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China Mass Media: No reason to Swing the Bat
Posted by: AlphaVulture (IP Logged)
Date: April 5, 2012 06:37PM
A reader pointed me in the direction of China Mass Media (CMMCY.PK), another Chinese company that’s trading for less than the cash on the balance sheet. The company paid a special dividend of $22.98/share at the end of December last year (an amount almost equal to the share price the previous day) and was delisted from the NYSE two weeks ago because the market cap of the company was insufficient (below $15 million over a 30 day period). Even though the company paid a total of $57.9 million in the special dividend there is still plenty of cash on the balance sheet:
Last price: 1.80
Shares outstanding (ADS): 2,505,659
Market cap: 4.5M
Cash and Equivalents (mrq): 17.7M
P/E (ttm): 1.9x
P/B (mrq): 0.19
Is it real?As is the unfortunate case for Chinese companies listed in the US the biggest question that needs to be answered first is ”is it real?”. As discussed in my post on DSWL the only way to be sure that a company is not a fraud is to see that’s returning more money to share holders than that it has raised in the equity or debt markets. So the big dividend is a clue that the company might be real, but we do need to take a closer look at the past.
The company became public using an IPO of ADS shares (sold 7.2M shares at $6.8, raising $42 million after fees). The IPO was used to raise cash to invest in the business, and diluted the ownership of the CEO from ~100% to 70%, and that percentage has remained roughly constant to this date (it’s up a bit due to option grants and some share buybacks). So this also looks good, but it’s important to realize that the company did not pay out more in dividends than it raised in cash in the IPO. Since the CEO owns around 75% of the shares today just 14.5M was returning to outside investors in the dividend.
With the market cap of the company currently at 4.5M, and the CEO receiving ~43M in dividends it’s easy to imagine a positive scenario where the company is taken private at a nice premium to the current share price.
So I think the bull case is clear, but at the same time while just scrolling through the IPO prospectus and the annual reports there are all kinds of weird things I’m not comfortable with. Some examples:
Quote:How does this make sense?
ConclusionChina Mass Media does have some interesting things going for it, but to quote Buffett:
Quote:No reason to swing the proverbial bat when just at first glance there are things going on I don’t like, especially not when we are talking about a company in China.
Stocks Discussed: CMMCY,
Re China Mass Media No reason to Swing the Bat
Posted by: tonysf (IP Logged)
Date: April 5, 2012 09:45PM
Sounds like a great example of a value trap. Thanks for the story. Quite interesting.
Stocks Discussed: CMMCY,