Matthew Kwok: SINOMEDIA (00623) Buy: $2.50, Target: $2.80, Stop: $2.30
SINOMEDIA (00623) holds the underwriting rights of 40 hot TV programmes on CCTV channels of entertainment, news, finance, sports, Chinese international, military and agriculture and English, etc., becoming one of the CCTV's underwriters with largest resources and most frequent cooperation. The result of the company has been growing since listing with 50% growth in compound annual growth rate and satisfactory earnings over the past five years. Although the result of the company was badly hit by the financial crisis in 2009 for short term, overall earnings kept turning positive. In the first half of 2011, the company posted significant growth in the result with revenue climbing 20% to RMB720 mln and interim net profit soaring 180% to RBM72.7 mln. In addition to excellent performance in marketing business, the company is doing well in cost control with overall operating cost only accounting for 7% of revenue plus strong cash flow of holding a net of RMB780 mln in cash. The current price-to-earning ratio of Sinomedia is only 5, while future earning growth maintains at approximately 20%, hinting a overly undervalued price.
(By an SFC licensed person, who does not hold the above-mentioned stock, to provide advice on securities.) (y)
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