china-mass-media-launches-75-million-us-ipo

China Mass Media launches $75 million US IPO

The second Chinese advertising firm in a month to seek a listing, China Mass Media stresses its broader viewership but is still offered at a discount to Hong Kong-listed SinoMedia.
Television advertising company China Mass Media International Advertising has started bookbuilding for an initial public offering on the New York Stock Exchange that aims to raise between $75 million and $103.9 million.

The company is offering 14.4 million new American Depositary Shares (ADS), or approximately 30% of its total share capital, at a price between $5.20 and $7.20 per share. Each ADS is equal to 15 common shares. There is also a 15% greenshoe, which, if exercised, could increase the total deal size to as much as $119.4 million.

China Mass Media is a Beijing-based company, currently 100%-owned by its founding chairman and CEO Wang Shengcheng, that sells advertising time on Chinese television. Its clients include major Chinese companies such as Lenovo Mobile Communications Technology, China Mobile and China Unicom. The company also creates public service announcements for government agencies and corporations.

All of the company's advertising time comes from CCTV, China's largest television network. In 2007 it sold an average of 35 minutes per day on CCTV Channels 1 and 2, but this year it has acquired the rights to sell advertising slots on a number of high quality shows on CCTV Channels 1, 2 and 4, which brings its total weekday advertising time to approximately 104 minutes per weekday and 78 minutes per day over the weekend. This expansion was arranged through an agreement with Beijing Guang Er Gao Zhi Film and Television production company, an agency that is half-owned by CCTV and half-owned by China Mass Media's chairman and his family.

Since 2004, the company has had the rights to sell all of the advertising time slots during the Chinese New Year Gala, a programme that is watched by nearly 40% of Chinese television viewers.

China Mass Media looks very similar to another Chinese advertising company that listed in Hong Kong earlier this month. That company, SinoMedia Holdings, also receives the vast majority of its income from selling slots on CCTV.

A source close to the deal suggests that the main difference between the two is the type of slots that each company sells. While SinoMedia focuses on CCTV Channel 9, which is an English language channel and thus quite a niche offering, China Mass Media focuses on CCTVÆs two largest channels in terms of number of viewers, namely CCTV Channels 1 and 2, which ought to have greater appeal among domestic advertisers.

Being similar to SinoMedia might not be a bad thing though. Since it started trading on July 8 after a $47 million offering, the stock has held up well, closing on Friday at HK$2.61 compared to the IPO price of HK$2.63. This is a reasonably good result considering that many IPOs have been pulled over the last couple of months, and those that have gone ahead have found it hard to keep their value. However, the Hang Seng Index has added 3.8% during the same period, and Emperor Watch & Jewellery, a retailer of luxury branded watches and jewellery, has gained 30% since it started trading last Monday. Emperor raised about $74 million from a Hong Kong IPO that was very well received by retail investors in particular.

In terms of valuations, China Mass Media will come at a discount to SinoMedia unless it prices at the very top. The indicated price range values it at between 8.5 and 11.5 times its 2008 earnings, while SinoMedia is trading at about 11.1 times this yearÆs earnings.

China Mass Media posted a net income of Rmb208 million ($29.7 million) in 2007 and that is expected to grow by 10% to 15% this year. This might seem rather modest for a Chinese company, but sources note that this is a company in an established industry with a stable cash flow, which should be attractive in a volatile market. It intends to use about $25 million of the net proceeds from the offering to increase its sales, marketing and production capabilities and another $40 million for potential acquisition of complementary businesses. The remainder will be used for working capital, to acquire more advertising time slots and to buy the building that houses its corporate headquarters.

In order to minimise the exposure to the high market volatility, the IPO is working to an accelerated timetable. Bookbuilding started on Thursday last week and the final price and trading debut is scheduled for later this week. Merrill Lynch is the sole bookrunner for the deal.
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