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Focus Media Holding Ltd. Message Board

  • paultradestoday paultradestoday Sep 8, 2008 9:45 AM Flag

    Citis Analyst's Update Investor Day

    Here is a snipit from the 20 page Citi report I received today. Its all good:
    Another successful Analyst Day — The Analyst Day held last Friday was, in our
    view, a success by all measures, as defined by providing: 1) a better
    understanding of the business; 2) openness/effective communication by mgmt;
    3) answers to key issues/questions; and 4) ultimately, a greater willingness by
    investors to buy the stock. In three hours of workmanlike presentations, Focus
    addressed 10 key issues in investors' minds: 1) DSOs/AR; 2) margins; 3)
    impact of Olympics; 4) cash flow; 5) utilization; 6) capex; 7) M&A + earn-outs;
    8) growth in '08-'09; 9) sales restructuring; and 10) competition.
     Investor focus shifting away from rumors to fundamentals + 2009 outlook —
    Following two successful Analyst Days and clean “beat & raise” 2Q results, the
    company’s strong business model and improving fundamentals are starting to
    replace negative rumors as the key focus for investors, in our view. With mgmt
    having reaffirmed year-end margin guidance, we believe the primary concerns
    now relate to expected 2009 adv spend in China – an issue we are growing
    more cautious on. Specifically, we are trimming our '09E by 11% and lowering
    our TP from US$59 to US$53, representing +77% upside from current levels.
     Actively buying back shares — As of last Friday morning, the company has
    purchased ~640k ADRs, or ~US$20m of the US$100m authorized.

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    • PART TWO:
      Part of the Q&A delt with AR. here is Citis report of that aspect. I'm less concerned than I was about AR backlog because they are working on it but this is still bigger than it should be. About 1% will be uncollectable (~$3.2Million USD), not too bad. Compared with other advertisers such as GOOG and SINA their backlog is 2-3 times bigger.

      Here is the Citi note on the discussion:
      In a nutshell, Focus explained that the high AR is a function of
      1. Very fast revenue growth;
      2. The shifting revenue mix over the past 12 months as the company
      acquired Interactive Agencies on the Internet side, with their far longer
      payment cycles as compared to OOH, and
      3. Longer AR from the CGEN acquisition.
      More specifically, of the total A/R in 2Q of US$321.4m, Digital OOH accounted
      for 65%, and Internet was 35%.
      DSOs declined form 127 days in Q1, 124 days in 2Q08.
      Below were the key points management made:
      Digital OOH
       Commercial and Residential – Commercial and Residential saw in increase in
      A/R of US$25m QoQ in 2Q08. However, revenues increased US$25m QoQ
      as well. Focus explained that when they show an advertisement on the
      network and complete the service, they don’t collect the fees the next day;
      rather, the A/R cycle is about 90 days. So the DSOs in Residential and
      Commercial Networks is "not bad," according to management.
       In-Store – Including CGEN, In-Store has above-average DSOs. CGEN is the
      problem, management explained, and CGEN has US$10m A/R when Focus
      bought them in 1Q. In 2Q, A/R increased US$10m QoQ. CGEN had a very
      long cash collection cycle with their preexisting customers, and Focus
      explained its a gradual process to improve it.
      In summary, on the Digital OOH side, AR increased by US$35m, with revenues
      increasing by US$25m and accounts payable increasing by US$25m. In
      general, the AR cycle for Digital OOH side is 90 days.
      Internet
      The Internet cash collection cycle is 120-150 days, significantly longer than for
      Digital OOH. As Internet has grown as a percentage of revenues, the DSOs
      have increased. As Internet growth has been particularly strong over the past
      12 months, the longer cycle has also meant that AR has increased.
      Summary
      Focus stated that management will continue to focus on improving AR on the
      Internet side, and the balance of DSOs should come down gradually, but for
      investors to not expect DSOs to fall below 100-110 days outstanding. Focus
      wants to reduce DSOs, but the absolute amount of AR will grow as it grows
      revenues. Also, cash collection is better in 2H than 1H, so Focus should get an
      improvement in the next two quarters.
      Finally, Focus explained, with respect to the quality of their AR, that they
      provision receivables into three categories: 180-270 days; 270-360 and 360
      days+. This is their bad dept provisioning policy. Focus noted that Bad Debt
      is 1.2 to 1% of revenues, and they have not seen any deterioration here. Focus
      stressed that they work with large advertisers, and that their credit is good…