Media Nation becomes latest Chinese media company to try HK IPO

Media Nation hopes to follow in the footsteps of Clearmedia with its forthcoming IPO.

Pre-marketing started yesterday (Wednesday) for the IPO of Chinese outdoor media company Media Nation. The IPO is being led by Deutsche Bank and is the bank's first primary equity mandate of the year.

Media Nation is a company founded 10 years ago in Beijing. It is inolved in selling outdoor advertising space through a variety of channels in Hong Kong and the Mainland. The company has exclusive rights to sell the advertising space within the Beijing and Shanghai metro systems, as well as other outdoor venues. It is just starting new mainland ventures to set up roadside kiosks which will provide it much more space to sell to potential advertisers.

In Hong Kong the company is the sole agent for selling advertising space on the side of all KMB and New World First Buses. It was awarded this license in 1998 and has four more years to run with it.

According to insiders, the company has had an annual CAGR of near 80% for the last few years. However, its new ventures have been financed through retained earnings and so the last year has seen a bit of a dip in the bottom line growth story.

This might be the hardest sell for Deutsche Bank and the rest of the syndicate. Investors want to see very clear earnings growth these days. However, bankers close to the deal say a more accurate depiction of this type of media company would be to look at it through an EV to EBITDA ratio.

Media Nation is the latest advertising company to announce that it is coming to market. Clearmedia is in the final throes of its IPO, which should price Friday. Media Nation makes no bones that it is trying to come out close to Clearmedia while the sector is still fresh in the minds of investors.

Still, it is a sign of how much more positively investors view the Chinese economy. Globally, the advertising sector is having its worst year since the second world war, according to research by Merrill Lynch. Yet with Chinese domestic comsumption growing rapidly and the additional competition being driven by WTO, Chinese advertising spending is booming. Clearmedia is pitching its IPO at a P/E ratio of around 30 times, which would be the highest of any IPO in the Hong Kong market this year.

The number of shares to be sold is undecided but it is likely to be a mix of old and new shares. The deal will start roadshows soon after the new year and hopes to be one of the first IPOs of 2002.