for advertisers. Interestingly again, this is reflected in their DSO / receivables which is only about 40 days vs 120 days for someone like VISN. I expect the primary reason their pricing is so much lower is because it is "new media" that isn't as well established and conventional as TV or newspaper advertising, though the new media fraction of advertising dollars is growing (it was some 15% last year in China I believe).

    - Pricing will also improve as they build up their own sales force which they are currently doing and go after direct advertisers instead of using wholesale ad agencies. Will be interesting to see how much they annoy their agencies with this, but I think the balance of power is heavily in CME's favor due to the long term bus operator contracts.

    Despite this hugely discounted pricing relative to other mediums, their gross margins are over 60% (main cost is concession fees to bus operators) and the CFO has said they are likely to report net income of $41M on March 23 on revenue of $95M, up from $63M ($27M net income) in 2008 and $26M ($7M net income) in 2007. That's 50% growth from 2008 to 2009 despite many other Chinese advertisers reporting 20%+ revenue declines in 2009 with the global recession.

    2010: o/s 39.6M(32.6+1 earnout+1.5 mgmt warrants+4.5 financing deal)
    Net Income - $83.5M
    EPS - 2.11

    2011: o/s 47.6M(39.6+7 earnout from 2010)
    Net Income - $130M
    EPS - 2.73

    2012: o/s 55.3(47.6+7 earnout from 2011)
    Net Income - 169.2M
    EPS - 3.06

    Here is o/s including earnouts for future years based on the earnout targets from the SPAC (Starr's deal has make-goods from management at net income of $42M, $55M, $70M in 2009, '10, '11 respectively):

    Why is it so cheap? Near Term Catalyst

    They are releasing earnings on March 23 and their 10-K will be filed shortly after. If you look up CCME currently in any of the popular databases (Edgar, CapIQ, Yahoo Finance) it still shows the SPAC numbers, i.e. no revenue. After the 10-K is filed (their first full filing as the true business), it will all be updated and the world will finally see this hidden company with an incredibly strong competitive position and fantastic earning power and inevitable growth you aren't even paying a dime for at current prices.

    Other positive factors:

    -Management / founders own over 60% of the company so there are very aligned incentives, especially through 2012 with the earn outs.

    -I expect the Yuan/RMB will not depreciate against the USD going forward and it has risen 5% or so per year recently, if this continues, consider it an extra 5% growth in your net income projections. Most economists seem to think the Yuan is undervalued 20-40% relative to the USD, I am not worried about currency risk on this investment.

    Valuation Summary / Appendix

    Sorry I'm terrible at copying tables into this so here are some expanded numbers, please check the original SPAC presentation for a summary on the earn outs and of course, always read all the SEC filings before investing.


    Revenue:

    2006 - $4M
    2007 - $25.8M
    2008 - $63M
    2009 - $64M(first nine months)
    2009E - $104.2M
    2010E - $196.6M
    2011E - $305.5M

    Net Income:

    2006 - $0.9M
    2007 - $7M
    2008 - $26.4M
    2009 - $27.4M(first nine months)
    2009E - $42M
    2010E - $83.6M
    2011E - $130.3M
    2012E - $169.2M


    Net Margin:

    2006 - 22.5%
    2007 - 27.13%
    2008 - 41.9%
    2009E - 40.3%
    2009 Q3 - 44.8%

    Catalyst

    They are releasing earnings on March 23 and their 10-K will be filed shortly after. If you look up CCME currently in any of the popular databases (Edgar, CapIQ, Yahoo Finance) it still shows the SPAC numbers, i.e. no revenue. After the 10-K is filed (their first full filing as the true business), it will all be updated and the world will finally see this hidden company with an incredibly strong competitive position and fantastic earning power and inevitable growth you aren't even paying a dime for at current prices.

    Messages


    SubjectContract risk
    Entry03/17/2010 11:53 AM
    MemberCoyote05

    Thank you for the write-up.  How do you get comfortable with the concession fee escalators built into their contracts?  This is from one of their SEC filings:

    "The framework agreements specify the permissible range of annual increase in concession fees per bus, which is in all cases between a minimum of 10% and a maximum of 30%.
    CME pays concession fees to the bus operators participating in its network on a monthly basis. However, the total concession fees payable under each long-term contract are charged to the consolidated statements of operations as concession expenses on a straight-line basis over the course of the contract period, based on the assumption that the concession fees increase by 10% per year."

    How is the determination made on whether it is 10 or 30%?

    It seems to me that their profits could easily be squeezed by this escalators.  Presumably, they are charging advertisers the market rate.  This rate may or may not grow.  However, the company's cost basis will grow by 10 to 30% per year.

    Thanks in advance.


    SubjectManagement Changes
    Entry03/17/2010 01:48 PM
    MemberLukai

    Thanks for the quality write-up.

    Why did the co-CEOs Green and Bird both recently resign? In other deals the SPAC founders are typically involved in the business post-acquisition.


    SubjectNet Income Targets
    Entry03/17/2010 02:04 PM
    MemberLukai

    Hi,

    I meant to include this question in my last post...

    Starr Investments bought Converible Preferred Stock and warrants in a $30m transaction. In the footnotes it states that if CCME doesn't generate net income of $42m, $55m and $70m in '09, '10, '11 respectively, the founding stockholders would have to pay performance adjustments to Starr.

    My question is: why are the above targets for '10 and '11 well below the earn-out targets laid out in the roadshow materials ($42.0m, $83.5m and $130.2m in '09, '10 and '11 respectively).

    Does this represent an unofficial change in forward guidance? Your model is assuming net income similar to the guidance from the roadshow materials.

    Thanks in advance.

     


    SubjectRE: Management Changes
    Entry03/17/2010 02:08 PM
    Memberzzz007

    Lukai,

    I can't speak directly to the recent resignations, however, I did speak w/Green shortly after the deal closed.  He was somewhat difficult to track down (the "listed" phone number for the SPAC was a voicemail dropbox).  He did finally get back in touch with me and we have a relatively brief conversation.  It was clear to me following the conversation that neither he nor Bird were going to add much mgmt value.

    This was a pretty clear situation where the SPAC sponsors were looking to close a deal, get their value bump, and move on.  Their background(s) were in media/advertising, but digging beyond that surface similarity it was pretty clear that they had virtually no China or other emerging markets experience.  Green and Bird went on the road to sell the deal, and their participation clearly wasn't much of a positive since the redemption rate for the SPAC was so enormous.  They moved quickly post-closure to make Jacky Lam (CFO) the go-to guy for IR.

    All this said, you could take it as a negative that they have distanced themselves from mgmt (and, by extension, the deal), but I don't read it that way.  From the beginning they have been disengaged.  The operating management for this company is very accessible, particularly in comparison to many other US-listed Chinese companies.  I would read much more into the recent investment from Starr, which has as good a news as any Western PE firm for Chinese deals.

    Just my 2 cents.

    zzz


    SubjectRE: Fraud risk
    Entry03/19/2010 01:06 AM
    Memberrjm59

    What do you mean about how SPAC investors pitched it to him 6 months ago but sold anyways?  The SPAC founders shares are locked up for 2 years I believe??

    I think the Fraud would have to be very elaborate for what is basically a simple business model.  They would not be able to fake how much was in their bank account to Deloitte or Starr, though things like how long the contracts are with bus operators or the govt could potentially be faked.  Even if those contracts were much shorter term than mentioned, or the rising concession fees were higher than they said, they would still make a ton of money so it would make no sense to fake.

    So basically, if you are the management of this company, I don't see how you could fake it enough to turn a bad quality business into a good one, and why would they bother faking a good business into a very good one?  They're rich either way, but in the second one they're a little richer for a little while and then in jail (or worse in China?).  Their motivations just don't line up towards fraud given the intrinsic quality of the business in my mind.

    But I agree - the risk of fraud and the unknown is likely a factor making the stock cheap at the moment.


    SubjectYelling "fire" in a crowded theater.
    Entry03/19/2010 06:11 AM
    Memberzzz007

    It's interesting to me how the allegations of "fraud" become self-fulfilling for those people that want to believe them.  They are almost always a function of a story, in combination with a valuation, that's just too good to be true.  In other words, if the Company was trading at 20x EPS instead of a mid-single digit multiple of earnings most of the allegations of fraud would be gone because the "efficient" market would be telling us that the great growth was appropriately reflected in the share price.  If you think this is a fraud, then go ahead and short the shares.  Have some balls and quit your yapping.  Otherwise, in my view, you're simply lazy and should be investing in index funds because you clearly believe that the market is totally efficient and there's no way to find a good business cheap.

    Fraud is always possible.  There's a statistical possibility that Berkshire Hathaway is a fraud.  However, the easiest part of an auditor's job is to follow the cash.  That's why most financial frauds show a discount between reported earnings and cash generation.  CCME generates strong cash, which mitigates the fraud arguments.

    For the record, I think that rjm's net income projections for the next couple of years are way high.    I think there's virtually no way the earn-out targets for the next couple of years get met (original targets, not Starr targets).  However, that doesn't make it a fraud.

    If you want to cry wolf, at least have some evidence to back it up.  Not "my friends told me so".  Come on, that's not work.  That's just slinging mud.  If that's your thing, go run for Congress.


    Subjectsorry- meant reply to zzz
    Entry03/19/2010 08:18 AM
    Memberheffer504

    i thought rjm's reply was just fine...


    SubjectFraud risk
    Entry03/19/2010 09:57 AM
    Memberzzz007

    Actually, I think the allegation that the #1 risk of investment in a Chinese-based company is fraud is way off the mark.  If you have support for your statement, then please enlighten us.  If you look at the numbers, the risk of US-listed Chinese companies is actually relatively low.  There are huge differences in the incidence of fraud for Chinese based companies, and the best indicator of of this likelihood is the domicile of the listing.  For instance, Singapore listed Chinese companies have a much, much higher incidence of fraud than those that are listed in either the US or China (mainland).  The reason for this?  Listing requirements.  Whether you think SarBox achieved anything meaningful, the fact is that listing requirements for major US exchanges pose a meaningful barrier to fraudulent activity.  Anecdotally, I find it instructive that probably the biggest US-listed Chinese company to be implicated in fraud was HEK, which was supposedly extra-safe due to the supposed "experience" of the deal sponsors.

    If you want to take a xenophobic approach to investing, then its certainly your right to do so.  To imply that Chinese business owners are more subject to crooked behavior is, however, in my view naive.  There is no doubt that investing in an economic and political system in the early stages of a transition to a full market-based economy entails unique risks, but more often than not I find that the people throwing stones are those that have failed to either figure out how to profit as an investor in those markets, or those that don't have a fully-formed approach to managing risks in those markets.

    It is also interesting to note the massive valuation disparity between mainland-listed Chinese companies and those listed in the US.  Mainland listed Chinese companies are trading at roughly a 20x PE, while their US listed counterparts routinely trade at mid-single digit PE multiples.  I think that an investor with little experience in US-listed Chinese companies sees a high grower with fat margins and great returns on invested capital at a mid-single digit multiple, and assesses that in the context of its developed market counterparts.  The disconnect rings their "fraud" alarm bell because its way outside the bounds of what they consider normal.  However, this set of circumstances is routine for those that have followed the development of these US-listed businesses.  Therein lies the opportunity.

    There are certainly frauds out there, and if CCME turns out to be one by all means come back to the board and let me have it.  I'll take my medicine.  If you think I'm blind to the risks, I'm not.  I'm just asking for some evidence besides "my friend says its a fraud".  Take a look at www.waldomushman.com; the poster makes a solid case for fraud at CSKI, and it will be interesting to see how the case plays out.


    SubjectRE: RE: Fraud risk
    Entry03/19/2010 01:51 PM
    Memberzzz007

    majic,

    I'm not trying to squelch discussions; this is a good forum for it.  I'm sensitive to the fraud argument, though, because I've heard it so often in connection with Chinese companies and, more often than not, when you ask the person making the argument for some basis they look at you with glassy eyes and an expression that says "Well, duh, it's China isn't it?"  That doesn't make a very convincing argument for me.

    The senior managers behind the CCME operating company were actually going to go the traditional IPO route.  They started this process in mid-2008, and were 80% of the way there when the market went to hell late that year.  As a result, they began discussions with a wide range of potential SPAC and PE partners.  The implied valuation that they got from the SPAC with which they eventually closed the deal was actually the highest offered by all the counterparties they were speaking with.  Not surprisingly, Starr was one of the groups with which they had originally engaged but Starr offered a lower initial implied valn than the SPAC that closed the deal.  If you go back and look at the history of the SPAC transaction, it was handled very poorly by the sponsors and they had to jump through numerous hoops to get the deal approved.  Basically, the approval rate was extremely low and virtually all of the SPAC's cash was returned to SPAC shareholders.  This left the operating company with far less cash than it had initially hoped to have post deal-closure.  As a result, mgmt continued its discussions with Starr and ultimately closed the Starr private placement.

    In the US (and other developed markets), yes, mgmt probably would continue to generate cash flow organically, rebutress the balance sheet, and minimize dilution.  However, the mentality among Chinese managers is considerably different.  A significant portion of publicly-listed Chinese businesses are overcapitalized by Western standards.  In part, this is because of a wealth of acquisition opportunity available and a massive land rush mentality for market share.  In addition, despite what you hear regarding bank lending in China at the national level, loans for small businesses are not easy to get and are often short-term in nature.  Its rare to see Chinese companies with true, debt-based long term funding in place.  One of the biggest drivers of public listings for Chinese companies is the ability to raise capital relatively quickly, which gives them a big advantage over their private cash-strapped competitors.  In addition, if you speak to a range of the management teams over there you will hear them talk about the image benefits of having a publicly listed company, particularly one listed in the US.  Sounds a little silly by our standards, but I can assure you that it is a common theme.  With respect to CCME in particular, I think it is likely that you will see one or more acquisitions in the near future.  With any advertising network, scale is significant as it allows them to charge higher rates to advertisers and generate very high margin incremental revenue.


    Subjectfollow up to zzz
    Entry03/19/2010 04:20 PM
    Memberheffer504

    Actually, I think the allegation that the #1 risk of investment in a Chinese-based company is fraud is way off the mark.  If you have support for your statement, then please enlighten us.  If you look at the numbers, the risk of US-listed Chinese companies is actually relatively low.

    please look at HEK, FUQI, AOB, CSKI, CBPO, STP, RINO and that's just off the top of my head companies that are pretty obviously fraudulent and have either been discovered already or will be.  how many US-listed chinese co's are there, like 40?  i mean, are you serious?

    If you want to take a xenophobic approach to investing, then its certainly your right to do so.  To imply that Chinese business owners are more subject to crooked behavior is, however, in my view naive. 

    Now who's being naive, lisa?  do you really think that?  without being xenophobic, i would say, yes, in a system without real accounting controls and corruption up and down the political structure, there is more risk of fraud.

    It is also interesting to note the massive valuation disparity between mainland-listed Chinese companies and those listed in the US.  Mainland listed Chinese companies are trading at roughly a 20x PE, while their US listed counterparts routinely trade at mid-single digit PE multiples.  I think that an investor with little experience in US-listed Chinese companies sees a high grower with fat margins and great returns on invested capital at a mid-single digit multiple, and assesses that in the context of its developed market counterparts.  The disconnect rings their "fraud" alarm bell because its way outside the bounds of what they consider normal. 

    maybe it's because the lower-quality companies can't get listed in the US, and because the chinese-listed companies are bought by local investors who are more growth/momentum, instead?

    There are certainly frauds out there, and if CCME turns out to be one by all means come back to the board and let me have it.  I'll take my medicine.  If you think I'm blind to the risks, I'm not.  I'm just asking for some evidence besides "my friend says its a fraud".  Take a look at www.waldomushman.com; the poster makes a solid case for fraud at CSKI, and it will be interesting to see how the case plays out.

    it seems like, no matter how this plays out, that you are downplaying a serious risk to this investment.


    SubjectRE: follow up to zzz
    Entry03/19/2010 04:46 PM
    Memberzzz007

    So lets just take one of your examples: FUQI.  You're suggesting that SarBox-oriented internal controls issue are equivalent to fraud.  If that's your rule of thumb, fine, but the two aren't the same.  When SarBox was first implemented in the US, >10% of US small and microcap companies were identified over having internal control issues.  A large % of those went through restatements, some of which were material and some of which weren't.  Foreign-controlled entities listed in the US have a grace period before which they are required to become SarBox compliant, so you've just started seeing the SarBox compliance roll in over the last 12 mos.  I still have yet to see anybody here post any firm data that convinces me that that there's a statistical difference between US-based small and microcap companies' non-compliance and those from China over a similar time period prior to SarBox compliance.  Moreover, to my knowledge I still haven't seen anybody posting anything outside of "smells fraudulent" because the valuation is great in regards to CCME.

    The valuation provides a great margin of safety.  If you bought FUQI 12 mos ago (a random time period, but a typical one), and rode it down after the current preannouncement, you made 150% on the name vs. roughly 1/3 that for the broad US market.  I'll take that kind of "fraud" in a diversified portfolio any day of the week.  The outside (max) restatement is 8% of reported EPS.  Fraud?  Maybe.  Neither of us really knows the answer to that.

    I'm in this business to make money for my partners, not to get caught in theoretical arguments.  So, Lisa, good luck with your names too.


    Subjectmore follow up to zzz
    Entry03/19/2010 05:49 PM
    Memberjet551

    ZZZ, more than anything, the tone of your commentary is off putting and quite frankly immature.  You'rebentitled to your point of view but calling people xenophobic, lazy, etc? Are you kidding?  Way over the line.  A healthy discussion about these topics is what this board is all about - not insulting people. Your passion rings of confirmation bias.

    I read this writeup and rii's comments. I found them helpful. It brought up some issues that I would want to explore if I decided to dive into this one.  Would I automatically conclude that the company is a fraud?  No - but I don't think rii was suggesting that either.  I don't think it's necessary to prove out every point that is brought up on this message board (especailly in the commentary section).  If that is the criteria for posting a message we'd have very few messages.  It's just helpful to hear viewpoints on issues which we all need to vet on our own.


    SubjectRINO/Heffer
    Entry03/19/2010 07:21 PM
    Membermm202

    Not to get off topic here, but what makes you think that RINO is fraudulent Heffer? I ask because it's a stock that I've often swing-traded...but if you really have reason to think that they're a fraud, I'll stay away from it.

    MM


    SubjectRE: more follow up to zzz
    Entry03/21/2010 06:42 AM
    Memberzzz007

    jet,

    Point taken.  If you, or anybody else is offended, my apologies.  I do believe that a blanket concern over fraud in Chinese companies is a significant driver of opportunity, though, and a primary reason why separating the wheat from the chaff is so important.  Pick your number...10% are frauds?  20%?  30%?  If you can build a diversified portfolio of names of high grower at 5-6x EPS that reach fair value by Western standards over a 2 year period and that 20% (or 30%) that are frauds go to zero, you've still done far, far better than you'll do with a market index.  I know its gross simplification, but that's how I think about it.

    So the issue, from my standpoint, becomes one of identifying those that are likely legitimate.  In that regard, I am trying to get some of the folks talking about fraud to put some meat on the bones of the argument vis-a-vis CCME.  I haven't heard anything other than broad statements about Chinese fraud.  In my opinion, CCME has many of the hallmarks of a legitimate business (strong cash flow, private sponsorship from very legitimate LT China investors).  That doesn't make it a great investment, and there are clear risks.  In my view, margin compression and increased pricing pressure are far greater risks than fraud.  As I stated before, I think the original (non-Starr) earn-out targets will never be met.  However, I don't think that a statement (in regard to this particular company) that fraud is the top concern has much basis.  Just my opinion.

    zzz


    SubjectRE: RINO/Heffer
    Entry03/22/2010 07:19 AM
    Memberheffer504

    for one thing, the balance sheet (a/r, payments to suppliers) are out of whack with what one would expect from this business


    SubjectRE: RE: RINO/Heffer
    Entry05/07/2010 03:05 PM
    Membermm202
    Thanks, Heffer. Is that anything else about RINO that concerns you? It seems like that could probably be said of many chinese microcaps? I appreciate the input because I've been considering RINO for a bounce here- but don't want to step into a hornet's nest.
    Ross

    Subjectinsider selling
    Entry08/31/2010 02:25 PM
    Memberjazz678
    RJM - do you have any thoughts or insights on the insider selling of late?  thanks

    SubjectRE: insider selling
    Entry08/31/2010 04:43 PM
    Memberzzz007
    jazz,
     
    At risk of stepping on RJM's toes...
     
    With the caveat that it's never a positive to see a large shareholder selling, particularly when a stock is on its as*, classifying Lin as an insider might be a stretch.  Lin (and the entity he controls, Thousand Space Holdings) provided growth capital to CCME in 2007.  The capital he provided facilitated the company's first real leg of growth from 1000-2000 buses to north of 10,000.  The equity stake that he received in exchange for his growth capital was converted into shares of CCME as part of the SPAC transaction.  He has no management responsibilities, and no board representation.  There has been info floating around that he has granted shares in the past to employees at his Thousand Space Holdings, and they asked for cash in lieu of the shares, hence the sale of shares to meet the cash obligations from the employees.  I personally wouldn't regard this info as definitive, i.e. it didn't come straight from Lin himself.
     
    Lin is the Chairman/CEO/Founder of HK-listed Wuyi International Pharmaceutical Company (ticker 1889 HK).  That stock is on the mat as well, so who knows, maybe there's some other need for cash tied to margins calls, etc.  That's just pure speculation on my part.
     
    Of course, there could always be something more nefarious going on here and Lin may know something the rest of us don't.  However, I would be much more concerned if operating management, in particular CEO Zheng, were a seller.
     
    zzz

    SubjectRE: RE: insider selling
    Entry08/31/2010 11:08 PM
    Memberrjm59
    Hi, I've heard the same story as zzz here on the insider selling - they've only actually sold 60k shares or so, their was supposedly a registration today for 1.6M shares more but they haven't actually sold them.  The story is that it was his employees selling, not him.  So I don't like it but I don't think it's a really strong data point.
     
    I am actually just flying over there tomorrow for their investor day as well to visit TXIC that I've written up here as well.  I will post a summary of my visit and will hopefully have some new information.  I have heard of a short report floating out there, though I have not seen it.  From what I've heard it doesn't have any particular hard facts just the usual circumstantial things (margins too high, etc) but I haven't seen it...
     
    Any new facts are certainly welcome,
    Ryan

    SubjectRE: RE: RE: insider selling
    Entry09/01/2010 11:37 AM
    Memberjazz678
    thank you both (rjm and zzz) for your responses.  i don't follow the stock as closely as you both, but the timing of the 1.6m sale and the analyst day following immediately after is a bit suspicious.  i'm stating the obvious, but the stock is either a 3-5 bagger from here or a fraud. 
    do you think the company would ever consider an investor day in NYC?

    SubjectRE: RE: RE: insider selling
    Entry09/21/2010 03:29 PM
    Memberrab
    Ryan,
    What did you learn from your trip to China?
    Thx,

    SubjectRE: RE: RE: RE: insider selling
    Entry09/21/2010 09:00 PM
    Memberrjm59

    I just got back a little while ago from China and visited CCME and TXIC. For sure I can confirm there are buses with tv screens that play ads, though it's obviously hard to verify an entire national network from one visit.

    I spent the trip looking for negatives of course since at this price you don't need any more info than 'not a fraud' to see that it's absurdly undervalued. They weave together a very consistent story which I still don't see how they would be capable of doing without an experienced Chinese-American promoter that they do not have especially since the CEO doesn't even speak English (Lena and Jacky don't seem capable enough to be so consistent). Spoke with most of the senior management and had a Chinese friend & investor speak with them extensively. They seem open about their future issues - biggest one they say is when bus operator contracts expire and they need to renew, they are worried about more competition. Their story about why their competitors (VISN, FMCN, AMCN) don't see them as being a significant player (which the shorts use as an argument for why this company isn't real) is that they wanted to keep a very low profile while they secured long term bus contracts. I still don't know how they could be fooling Deloitte on cash balances or how Starr could have invested if the things the shorts point out (competitors don't respect, the cash isn't real, market makes no sense, etc.) were true as they would be easy for someone like Starr to verify. If a fraud, either Starr is somehow in on the scam (which seems really unlikely though they've protected themselves well with their preferred structure and the anti-corruption provisions in the purchase agreement) or really really blew it on this one.  For a company founded in 1919 in China and with as many connections as it takes to be in the insurance business it seems so hard to believe it's out of ignorance.


    So for the moment the best conclusion I can come up with is still that if it is a fraud it's the most sophisticated one I've ever seen and I don't know how they'd be pulling it off. There are more inconsistencies with the fraud argument than the real argument though I really really would like to hear some more specifics on revenue numbers from the company - i.e. who are the ad brokers and what are the specific revenue numbers from the direct sales.

    One of the next defining moments that I can see coming up will be the next 10K, if they have a signed 10K by Deloitte with 180M in cash on the books then I just have no idea how they could pull that off.  If they are a fraud they will have to do something to make that cash 'disappear' before then like a big acquisition or something.  Unfortunately that's not for another 6 months.  They need to start providing more clarity and information on the revenue side - specific numbers and customers that can be checked.  Even the more obvious frauds like ONP and ZSTN give the names of their top 10 customers so good investors can confirm their true nature.


    SubjectHeffer/RINO
    Entry12/03/2010 06:34 PM
    Membermm202
    Just wanted to take a second to give a big 
    "attaboy" to Heffer for one of the most astute posts of the year (reposted below) Thanks, Heffer.
    <please look at HEK, FUQI, AOB, CSKI, CBPO, STP, RINO and that's just off the top of my head companies that are pretty obviously fraudulent and have either been discovered already or will be.  how many US-listed chinese co's are there, like 40?  i mean, are you serious?>

    SubjectFraudulent?
    Entry12/20/2010 06:07 PM
    Memberround291
    There is lots of talk about the possibility of this company being "a fraud". I ask those who suspect "a fraud" to lay out the manifold scenarios as to which a fradulent behavior might be carried out, a probability of occurence, and the impact (even directionally) on a value. For example...
    Fraud Type                                          Value                                  Probability
    1) No cash in bank                            B/S Cash                                  10%
    2) No contract with bus lines            PV of Future Cash Flow            20% 
    Also, the claim seems to surround a current fradulent behavior...not the possibility of the expropriation of value by insiders, government etc. in the future. Therefore, it would be nice not to have these things included on the list.
    I doubt that there will be any takers of this challenge, but I thought I'd put it out there.
    Concerns and suspicions and "a fraud" are different things. Also, there are various forms of fradulent behavior. Some of them have limited impact on enterprise value, like recording revenue from contracts a month earlier than when all the revenue recognition criteria are met. That's not to say that this type of revenue recognition fraud won't have impact on share price. They historically have, namely in situations where the stock was accorded some ridiculous multiple. That's not the case here. I think you need to have fraud of the type that makes apparent that there is absolutely no value in the assets (cash, technology, customer relationships etc) and no earnings potential and no growth to really make sense of the low price here.
    No dog in the fight...just pushing for honest analysis. I mean, saying that another Chinese company committed fraud, therefore this company is a probable fraudster is a little narrow. Enron was a deep, thorough, and encompassing fraud but we never thought that all energy companies were therefore fraud suspects or, more analogous, all American companies.
    There is some real behaviorial economics stuff going on here....I thing it's called availability bias. Plane crashes. Big news. Everyone overestimated probability of plane crashing in the future.

    SubjectRE: RE: Fraudulent?
    Entry12/20/2010 09:51 PM
    Memberrjm59
    If this is a fraud, I still maintain that it's the most sophisticated one I've seen and I've looked at a lot.
     
    If they are a fraud, I think the way they are doing it is by overstating revenues (I'd assume by more than 2X since even if real revenue was 1/2 of the total that's a pretty good business and still cheap) and borrowing cash at the end of each month for a day to fake cash balances to Deloitte.  I'm not saying I have any evidence of this, it would just be how they'd have to be doing it if they were.  I'm not an auditor, if anyone here is or knows anyone at a big 4 I'd be interested to hear if they verify every transaction through the month (vs just test balances at month end).  If they checked all cash transactions then I don't know how it's possible they could pull it off short of having serious insiders at the bank - which seems unlikely to be sustainable very long.

    SubjectRE: RE: Fraudulent?
    Entry12/21/2010 12:43 PM
    Memberround291
    Majic,
    You raise questions that I doubt will ever be answered to your satisfaction or the satisfaction of others who are convinved of nefariousness here. Two of your questions essentially amount to "why did these guys take actions that did not maximize short term personal wealth creation". Did the re-phrasing of the question open new thought pathways for you? I hope it did. Is there another objective function that these guys might be maximizing (long term wealth creation, sharing the wealth in a way that would lessen the risk of targeted appropriation etc).
    The challenge on dividends is a reasonable one...why not pay more? Certainly, interpreted in the context of western capital market preferences and structures, paying more dividends is a reasonable ask. Would dividending out all the cash to a concentrated ownership group be interpreted favorably by their partners and customers?
    I have no answers but couldn't help reacting to the assumption that the owners of this business in China are no different in terms of their preferences than an owner subject to the pressures of western capital markets theory and practice. Maybe "taking the money and running" ain't a good thing in a market where booms, busts, and frauds have known to take place.  May not be good in a communist country either. 

    SubjectRE: RE: RE: RE: Fraudulent?
    Entry12/21/2010 01:46 PM
    Memberround291
    I'm defeated by your logic.

    SubjectRE: RE: RE: RE: RE: RE: Fraudulent?
    Entry12/21/2010 02:30 PM
    Memberround291
    I understand you completely. Never go long a stock where these issues are present, regardless of the  price. There has got to be something nefarious going on here. Why else would they do those things?

    SubjectRE: RE: RE: RE: RE: RE: Fraudulent?
    Entry12/21/2010 02:54 PM
    Memberspecialk992
    I've been on record on this site saying I am short a basket of Chinese reverse merger stocks. CCME is in my basket. It's not a huge short for me, and I'm not going to go into the short case in detail.
     
    But if someone offered to sell you a U.S. based media company that was growing over 100% per year and sported cool 72% operating margins would you take them up on it, or would you be suspicious because no media company and indeed virtually no known business model outside of patent trolling has sustainable 72% operating margins?
     
    If they further offered to sell you this amazing package at less than 4x earnings would this make you more or less suspicious? After all, aren't there legitimate companies everywhere in the world that would like to own this entire business outright at a much higher multiple?
     
    I'm continually amazed by the willing suspension of disbelief among Chinese reverse merger investors. CCME is an extreme case but to one extent or another they all share similar characteristics. Chief among these is a strong whiff of too good to be true. No one would ever believe that a small obscure U.S. industrial company sported consistent margins miles above the industry leaders but somehow because it's China people fall for it. Never mind that the rest of the Chinese economy is largely notoriously low margin manufacturing and real estate construction projects with payback periods measured in decades. Somehow, since we have access to an E*Trade account or a Bloomberg as U.S. investors we are magically offered this ability to buy stunning growth and margins at absurdly cheap prices.
     
    Time will tell, but I think there is a good chance that 10 years from now people will mention dot coms and Chinese reverse merger stocks in the same breath as absurd symptoms of an overheated speculative market. The WSJ news today that the SEC is instituting a broad investigation of the sector could be the start of something significant.
     
    I guess there might be some diamonds in the rough given the sheer number of them. Maybe I am dead wrong and instead 10 years from now CCME will be $150 per share.
     
    Even if some of these companies are legitimate, I also do wonder if U.S. investors will ever actually get paid for owning them. From what I can tell none have been bought out for cash by a strategic buyer or PE firm (this may change soon, but check out the spreads on FSIN and HRBN) and so far the dividends/buybacks have been a joke, CCME included. In a typical structure U.S. investors owns shares in a shell company  that owns shares in a BVI holding company that owns shares in a HK company that has a contract with the PRC operating company. How can anyone be comfortable they own something with legally enforceable rights and protections agains malfeasance?

    Subjectthanks mm
    Entry12/21/2010 03:33 PM
    Memberheffer504
    eom

    SubjectRE: RE: RE: RE: RE: RE: RE: Fraudulent?
    Entry12/21/2010 04:54 PM
    Memberround291
    Do the margins have to be sustainable over the long term for this to work out? The gov't contract ends at some point and margins will likely moderate. Let's assert this as fact. But in a few years under this contract the company can grow nicely and position itself to compete with any foreign or domestic advertising company out there...kinda in line with stated Chinese industrial strategy.
    The uncertainty post this significant contract is such that having cash on hand for acquisitions, new ventures etc might be prudent. It might also provide leverage to a significant investor who likely brings other assets to the table to negotiate a decent (perhaps outrageous) buy-in price.
    You know what...this is a highly uncertain situation and investment but the downside risk seems to be limited unless you place anything other than the standard risk of fraud probability against potential outcomes. Perhaps that's why the short argument focuses so heavily on fraud risk.

    SubjectFraudulent?
    Entry12/22/2010 06:24 AM
    Memberround291
    I have no idea what the prevalence of fraud perpetuated by Chinese insiders against outside minority shareholders (via some form of conspiracy) might be. Kroll has a report out that puts the prevalence (% of companies affected by fraud) at 92% in this report.
    That number speaks to the fact that Chinese companies are the victims of fraud (i.e. employee theft). It does not speak to the conspiracy required for an inside shareholder to fradulently take from outside investors, which is the type of fraud suspected in this instance.
    Some sectors of the economy might be more exposed to fraud, like banks for example. This article addresses one such example.
    Finally, fraud is punishable by death in China. It is clearly a recognized evil, indicating to me at least that the trajectory in the incidence numbers is likely to be downward in the future.
    I don't know what to make of your other comments. Again, I think that the availability bias is at work here. That's not a basis for investing but a worthwhile observation to make. That there have been other frauds among Chinese companies doesn't seem to me to be conclusive of much as it relates to CCME. I'm interested in the minutia of those "other frauds" as well. Were they all insider conspiracies to take from outsiders via whole cloth scams? Were they ZZZ Best/Crazy Eddie/Tino D'Angeles type frauds or a Computer Associates variety? It matters.

    SubjectRE: Fraudulent?
    Entry12/22/2010 09:12 AM
    Memberspecialk992
    Yeah in my opinion the difference in chance of fraud between a normal U.S. traded company and a Chinese RTO is beyond substantial- it is a difference between de minimus and greater than 50%. I truly believe that most of these companies are frauds, and more of the Crazy Eddie than Computer Associates type.
     
    One of the biggest myths put forward by supporters of these China hybrids is that "fraud" is punishable by death, so the management of Chinese RTOs would be taking huge risks by falsifying their financials. Leaving aside the widely known systemic corruption in China with relatively little enforcement, there is no reason to believe that Chinese regulators care about "fraud" perpetrated against U.S. investors. The SEC and U.S. Department of Justice have no subpoena power or enforcement ability in China, and it is unclear why Chinese authorities would care about false financial statements being submitted to the SEC when no Chinese investors are harmed. In fact, they probably like the fact that U.S. money is being given to Chinese companies and invested in China, and don't care what they had to tell U.S. investors to get it. In the Pantheon of exposed China frauds, I have literally never heard of a single executive facing any sort of punishment in China, let alone an execution. Once again, how can you have any confidence that your rights as a stockholder are protected against fraud or misappropriation?
     
    What's ironic is that the Chinese government does collect financials for all of these businesses through the SAIC, and these are available (albeit with a long lag time) by contacting Chinese credit bureaus and hiring translators. Several times Chinese RTOs have been confronted with SAIC numbers vastly different than what they are telling the SEC, and the China supporters explain away these discrepancies by saying "oh, everyone in China under-reports to the SAIC, they don't want local government officials to know how much money they are making and it is considered an acceptable form of tax evasion". In other words, in one breath we are told that Chinese companies would never commit fraud because of the severe punishment, in another we are told it is routine to under-report to the Chinese government in the form of the SAIC even though the statements are signed by the chief executive and audited by Chinese auditors.
     
    This is a timely discussion, there have been several articles on TheStreet.com starting with http://www.thestreet.com/story/10952277/2/sec-probes-china-stock-fraud-network.html. Key quote:
     
    "Over the past year, the SEC has received multiple calls for investigation of fraud among China-based stocks. Many investment professionals believe an investigation is due. One is Peter Humphrey, a corporate investigator and due-diligence expert based in Beijing. Humphrey estimates that as many as a third of Chinese companies listed on major U.S. exchanges -- the Nasdaq, Amex and New York Stock Exchange -- are likely reporting fictional profits. He said he bases that estimate on due diligence research done for clients and on discussions with client, in connection with acquisitions and investments in Chinese companies. If the estimate is wrong, it's likely too low, Humphrey says"

    SubjectRE: RE: Fraudulent?
    Entry12/22/2010 02:37 PM
    Membercasper719

    I am a little perplexed that Chinese leadership doesn't care about these frauds. These companies are flies in the scheme of the Chinese economy and its "real" companies listed both in HK and as ADRs and in the long run is it in China's best interest to sully its investment reputation with US investors to scam a few dollars? Perhaps it's like debt defaults, investors have no memory and will come back regardless and many people aren't paying attention anyway. Furthermore, Chinese leadership has much much bigger issues on their plate.


    SubjectSpecial K
    Entry12/22/2010 09:52 PM
    Memberround291
    Special K,
    More than 50% of Chinese companies that came public in a particular manner are run by insiders who are actively and willfully engaged in a conspiracy to defraud minority investors...that seems like a whopper. Essentially you're saying that the process, which is engaged by several different promoters, is designed to perpetuate fraud and that those good eggs that are not fradulent have beaten the odds. That's hard for me to get my mind around. I'm not saying that fraud in its manifold forms doesn't take place among these and other small cap companies. What I am suggesting is that it seems a stretch to argue that the majority of firms are engaged in the worst and most harmful type of fraud.
    You're also a little dramatic and flowery when it comes to dismissing the notion of people being executed for fraud in China. You're also dead wrong. I posted an article, perhaps two that directly refer to specific individuals who was executed. Here are a few more that any dummy can find from reputable outfits with a simple search:
    I don't know how to address your other claims and contortions. Don't know precisely what tha SAIC is or how it functions...I do know that tax and accounting books in the states differ routinely though. Perhaps there is something here but I don't know enough to address it.
    Finally, the estimates of an interested party on the prevalence of fraud as characterized by "reporting fictional profits" ain't all that compelling to me. I'd be more impressed by the work of the Economist Intelligence Unit, for example...and "fictional profits" buys a wide berth and covers it all from ZZZ Best to Computer Associates. I thought we were concerned with the wholecloth variety of fraud, perpetuated via conspiracy.

    SubjectRE: RE: Special K
    Entry12/23/2010 07:39 AM
    Memberround291
    Makes a difference if you're buying/selling a basket...but you're right that the discusison has gotten off topic.

    SubjectRE: RE: RE: Special K
    Entry12/28/2010 12:10 PM
    Memberspecialk992
    Round, I clicked on a couple of the links you provided and am not disputing that he penalty for fraud in China is death. You will notice that in your links, the fraud being perpetrated was on Chinese in China, not foreign investors. It is not clear to me that filing false financial statements with the U.S. SEC is a crime in China. I have yet to see any news stories about any of the numerous reverse merger blowups resulting in any jail time much less death penalties for Chinese nationals, although if you find one I am all ears. In TheStreet's recent series of articles on the space (which I recommend you read) they do mention one woman involved with a reverse merger put in jail in China, but that was for illegally taking control of the company in China, not for filing false statements with the SEC.
     
    As for CCME's SAIC financials, I have seen them for their primary operating subsidiary and of course they don't match or even appear to be in the same ZIP code as the SEC financials, let alone ballpark. This is the case for virtually every Chinese reverse merger, which is why I believe that more than 50% of them are frauds. Defenders of these companies basically claim that it is commonplace to knowingly file false statements with the SAIC, despite the fact that SAIC financials match very closely for many companies that have been through IPOs such as Spreadtrum or SolarFun Holdings. I am not saying that knowing that the SAIC financials do not match is an investable edge, but to me it is an indication that all may not be as it appears.

    SubjectRE: RE: RE: RE: Special K
    Entry12/28/2010 03:06 PM
    Memberrjm59

    What's the article / company in thestreet about the woman taking over a company??  Would be very interested in this - this is sort of what's happening with another company - TXIC, or at least has the potential to happen if things devolve.

    Thanks!


    SubjectRE: RE: RE: RE: Special K
    Entry12/28/2010 06:51 PM
    Memberround291
    Thanks for your comments.
    My point in mentioning the death penalty was to say that it is a reasonable inference that the threat of death in China is a useful fraud deterrent. That, combined with potential US/SEC presure, negative media exposure, and reports like the one Kroll put out all point, in my opinion, to heightened Chinese government attention to and actions against fraudsters over time...I'm thinking that things will get better. For me the way the government reacted to melamine milk contamination scandal says something about the lengths the government will go to maintain social order and save face (5 people put to death). Fraud, in the Chinese way of seeing things, threatens social order. So it might not be a stretch to imagine seeing more tools put into place to uncover and root out economic fraud over time. Today's news on the topic concerns the efforts of China's top Economic Crimes cop to catch and punish the bad guys, found here:
    Moreover, the economic interests of business owners and promoters is also likely to win out over time with those who put in place the tightest controls, best governance etc being rewarded in the markets.
    Your comment about not seeing a reverse merger "fraud" produce jail time or death and challenge that I identify one is a challenge I'll pass on. I think its a misapplied litmus test. I guess that time will tell whether those who commit the most harmful economic frauds will be fully prosecuted. 
    On the SAIC stuff, I'd be happy to look at any documents you have. Feel free to post them.

    SubjectRE: RE: RE: RE: RE: Special K
    Entry12/30/2010 02:36 PM
    Memberspecialk992
    rjm, this is a link to the page on TheStreet.com's article on the SEC's investigation of Chinese RTOs- http://www.thestreet.com/story/10952277/5/sec-probes-china-stock-fraud-network.html . The company in question is FFHL, Fuwei Films.
     
    Casper, I do not mean to imply that I think the central Chinese government is explicitly or even implicitly condoning reverse merger fraud. But China is a big country, and I think rogue actors can get away with this sort of thing as long as they are defrauding foreigners who have no standing to sue or subpoena power. You'll notice a lot of these too good to be true reverse merger companies are from distant inland provinces far away from the more prominent coastal population centers. I don't think even dozens of obscure small cap reverse merger frauds are going to seriously change China's ability to attract capital or list its large successful businesses like BIDU on foreign exchanges.
     
    Round, I already said that I am not going into the fraud case in detail, and I will respectfully decline your request to post the SAIC financials. I'm not sure what commenatary you want to add about them but I am well aware of what they are and their limitations. My only point in getting on this thread at all was to say that I believe the risk of fraud is substantially higher for Chinese reverse mergers in general and this company trades where it does because the market is pricing in a significant risk of fraud. I am probably guilty of stating the obvious. If you have done your diligence and you are comfortable it isn't, if you are right you will kill it on this one.

    SubjectRE: Special K
    Entry01/01/2011 03:00 PM
    Memberdoggy835
    More than 50% of Chinese companies that came public in a particular manner are run by insiders who are actively and willfully engaged in a conspiracy to defraud minority investors...that seems like a whopper.
     
    I think you're looking at it the wrong way. This isn't a random sampling of Chinese companies who just happened to come public in a particular manner. There is a ring of corrupt promoters who seek out companies with corruptible execs to take public in this particular manner. It's more akin to interviewing boiler room salespeople. You target a certain type of person and you end up with a group that is far out on one tail of the bell curve instead of a random sampling.

    Subjectarticle on chinese fraud short seller
    Entry01/20/2011 11:27 AM
    Membermajic06
    thought of this thread when i read this...
     
    http://www.businessweek.com/magazine/content/11_04/b4212058566865.htm
     
     

    Subjectand muddy waters jumping on the bandwagon...
    Entry02/03/2011 01:36 PM
    Memberheffer504
    http://www.muddywatersresearch.com/research/general/ccme/

    SubjectStarr?
    Entry02/03/2011 02:11 PM
    Memberrjm59

    One thing that I will be very interested in how this plays out is how Starr is involved.  All of the allegations seem like things that would be easy for Starr to check. There was recently a CFO of a failed US-listed Chinese reverse merger sentenced to be executed for ripping off investors but it was only because they ripped off over a hundred Chinese citizens.  Those that have ripped off only Americans haven't been punished ever by my knowledge.  However, Starr is a Chinese entity so I don't see how they avoid repercussions.

    As the original author here, I feel awful about this but I think it's still pretty clear that if this does go down with MW being totally correct, which seems likely at this point, these guys are the most "pro" fraud I've seen.


    SubjectRE: zzz007 follow up?
    Entry02/03/2011 02:23 PM
    Memberzzz007
    Wow, have you really been waiting 10 months for a "gotcha" moment?  You have too much time on your hands.
     
    I haven't seen the MW report, just the headlines, since the research section of their site seems to be down.  Did see the Citron writeup and thought it was pretty weak.  The thing is, I don't see any reason why Citron or MW "research" is any more reputable than the "research" from Northland (for instance).  In fact, I'd argue its less reputable since Northland doesn't have any reason to talk their book, and they've spent a lot more time on the ground doing diligence in China than any of the short "research" firms.
     
    Fact is, there's plenty of hot air on both sides about this name, but to my knowledge no fraud has been proved.  Correct me if I'm wrong.
     
    So sorry to disappoint you, no change in my opinion yet.  That said, I've been out of all these names for quite a while now, because I think they're wildly subject to manipulation on both sides and I don't really have the stomach for them.  Have a great day!

    SubjectRE: zzz007 follow up?
    Entry02/03/2011 02:40 PM
    Memberzzz007
    Got a copy of MW report.  Lots of impressive details, but very difficult in my view to draw conclusions as to the broader picture.  MW is talking their book, so of course they'll cherry pick.
     
    I'm not trying to be a Pollyanna here.  Will be interesting to see what the auditors sign off on this year.  It's clear that there's lots of hype around the name, so the auditors would be insane not do a particulary thorough job, because given all the negative press if they sign off on a crooked company their liability will increase drastically.  There's lots of press lately regarding companies in China using secret lenders to plump their cash balances at the end of accounting periods, but I'm not sure how much credence I give this.  There isn't a decent auditor out there who merely checks period-ending cash balances; they all do random checks on interim period cash transactions, so this sort of transaction would be easy to spot.  I guess we'll see.

    Subjectzzz
    Entry02/03/2011 03:03 PM
    Memberheffer504
    literally didn't think about it until today.  then saw you had gone radio silent.  now i see that you are constitutionally unable to admit blatant and (if you were an analyst at a hedge fund, say) potentially career-ending mistakes.  well, you admitted the "timing" on DJSP wasn't great at least... baby steps, as they say... 

    Subjectand to be clear
    Entry02/03/2011 03:19 PM
    Memberheffer504
    i have no position in the name.  i am just referring back to your comment:
     

    There are certainly frauds out there, and if CCME turns out to be one by all means come back to the board and let me have it.  I'll take my medicine.  If you think I'm blind to the risks, I'm not.  I'm just asking for some evidence besides "my friend says its a fraud". 

     

    and noting that there does seem to be evidence (conclusive or not, though i'd argue more likely than not), and it doesn't seem like you are "taking" any medicine.  just an observation.


    SubjectRE: and to be clear
    Entry02/03/2011 03:43 PM
    Memberzzz007
    OK, how about this.  When we have something reasonably approaching definitive evidence that there is a fraud here, and not somebody talking their book, I will post a comment that "ZZZ007 IS A BIG FAT IDIOT".
     
    I would propose that "definitive" evidence is something along the line of auditor resignation, accounting restatement...I'm flexible here.  However, I definitely do not view somebody with a vested interested claiming fraud to be "definitive".

    However, you've got to give me something in return if turns out not to be a fraud, so make me an offer.
     
    The question is, at what point can we conclude that it's not a fraud?  Clean audit?  Sale?  Strategic investment?  Special cash dividend?  You're not allowed to hide behind an indefinite assertion that its a fraud, it just hasn't been proven yet.
     
    I'm ready and willing for the castor oil.

    SubjectRE: RE: and to be clear
    Entry02/03/2011 04:30 PM
    Memberheffer504
    i think i have a lower bar to clear than you do based on assertions made in our prior discussion...
    but ok, if there is real evidence that everything is squeaky clean and all the assertions by citron/muddy waters are shown to be false, then yes, i will post that you were correct all along :)

    SubjectRE: and muddy waters jumping on the bandwagon...
    Entry02/05/2011 05:27 PM
    Memberround291
    Wow!!!
     
    Did anyone actually read the "report". I did. It's a joke. The fundamental claim is that revenues amounted to $17 mm and not the roughly $100 mm reported by the company. Here's the logic and statement of proof:
     
    "We estimate that CCME generated 2009 revenue no greater than $17 million.  We base this 
    estimate on the metric of revenue per employee in sales and marketing.  While advertising 
    revenue is not perfectly correlated to sales / marketing employees, we believe that the correlation 
    is strong."
     
    Then this:
     
    "CCME’s 10-K suggests that it has only seven sales people.  Because we believe that CCME 
    likely has more than seven salespeople, we added the 63 “business operation” employees to the 
    seven client service employees."
     
    No here's the clincher...since four other, and not entirely related, Chinese advertising companies generated on average $245,963 in revenue/employee then, by multiplying this metric by the number of employees at CCME, Muddy Waters can confidently deduce that CCME must have generated $17 mm in revenue. 
     
    A mountain of assumptions took CCME down 30% in a single day (it subsequently bounced over 20%)...a sad commentary on the diligence of the investing public and the quality of our capital markets.
     


    SubjectRE: Author Exit Recommendation
    Entry02/06/2011 10:38 PM
    Memberrjm59
    Sorry - I mentioned this in the messages a while ago, I actually just realized there was a button to click to "close position"...  The discussion is extensive below, as I mentioned, the main thing out of all the short attacks that seems most concerning to me is the airport bus revenue though other things are concerning as well.  If it does turn out to be a hoax, I will love to hear the story of how they fooled Starr...

    SubjectRE: RE: Author Exit Recommendation
    Entry02/07/2011 09:30 AM
    Memberspecialk992
    The $17M estimate of revenue by Muddy Waters was a bit strange and obviously a back-of-the-envelope calculation. I think the purpose of the exercise was to roughly estimate how big the business could be based on what he uncovered- and I think he was trying to give CCME the benefit of the doubt. As I mentioned earlier in this thread, I have some summary SAIC information that purports to be from CCME's primary operating subsidiary. The only year I have is 2008 but the stated revenue is way below $17M. I cannot personally vouch for the accuracy of the documents as I received them secondhand and I know they are not always 100% accurate, but $17M is an order of magnitude larger than the SAIC stated revenue.

    SubjectRE: RE: RE: Author Exit Recommendation
    Entry02/07/2011 10:17 AM
    Memberzzz007
    OK, I definitely can't vouch for the accuracy of who this might or might not be, but found this link on a CCME chat board and got a good laugh out of it.    This is what the long vs. short argument has degenerated into.  Please no attacking the messenger on this one...just hoping to inject a little bit of levity into the proceedings here:
     
    http://florida.arrests.org/Arrests/Andrew_Left_5278017/

    SubjectAlternate Universe
    Entry02/10/2011 10:47 PM
    Memberround291
    The arguments that are being hurled in the direction of this company are starting to have an other worldly feel to me. The latest angle, challenging the ligitimacy of major accounting firms (previously those fly by nights were also criticised, leaving me to conclude that Rodney Dangerfield had it easy), just seems like another dead end. I guess that if potential investors are kept gazing at their navels or are otherwise immobilized by fear, confusion, suspicion, innuendo...then someone benefits.
     
    It's a crazy world...just keep chuckin' shit and, when a minor chunk actually sticks, claim an all emcompassing, absolute victory. 
     
    It's the echo chamber...the party line (or multiple party lines) that really lifts the skin covering the folicles that use to produce hair on my head.

    SubjectRE: Alternate Universe
    Entry02/11/2011 09:44 AM
    Memberzzz007
    Round,
     
    I've certainly disagreed with you on occasion, but appreciate the fact that you're not afraid to stake out controversial opinions.  It's what makes sites like this worthwhile.
     
    As for CCME, I think they should make a reality TV show about one of these reverse-merged Chinese companies.  It would be awesome.
     
    zzz

    SubjectRE: RE: Alternate Universe
    Entry02/11/2011 10:13 AM
    Memberspecialk992
    Yeah, I've always thought if there was an alternate universe around here it was the alternate universe where you could generate growth and margins that would make Bill Gates weep with envy by sticking TVs on buses in rural China.
     
    Anyway, what is the latest line of "attack" on Deloitte? I haven't seen it. I've always viewed Deloitte's presence as a point in favor of CCME, albeit not one that overwhelms the other evidence that something was amiss. I also remember the days when Arthur Andersen was considered the best of the accounting firms. As investors in Enron and Worldcom found out, a signoff by a prominent auditor does not preclude fraud, just makes it less likely.

    SubjectDelusion?
    Entry02/11/2011 10:40 AM
    Memberaubrey
    Hi Round,
    I know no more about CCME than these posts and a quick review of the newsflow and recent documents. Certainly not as much as you. But I have to say you look to be showing the classic signs of delusion on this one.
    You might be right of course, but have you really sat back and asked yourself if you would be investing now with all this fraud noise. Aren't there easier ways to make money than get heavily into a possible fraud?
    Don't feel you need to reply or defend yourself, this isn't about CCME. Just feel you are losing perspective.
    Aubrey

    SubjectRE: Deloitte - Please...
    Entry02/11/2011 04:38 PM
    Memberround291

    Your indictment of Deloitte Touche Tohmatsu is, to be kind, obtuse. Why are they deserving of a snide look? Because they are not the "Deloitte & Touche you're familiar with"? What does that mean?

    Each of the big 4 is similarly structured, as described:

    "None of the Big Four accounting firms is a single firm. Each is a network of firms, owned and managed independently, which have entered into agreements with other member firms in the network to share a common name, brand and quality standards. Each network has established an entity to co-ordinate the activities of the network. In one case (KPMG), the co-ordinating entity is Swiss, and in three cases (Deloitte Touche Tohmatsu, PricewaterhouseCoopers and Ernst & Young) the co-ordinating entity is a UK limited company. Those entities do not themselves practice accountancy, and do not own or control the member firms.

    In most cases each member firm practises in a single country, and is structured to comply with the regulatory environment in that country. However, in 2007 KPMG announced a merger of four member firms (in the United Kingdom, Germany, Switzerland and Liechtenstein) to form a single firm."

    http://en.wikipedia.org/wiki/Big_Four_(audit_firms)

     


    SubjectRE: RE: RE: Deloitte - Please...
    Entry02/11/2011 07:40 PM
    Memberround291
    I refer the fair-minded to your post, #8, in which you commented as follows:
     
    "...you've mentioned deloitte as a positive data point.  since im a little familiar with painstaking effort the big 4 expend on being swiss vereins/cooperatives, i felt compelled to point out that they have the deloitte hong kong member firm as auditors.  this is not the deloitte & touche you're familiar with."
     
    You are, in fact, making an argument. The essential structure of your argument is as follows:
     
    1. Fact: someone argued that the presence of Deloitte as auditor is a favorable factor in evaluating CCME
    2. Supposition: that person is referring to a particular Deloitte entity in drawing his conclusion
    3. Deduction: since the Deloitte that person is familiar with is not the Deloitte that audits CCME, what he thought was a favorable factor therefore can not be.
     
    That is the structure of your argument as I see it. You are suggesting that Deloitte Hong Kong is in some way inferior to the "Deloitte & Touche you're familiar with" and that therefore no comfort should be taken by their involvement as auditor.
     
    A fact is something like: "Deloitte is a cooperative with several member firms, each organized as independent entities". Full stop.
     
    Incidentally, the "alternate universe" comment was penned after reading this: 
     
     
    ...and I quote:
     
    "In the final analysis, it doesn't matter what the auditors of these companies happen to be, whether they are high-priced companies in shiny office buildings in New York or no-name firms in Sheepshead Bay. They can be audited by all of the Big Four in tandem, or they can be audited by the hapless Frazer Frost, a list of whose clients was helpfully posted on Zero Hedge. The supposed prestige of the major firms isn't worth very much..."
     
    Is that really the case?
     
     

    SubjectRE: RE: RE: RE: RE: Deloitte - Please...
    Entry02/14/2011 10:18 AM
    Memberspecialk992
    Other than having Deloitte as auditors, the other major point offered in defense of CCME not being a fraud is the investment by Starr International- a local entity that presumably has the resources to figure out what is really going on. To that point, anyone following the situation may want to look at China Forestry. It is a HK-traded company whose shares are currently halted for an investigation into "accounting irregularities". What is really interesting about it is that the Carlyle Group- a PE firm with tens of billions under management, a local Asia presence with Asian staff and politically-connected individuals on the payroll- may have been completely fooled on a major investment. I am also really surprised that this would happen with a HK listed firm where the investors have legal recourse against the company an its executives.
     
    http://brontecapital.blogspot.com/2011/02/guanxi-vs-analyst-carlyle-and-coming.html
     
    http://online.wsj.com/article/SB10001424052748703754504576133120164332808.html

    Subjectzzz, any comment?
    Entry03/02/2011 11:13 AM
    Memberheffer504
    time for the castor oil?

    SubjectRE: zzz, any comment?
    Entry03/02/2011 11:53 AM
    Memberzzz007
    Actually, I prefer KY in combination with some prison-style lovin'.  If Muddy is correct in their assertions, the auditors will be forced to refuse to sign off.  When they do, you'll have my mea culpa.

    SubjectRE: zzz, any comment?
    Entry03/02/2011 07:03 PM
    Memberround291
    Heffer...can you spell out what you think happened on that call between a CCME salesperson and a representative of Muddy Waters? How does it further establish a presumed fraud?

    SubjectRE: RE: zzz, any comment?
    Entry03/03/2011 07:56 AM
    Memberheffer504
    seemed to me that the salesperson confirmed that the company was lying to regulators, destroying evidence, and had overstated the number of buses in its network.  did you have a different take?

    SubjectRE: RE: RE: zzz, any comment?
    Entry03/03/2011 04:26 PM
    Memberround291
    right, right, right!!!

    SubjectBut . . .
    Entry03/03/2011 09:37 PM
    Memberstraw1023
    Here's the thing (and I am SHORT CCME and think that the shorts are 100% correct on the facts): You guys are doing a victory lap, but the stock is up since the write up!
    And this is especially true when you consider the financing rebate that we shorts pay the longs each day. An unrecoverable daily dividend. 
    zzz may need to eat humble pie on the facts, but he can still cash out at a nice profit. I wish my wrong ideas worked out like this.
    Ridiculous amounts of bad news out there on CCME, but it is still up. I think that many of the highly rated short positions on VIC will work eventually, but they are fighting the technicals, the Fed, and the "always a bull market" mentality that has gripped markets for well over a decade now. This stock is very much what I had in mind on a short idea when I asked Heffer a few months ago "I agree, but why now?" It still feels to me like we are in 1999 sentiment, not 2000. Starting to see some cracks, but still lots of buying out there.

    SubjectRE: But . . .
    Entry03/04/2011 07:00 AM
    Memberzzz007
    Well seeing as I've already been crowned humble pie poster boy before the company actually capitulates, just want to keep the facts straight here.  Made money on the long side of this a while back, but lost my balls for all things Chinese except for a tasty serving of General Tso's back in the Fall.  I'm purely watching from the sidelines, enjoying the spectacle.  So, yeah, would love to claim victory for my P&L but can't do it in good conscience.

    SubjectTrading halt...
    Entry03/11/2011 10:14 AM
    Memberzzz007
    Is this going to involve castor oil?

    SubjectRE: Trading halt...
    Entry03/11/2011 03:08 PM
    Memberheffer504
    i am willing to let bygones be bygones... especially since i pitched gmcr as a short at 29...

    SubjectRE: RE: Trading halt...
    Entry03/14/2011 03:48 PM
    MemberYCOMBINATOR
    China MediaExpress Holdings, Inc. Announces Resignation of Independent Auditor and Chief Financial Officer
     
    The DTT resignation letter stated that DTT was no longer able to rely on the representations of management, and recommended that certain issues encountered during the audit be addressed by an independent investigation. DTT's letter also stated that these issues may have adverse implications for the prior periods' financial reports and that, in their view, further investigatory procedures would be required to determine whether the prior periods' financial reports are reliable. 
     
    Well, there we go.

    SubjectFormally announcing that I'm a BIG FAT IDIOT
    Entry03/14/2011 03:50 PM
    Memberzzz007
    Per section 2, subparagraph 6 of my agreement with heffer.  Only 11 more steps in my personal 12 step process.
     
    Despite heffer's offer last week of amnesty, I figured I better make good on my promise.

    SubjectRE: Formally announcing that I'm a BIG FAT IDIOT
    Entry03/14/2011 04:57 PM
    Memberoogum858
    ehh, i've done dumber. . . it was a fun thread to follow and you guys were both entertaining.  
     
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