"New CEO; same Chairman, reporting structure, story"
Focus Media has announced that its founder, CEO and Executive Chairman, Jason Jiang, will relinquish his CEO role while remaining Executive Chairman. Focus is elevating its President, Dr. Tan Zhi, to become the CEO; Dr. Tan previously ran Framedia, which Focus acquired, and has experience of integrating acquisitions from his Framedia days.
We do not view this development as materially changing the Focus story. (1) The press release states that “Dr. Tan’s promotion is a formal recognition of the role he has long played at Focus Media”, a view we share; we believe that Dr. Tan focused (among other things) on integration issues and new technology for poster frames, while Mr. Jiang focused (among other things) on large advertiser accounts and potential acquisitions. (2) The press release states that the heads of online and mobile advertising “will continue to report to Jason Jiang”. (3) At the margin, we view this development as positive, inasmuch as the demands imposed by running the mobile and online business (which report to Mr. Jiang) are sometimes dissimilar from those imposed by running the out-of-home activities (which report to Dr. Tan). (4) We assume the timing of the release may have reflected Focus intending to confirm the changes at its board meeting next Monday.
Our 12-month target price of US$71 is based on 32X 2008E non-GAAP EPS, vs. our 2008-11E earnings CAGR of 22% and 2008E ROE of 14%.
This change in leadership is the second leg of a plan to split off the internet/mobile portion of advertising and release value. Expect announcement of the split after the board meeting. This will provide momentum for both halfs of the new company. Price is reflecting the rotation into cash and not the expectations for the growth.