VisionChina went public via IPO in late 2007. Focus Media Holding (FMCN), China’s largest digital media company, bought a 15% stake in VisionChina Media (VISN) in December 2011.
Is It Cheap?
- Trading at 0.30 P/NTA, at a 84% discount to its five-year average P/NTA of 1.93
- Net cash as a percentage of market capitalization = 185%
Is It Safe?
- High debt leverage and continued fund raising
Gross debt/equity is 49.3%. VISN was debt free in 2007 and 2008.
Current debt at approximately US$35 million is 71% higher than debt of US$24 million as at end fiscal year 2011.
Shares outstanding increased by 23% from 82 million shares as at fiscal year 2010 to 101 million shares now.
- Weak short-term liquidity problem
Receivable days is at 123 days with current ratio at 1.2.
- Resignation of independent director in August 2012
It is one of the warning signs to take note. Taken in isolation, it may not be significant.
- Ongoing lawsuit with the former investors in Digital Media Group, a competitor VisionChina bought.
- Corporate governance risks
Dan Harris from the China Law Blog has picked up some signs in VISN's SEC filings:
Is It Quality?
- Losses in 2010 and 2011
The one analyst covering the stock expects losses to continue in FY2012 and FY2013.
- No dividends paid
Among 6000+ stocks listed on NYSE and Nasdaq, VISN is the 37th most undervalued stock based on net cash/market cap. However, it is obvious that the risks (Continued losses, high debt leverage and corporate governance risks) far outweigh the cheapness of the stock.
I was alerted to this high risk net cash stock through a quantitative screen. Readers can read my article, "Avoid These High Risk Net Cash Stocks."
Disclosure: Not Vested
Further Reading on Focus Media:
Bronte Capital on Focus Media
Muddywaters Research on Focus Media
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