VisionChina Media Inc. (VISN) was founded by Mr. Limin Li and Ms. Yanqing Liang on April 8, 2005, and is headquartered in Shenzhen, China. It operates out-of-home advertising network using real-time mobile digital television broadcasts to deliver content and advertising on mass transportation systems in China based on the number of displays. VisionChina’s mobile digital television advertising network or its network delivers real-time content provided by the local television stations in addition to advertising. Its advertising network consists of digital television displays located on buses and in subway trains and subway platforms that receive mobile digital television broadcasts of real-time content and advertising. The Company also operates various closed-circuit advertising digital displays in certain subway platforms and subway trains in Beijing, Chongqing, Guangzhou, Nanjing, Shenzhen and Tianjin. As of Dec. 31, 2011, its network and supplemental subway advertising platform covered 20 cities in China and consisted of approximately 137,423 digital displays.

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.
http://finance.yahoo.com/news/visionchina-media-announces-appointment-chief-235000351.html

- Ongoing lawsuit with the former investors in Digital Media Group, a competitor VisionChina bought.
http://finance.yahoo.com/news/gobi-oak-respond-false-allegations-151800576.html

- Corporate governance risks

Dan Harris from the China Law Blog has picked up some signs in VISN's SEC filings:
http://www.chinalawblog.com/2011/05/us_listed_chinese_company_troubles_hidden_in_plain_sight.html
http://www.chinalawblog.com/2011/03/us-listed_chinese_companies_lets_watch_the_sausage_get_made.html

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

In Closing

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
http://brontecapital.blogspot.com/search?q=focus+media

Muddywaters Research on Focus Media
http://www.muddywatersresearch.com/company/fmcn/

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