Tuesday, February 1, 2011

China Media Express: The Wall Street Drama continues

For the last few days my blog post about China Media Express has been the most visited post on this site.  Strange really because China Media Express is a small company that puts TV screens on buses (for advertising) in China.  It is not a subject that should garner many readers.

But garner readers it does – and the readers are passionate.  My last post talked about the passion  (both from longs and shorts) and the pain that short-sellers were taking on the stock.  I also went short a very small amount of the stock (roughly one third of a percent of funds under management).  I have a dog in this race but I really don't care too much about the prize money.

Anyway the long case is really about the numbers.  This company is – at least according to its SEC accounts – frighteningly profitable.  It is far-and-away the most profitable display advertising company I have ever seen – the numbers are off-the-scale good.  So good that they would make Warren Buffett green with envy.  Amazing given it is a relatively innocuous business. Almost from a standing start – the company has placed TVs on buses and wound up with $170 million hard cash in the kitty – cash that represents neat profit.  And it remains that profitable – it is growing frighteningly fast – and the stock remains on a low price-earnings ratio.  On the face of it this is the best investment you could make.  For example Glen Bradford (who runs a hedge-fund advisory business that “focuses on risk averse investing”) has described CCME as “the best stock in the world”.  Matt Schifrin – a writer at Forbes – has repeatedly plugged the company.

The short case is also surprisingly simple.  If it seems to good to be true it probably is.  But the short-sellers will go further – they will argue that the company does not exist – or if it does exist it is a few screens on a few buses to convince gullible American stock pickers to buy the company – not a real business capable of generating a cumulative $170 million in cash profits.

The short case an amazing slur really: the company does not exist and that the entire thing is fake.  It is also the strongest and most passionately (albeit until today privately) stated short case I have ever heard.  

In science I would normally follow the dictum: extraordinary claims require extraordinary evidence.    And I would apply it to both sides of the argument.  The longs argue that they have found one of the most extraordinary businesses in the history of capitalism.  The shorts claim they have found one of the most brazen frauds in the history of capitalism.

As I said – passion.

And so far nobody has the extraordinary evidence.

But the longs have a point.  If this is a fraud they have pulled the wool over some very prominent eyes.  The biggest shareholder is Starr Asia (the company associated with Hank Greenberg of AIG fame).  They are presumably competent enough at basic due diligence in China not to miss something this blatant.  Moreover Starr has purchased more – suggesting they are getting deeper into this.

Further the auditor is Deloittes rather than than some two-bit bucket shop.  A big name auditor is hard to defraud – especially when some things (such as the massive cash balance) are dead easy to check.   That said – if you can convince a big-name auditor to sign your fraudulent accounts it will help you continue to perpetrate the fraud.  If you really want to steal a lot of money from the stock market start by fooling a big-name auditor.

And the shorts have a point too.  The numbers really are extraordinary.  

I said which side I am on.  I am short.  But I don't have the evidence that supports a notion of fraud (nor for that matter do I have the evidence that suggests this business even makes sense at the published numbers) and hence my position is tiny.  [My short position is so small that you cannot construe it as evidence either way or as a strongly held opinion.  I have a dog in this race – but from my perspective it is a low prize money event.]

Citron Research – a short-shop that is right a surprising proportion of the time – has published on CCME today finally stating in public the short case.  They describe it as a “phantom company” (they do not go as far as stating it is a non-existent company but that is a distinction without much difference).  The stock only fell 17 percent – which – if the allegation is right means that it has only begun falling.  They do a stirling job of presenting the numbers on the public data.  This is the data that I used to go short – data that looked almost nonsensical it was so much too good to be true.

They also promise to reveal what on-the-ground research in China tells them.  I would love to know early – but I will have to wait.  I have not kicked the tires of 20 thousand buses – nor talked to advertisers and content suppliers in China.  If you did that you would find out whether they have even heard of the company.  If they haven't you probably have a “phantom company” – but even then it is hard to prove the non-existence of something – and so you would be left with some doubt.    China is a big place and it possible not to have heard of all the players.

I am wating for Citron's next post.

Meanwhile however it is entirely open for the SEC to do some due diligence of its own and prove that they are an investigative agency.  The company recently put out a release in which it claimed contracts with Apple, Sony, Toshiba, Adidas, Nike, Samsung and others.  This is a pretty brazen thing for a fictional company to do and is being used by the longs (with some justification) to disprove the short case.  Certainly the release made me more nervous.

But there is a simple check now: ask Apple, Sony, Toshiba, Adidas and Samsung.  (It would not surprise me if Citron has done precisely that.)

Anyway, both Nike and Apple are SEC reporting companies and I am sure – in response to a polite request from the SEC they would confirm or deny whether such a contract has been signed.  If they have been signed then the SEC can leave this alone.  If the contracts have not been signed then – hey – the SEC can suspend this and claim (justified and enormous) kudos for stopping a genuine fraud by work of their own initiative.

Obviously though if nothing happens then short-sellers will be none-the-wiser.  The company will go on – and short – albeit only 30bps I would have to take my lumps.

The drama it seems continues.



FFMaster said...

I find it interesting that the word of Citron Research is being taken so seriously. Citron is essentially one guy, Andrew Left, who has a prior felony conviction for securities fraud. How is it that a seventeen percent drop in a stock based on the word of a single blogger who was slandering the very stock he was shorting is considered just a beginning? I'd have a great record of picking shorts, too, if I could cause a massive crash in anything I chose just by publishing a completely speculative assassination.

Anonymous said...

CCME has contracts with AAPL, NIKE, etc, or their distributers. Your query might yield an unreliable result as CCME may have a deal with these company's distributers-- not AAPL or Nike specifically.


Anonymous said...

Hey Dickhead

How is that UTA claim working out. Non existant website? Sounds familiar.

Moce ride from 3's to 7's you helped create

Timothy Conway said...

John, thanks for trying to be objective, even though you are short a small position.

Here are excerpts, presented in two parts (due to space limitation at this blog), from a special d.d. note on CCME by Global Hunter on 10/15/10, a strong retort to the increasing short interest back then.

NOTE: This was written BEFORE analyst Ping Luo twice upwardly revised her estimate of CCME's 2010 EPS and Price Target.
CCME - Global Hunter reiterates its "Buy" [highest] rating and $21 target

Ping Luo, CFA pluo@ghsecurities.com 646-264-5688
Jodi Dai jdai@ghsecurities.com 646-264-5666

China Media Express Holdings, Inc
CCME: Our extensive due diligence reinforces our thesis; Reiterate Buy

During our recent trip to China, we conducted extensive due diligence and channel checks on CCME’s business. We met with the company's entire management team including six regional managers, checked CCME’s sales contracts and bank statements, and interviewed advertising agencies, direct advertisers and bus operators. We took buses in Beijing, Fuzhou and Guangzhou to view the company’s operation and advertising programs. In addition, we met with a representative from CTR, a market research firm, and two directors at Starr International. Our due diligence results reinforce our thesis on the company and we continue to believe that CCME is a leader in its niche market. We believe the fundamentals of the business remain solid. Thus, we reiterate our Buy rating.

Key Points:

[Continued in part two]

Timothy Conway said...

Part Two (continued)

Key Points:
Interviews with advertising customers. CCME works with ~30 ad agencies who contribute ~70% of total revenue, with the remaining 30% from direct advertisers. We interviewed a number of ad agencies and direct advertisers, including agencies which purchase advertising time in Beijing and Guangzhou airports. The revenue amount these agencies disclosed to us matched that in the sales contracts and the customer list and revenue breakdown presented by CCME. These customers represent annual contract value of approx RMB400MM ($60MM), or ~30% of our estimated ‘10 revenue. The agencies receive business either directly from brands or from 4As or other large advertising agencies. These advertisers stated that CCME’s large network and quality customer service make it the top choice in the inter-city bus market.

Interviews with bus operators.
CCME’s network currently covers over 60 [now over 70] bus operators and close to 25,000 buses [now over 27,200 express buses as of 1/1/11]. The bus operators we interviewed ran a total of 4,000 buses. They receive concession fees ranging between RMB600 and RMB1,500 per bus per month, which we view as considerably low as compared to its peers in other outdoor media markets. We believe the low cost is due to a lack of major competitors in this niche market as well as weak bargaining power from bus operators who operate in a highly fragmented market. Concession fees typically account for 70%+ of COGS of a media company. Continuing to control concession fees is a key task for a media company. We believe this low level of concession charges explains CCME’s high margin profile.

Taking the rides.
We took CCME’s buses in Beijing, Fuzhou and Guangzhou to view its operation and programs. The programs were rotated with 30 minutes of entertainment content and 10 minutes of advertisements. We saw brands including multinational names such as Pepsi-Cola, P&G, Coca-Cola, Siemens, and Samsung, and well-known domestic brands such as China Mobile, China Post, Wanglaoji Beverage, Tongyi Green Tea, Huangjin Dadang Nutrition and Yili Dairy, among others. Bus operators expressed favorable feedback from passengers; we believe the availability of various entertainment content makes passengers more receptive to advertising programs.

Meeting regional managers.
We met with regional managers in charge of sales and customer service in Beijing, Guangdong, Sichuan, Jiangsu, Hubei and Fujian. We cross checked with them the number of buses, top agency customers and total revenues in each region. Currently there are ~30 people in each region who provide customer service to existing customers and develop new local customers (esp. direct advertisers) in the region.

Visit to Starr International.
We visited Starr’s Shanghai office and met with directors who stated they have done a thorough due diligence before their $30MM investment in January, including hiring ACNielsen to conduct due diligence and market research, and Deloitte to audit CCME’s financials. They indicated that they monitored CCME’s operation and financial results on a monthly basis and continued to believe in its fundamentals, which is further evidenced by Starr’s additional investment of $13.5MM announced earlier this week to purchase 1.5MM common shares from early investors of the company.

Reiterate Buy.
We have spent substantial time and effort in our ongoing due diligence over the last three months, the results of which reinforced our thesis. Shares are currently trading at just 6x our ’10 EPS (or 4x after backing out $139MM or $3.89/share in net cash). We expect more positive catalysts in the near term as the company continues to expand its network. As such, we reiterate our Buy rating.

Anonymous said...

Want to know if Apple or other major multinationals are advertising on the CCME ad network, or selling products on the SWITOW, CCME's retail website? Just ride on the buses and watch the ads. If you're not in China, here are videos of the buses and ads posted online: http://ccme-info.xanga.com. Or visit CCME's retail website, here: http://www.switow.com. A lot easier than trying to contact Steve Jobs.

John Hempton said...

I am not sure I believe a promoter's website any more than I would believe prima-facie the website of a short.

Citron has a darn good hit rate (been following for years). That HISTORICAL HIT RATE adds credibility.

However the thing that is convincing to me is the numbers. They are too good to be true.

Also - nobody doubts that there are SOME buses. But existence of some buses proves nothing either.

There are 80 thousand screens. Hard to check.


Anonymous said...

Would cash balance in bank account be enough as a proof ?

John Hempton said...

Cash balance maintained continuously over a quarter or two would be sufficient proof.

The company claims to have 170 million in cash. They claim this because they made profit.

If they have the cash - and it is maintained over a considerable period - then that is entirely consistent with the company having generated the cash.

I can imagine a point market in cash for faking cash balances to please auditors. Indeed it has been suggested to me by one short.

But I can't imagine this company would really have 170 million in hard cash in the bank for a long time if it had no business capable of generating that cash.

So if you had access to the company's bank accounts - not from the company - but say from the bank - then you would have it.


Generally if you fake your profit you need to show the profit in some form... balance sheets have to balance.

Parmalat was a company that faked its profit. As a result it wound up faking its cash.

The cash balance (signed off by reputable auditor) did not exist. When the cash did not exist the business was revealed as only marginally profitable - and the company essentially folded.

If the company has the profits it will probably have the cash. If it does not have the profits then it won't have the cash.

So cash - something relatively easy to check (but missed in the Parmalat case) would be sufficient proof.


Millstone said...

John -

I am just adding the research of many, but a key note about the "too good to be true" thesis that has been bandied about:

If you compare China MediaExpress and Focus Media in their LCD display business, their margins are very similar, and CCME's average margin from 2007 through 2010 is LOWER than that of FMCN.

FMCN, or Focus Media, is the giant in outdoor advertising in China, and they are delivering margins of 63% to 81% from 2007 to 2010 on their LCD screen business. They break this out in their reporting so it is extremely easy to look this up. From 2007 to 2010 CCME has delivered 48% to 78%. Too good to be true? Hardly. I know from your previous write up about CCME John that you did not think that it was a wise short candidate. You have stated that your short position is relatively small, and that it doesn't represent an opinion either way. Fair enough, but I'd think that you would have to admit that the 'research' from Citron is far short of credible. I mean, if you look for CCME by their Chinese subsidiaries and do the most cursory research, news about CCME and their position within the industry is everywhere!

2010 1Q
2010 2Q



Gross Profit

Gross Margin

Anonymous said...

In the U.S. you would not think it would be possible to fake the balance sheet in order to fool auditors. In China it’s relatively common. Short-term loans are given in order to prove to auditors that there is “cash” in the bank. If you wanted to commit a fraud, this sounds like something you’d do.

What else would you do? You’d continuously announce new contracts. You may hold a somewhat glitzy investor day meeting. You’d probably have a network of brokers creating fake contracts and have loads of self-dealing. You’d get the stock price up and then use it to try to purchase other companies. You’d also try to get good press in the U.S., but not do much about press in China.

Timothy Conway said...

This morning, Feb. 1, 2011, the independent analyst firm Global Hunter, which has done MASSIVE more d.d. on CCME than the shady, ethically-challenged and fact-challenged Andrew Left of Citron, AGAIN reiterated another note to the investment community about their EXTREMELY thorough d.d. on CCME and reiterated their "Buy" rating (strongest of 5 ratings in their approach).

Here's the note (this one also in two parts due to space limitations at this blog):


CCME: Continued due diligence on CCME reinforces our thesis; Reiterate Buy.

Ping Luo, CFA Senior Analyst | 646-264-5688 | pluo@ghsecurities.com
Jodi Dai Associate Analyst | 646-264-5666 | jdai@ghsecurities.com
February 1, 2011

Summary: We are currently on a due diligence trip in China and as part of our ongoing work on CCME, we talked again to a number of advertisers and bus operators and observed CCME's buses during this trip. We also checked government certificates/documents and the ranking from China Advertising Association, which in 2009 ranked CCME #6 in China by outdoor advertising revenue. During the last seven months, we have done extensive due diligence on the company, including interviews with advertising customers, bus operators, regional managers and CTR, an independent market research firm. We have visited Starr International and talked to the company’s independent auditor, Deloitte. We feel comfortable with CCME’s business and continue to believe in CCME’s growth potential. We maintain our Buy rating and $26 price target.

Interviews with advertisers and bus operators. In the last few days, we talked to a number of CCME’s customers and bus operators. The advertiser customers we spoke to confirmed their 2010 revenues with CCME, and stated that they continued working with CCME in 2011. Among the customers, Shanghai Apollo, a company owned by Shanghai People’s Fine Arts Publishing House, a state-owned company with 50+ years history and strong industry relationships, confirmed that they bought approximately 7 minutes (~RMB50MM revenue) in 2010 and expect to buy similar amount of advertising time from CCME in 2011. These advertisers and bus operators confirmed that CCME is the only inter-city bus media company with a national coverage and quality services.

Experiencing the bus rides. We again rode on the company’s airport buses in different cities. The following videos in Guangzhou and Chengdu airports, which are similar to our experiences, we believe can give investors a feel of CCME’s operations. http://www.soku.com/search_video/q_CCME.

Checked government documents. We checked with China Advertising Association (CAA), an official government agency that all advertising platforms in China must register with. In 2007, CAA ranked CCME’s operating entity Fujian Fenzhong Media #15 by total advertising revenue http://www.cnadtop.com/news/FHDT/2009/2/6/b98600ff-c4d3-4646-ab84-fe9a5764b33a.htm, and #6 by outdoor advertising revenue in 2009 http://www.cnadtop.com/news/vision/2010/8/2/578d5f78-6a1a-4ff3-aa7e-d6bf2fcd55d0_3.htm. The company is also a Class I Advertising Enterprise; we checked the company’s certificate issued by CAA. We have also reviewed the company’s five-year contract with TTAVC, an agency under the Ministry of Transport, which granted CCME the rights to operate copy rights protected contents on inter-city buses in the country.

Timothy Conway said...

Part two of Global Hunter special d.d. note (Feb 1, 2011), continued:

Reviewed various contracts and other channel checks. We have in the past few months reviewed the company’s list of customers and bus operators. We reviewed the company’s contracts with advertisers and bus operators, rate cards, and we have also reviewed the company’s bank statements. We talked to CTR, an independent market research firm, who monitors over 70% of the media companies in China. CTR is conducting a comprehensive research on CCME, which evaluates the company’s business model, market share, customer feedback, and media value. We expect CTR to issue such research within the next month. We also learned Deloitte has done its initial part of the annual audit, and will continue after the Chinese New Year holiday. We expect the company to issue audited annual report in early March.

Maintain Buy. During the last seven months, we have done extensive due diligence. We interviewed a number of advertising customers, bus operators, and the company’s regional managers. We also talked to CTR, the third-party market research firm, visited Starr International’s office in Shanghai and talked to the company’s independent auditor, Deloitte. We have taken CCME’s buses in different cities and checked its advertisements and programs. We have also looked at CCME’s contracts with customers and bus operators, and government certificates and documents. We feel comfortable with CCME’s business and continue to believe in its growth potential. We therefore maintain our Buy rating and $26 price target.

Global Hunter Securities, LLC
Fort Worth | Houston | New York
Newport Beach | New Orleans | San Francisco
New York Sales & Trading: (212) 415-4721
Newport Beach Sales & Trading: (949) 274-8050
Research: (949) 274-8052

Anonymous said...

> than the shady, ethically-
> challenged and fact-challenged
> Andrew Left of Citron,

I find it hard to take an argument seriously when it opens with a childish attack on someone who holds an opposing view.

(Blank Xavier)

Anonymous said...

It's a fact. Andrew Left is a convicted thief and fraudster. His most recent arrest was on December 23, 2010.

Left makes an allegation, based on nothing but Google searches by someone that doesn't understand Chinese, that claims this company, its officers, and its auditor are guilty of securities fraud. Yet it is somehow improper to point out that the accuser is not only alleged to have committed theft and fraud, but has been found guilty of those crimes? I'd say it is more than relevant.

Andrew Left is profiting from his accusations by manipulating the share price in his own interest. He is a 2-bit pump and dump manipulator, as ethically challenged as they come. His mugshot is online, not hard to find.

another value investor said...

FWIW, there are analyst reports from Global Hunter securities and Northland securities on CCME, updated today:


I generally have low opinion of analysts and their forecasts, but in this case they have done a lot of on-the-ground research that refutes your claims.

Anonymous said...

To "another value investor".
Why not start off more modestly? Instead of saying broadly that those reports "refute" Mr Hempton's "claims", why not start by listing just ONE specific claim by Hempton that is refuted: quote the claim, the provide the refuting evidence.
Just one? Must be easy, since _all_ the claims are "refuted", right? Just one? Any one?

Anonymous said...

John, you question the profitability of CCME and marvel that 'TVs on buses' could generate these earnings. Why do you have to describe the ad network in a condescending manner? Would it make you feel less amused if CCME branched out to 'TVs on elevators'? Sounds crazy, but FMCN is just as profitable with their elevator ad network. Read Millstone comment above, he even posted FMCN's LCD ad network numbers for you.

Michael C said...

To my thinking the matter is easy... whom should I trust: a)reputable analysts with boots on the ground and a big 4 audit firm carrying direct liability and risking client losses, or b) a blogger with NFA and civil fraud judgments doing some googling in a language he neither reads nor speaks?

I really don't get the debate.

Anonymous said...

> It's a fact. Andrew Left is a
> convicted thief and fraudster. His
> most recent arrest was on December
> 23, 2010.

I don't dispute factuality.

I'm looking at bias/subjectivity.

It's the difference between, say, being a historian and a revisionist.

A historian is unbiased and factual. He tries to hold a view based purely on the information available. He doesn't vitriolically slag off people who've come to different conclusions (based on the same facts).

This is obvious, so I'm concerned also with you.

I note you then also say;

> Yet it is somehow improper to
> point out that the accuser is
> not only alleged to have
> committed theft and fraud, but
> has been found guilty of those
> crimes?

-NO ONE- here has said this or taken this view. Perhaps those who are revisionists cannot understand a historian, because they see everything in terms of for-and-against; the idea of being unbiased is alien.

I believe you are trying to cloud the issue.

(Blank Xavier)

Ryan said...

Thankyou for your insightful article. I am long in the stock, but also have a small position. I have, however, found your analysis to be much more honest and reflective of the situation than most.

There are a couple of reasons why I am long. The first, is the groundwork done by deloitte, and others... which is known by everyone here so it's a mute point to start a shouting match over that...

The second, is that if I were in their shoes, and it were fraudulent... It would be very difficult to walk the line they are walking. First, if it were fraudulent, these levels of profitability would draw alot of attention... the kind of attention that a fraudulent company would not want. It would be much more preferable to be "above average"... for example, like CSKI. There are a number of other things that strike me as odd, but in a good way about the situation as well.

However, like you mentioned, it's a tough call in some respects. It's not like investing in the US where you can just go investigate it yourself, and since we're basically relying on sloppy google translations for research it makes the research precarious at best. Best of luck John. I've appreciated your frank commentary.


Anonymous said...

Blank Xavier - The fact that the blogger has been convicted of securities fraud, petty theft, etc. is relevant because he presents no facts, just insinuation and his own conclusions based on a few Google searches. So it is his judgment against others' judgment, and in his framing of the issue it is his integrity against others' integrity.

The blogger has attacked the credibility of the CCME management, Deloitte Touche, CV Starr, Global Hunter, Northlands Securities, and many on-the-ground researchers of this company. He even attacked a perfectly fine Chinese company, Shanghai Apollo. He did this in order to generate selling pressure on the stock, so he could cover his short position into the selloff - a classic pump and dump.

That is the reality. If you can't see this for what it is, you are either naive or are playing along for your own gain.

Anonymous said...

Enron, Parmalat, Adelphia, WorldCom, ACLN, Fannie [$10bn earnings fraud], and a host of others had known accounting firms, and backers just as rich and sophisticated and full of 'due diligence' [but 10-100x bigger] than Starr or *anyone* on CCME.

Prentending otherwise by the longs is a giant, gaping flaw in their argument/rationality. People can't see their own blind spots or they wouldn't be defrauded.

Of course, this doesn't make the shorts right, but it does mean the longs - who are strictly motivated by financial gain *by definition* - are not the angels they purport to be, and siginificantly less rational in the vast majority of cases.

No position, former long.

Anonymous said...

'So it is his judgment against others' judgment, and in his framing of the issue it is his integrity against others' integrity. '

This couldn't be more false. Either the company is fraudulent or it isn't. Either they earned $170m of cash through profitable enterprise or they didn't.

Your 'appeal to authority' is one of the very weakest arguments extant.

Anonymous said...

> The second, is that if I were in
> their shoes, and it were
> fraudulent... It would be very
> difficult to walk the line they
> are walking. First, if it were
> fraudulent, these levels of
> profitability would draw alot of
> attention...

I have the impression fraudulent companies often are surprisingly stupid.


Anonymous said...

> Blank Xavier - The fact that the
> blogger has been convicted of
> securities fraud, petty theft,
> etc. is relevant because he
> presents no facts, just
> insinuation and his own
> conclusions based on a few Google
> searches.

I don't have a problem with this (although I don't know the truth behind it or not; I know nothing of the man or what he has done).

The fact remains however I would not -vitriolically attack such a man-, whether or not I knew these things, and I would be suspicious of someone who did.

I don't go around yelling at the top of my voice that, say, ants are small. I -know- ants are small. If someone is a fraud and I know it (to the extent that I can know anything, at any rate), then I would simply say so.

When someone goes beyond that, something else is usually at work.


G17 said...

Hi Everybody
Interesting discussions here - I guess only time will prove if it is a fraud or real.
I just thought it's interesting that there is this video from 3 years ago posted on Yuku - it's a Chinese entertainment program (kind of like the US equivalent of 'who wants to be a millionaire' or 'are you smarter than a 6 grader') where the host is interviewing a shortlist of candidates for working for CCME. I think about 5 seconds into the video there's a banner of CCME on the table; and if my mandarin serves me well, it's the VP of ccme attending as a guest, along with other guests.
I just think for a company that wants to be fradulent it would seem like a lot of effort to go out there and do this kind of programs-
I think the company exists and they run the business and am sure they are making profits.
Whether the numbers are real - you gotta take it with a pinch of salt.
Keep in mind a lot of Chinese business practice is different from that of North America - sometimes what we might consider as questionable practice to them it is just the way things have been done in the last few years. I think as long as the business is making money and growing, it's okay.
whether you give it the full value like you would for an otherwise US-equivalent company is for you to decide.

video link :


Ryan said...

"I have the impression fraudulent companies often are surprisingly stupid."

Well, I don't think they are stupid. If this is fraudulent, I would have to say it is quite impressively construed. Which is why drawing attention with a return on equity that high seems to me to be inconsistent with that notion, at least in my mind. Of course, it doesn't prove anything in the least... but I mention it because it is one of the oddities that has stuck in my gut. And, given the videos I've seen and the actions of the company, thus far I feel that it is consistent. When the Citron report came out, I was very happy with the response of the company, which was pretty consistent with the picture of the company that I'm getting.


By the way, thanks for that video G17. I found that to be very informative. Combined with some other videos and documents posted by a user named wctbills on a yahoo board...


I think your lines of thinking are where I'm at as well. I don't think it's a question of whether the company exists, but rather "general business practices" that we may be unfamiliar with. I like to think, maybe wishfully, that having DT as auditor, as well as the presence of Starr, Northland, GH... should provide a level of comfort in that regard. At a certain point of question things I just start to feel paranoid though. What are your thoughts?

At any rate, thanks for the advice. It has definitely gone into the folder... ;)


Anonymous said...

John, you mean to tell me Deliotte is missing the cash balance? or its is being faked in front of their own eyes?

G17 said...


Let say it is a fraud - let's just speculate on how much the share will be worth. If they inflated their numbers then theoretically when this is all discovered, the stock price will pullback to reflect the true value of the business - let's say this is 50% of the stock value.

Find a number that you know you won't blink your eyes or loose sleep when 50% of it is gone. That's how much you should be putting in for Chinese companies these days.

If it's not fraud, then you can expect it to rise many folds -

So don't let greed cloud our minds. Let's speculate with the right amount of resources and balance it out with other good stocks.

Anonymous said...

Well the Muddy Waters report sure has decimated this stock today.

Will be interesting to see what Deloitte does come March.

Zeroskills said...


Muddy Waters Initiating Coverage on CCME – Strong Sell

Published: February 3, 2011

Muddy Waters LLC has initiated coverage on China MediaExpress Holdings, Inc. (CCME) with a Strong Sell rating and an estimated value of $5.28.

Muddy Waters, LLC believes that CCME is engaging in a massive “pump and dump” scheme whereby it significantly inflates revenue and profits in order to enrich management through earn-outs and stock sales.

We estimate that CCME’s actual 2009 revenue was no more than $17 million (versus $95.9 million it reported).

The data CCME provides to advertisers shows that it has fewer than half of the 27,200 buses it claims to have.

The CTR reports that the Company uses to support its claims contain gross errors that we conclude are due to manipulation by the management.

We estimate that over half of CCME’s network buses do not actually play CCME content. Rather, drivers play DVD movies that are often provided by passengers.

We caught CCME’s management telling a particularly egregious lie – that its new website (www.switow.com) has entered into an agreement with Apple (or one of Apple’s) distributors. Neither is true.

Similar to RINO, CCME is an obscure company in its industry. Media buyers who would have to know it if CCME were to be believed have never even heard the Company’s name before.

CCME’s core audience is sub-Greyhound Bus demographic.

Anonymous said...


'Ever get the feeling you've been cheated?

Good Night.'

Anonymous said...

Why I bought 200,000 shares yesterday...
It's all about following the money.
The cash is in the bank. $170M as of 9/30/10 and over $200M now.
DT has verified the cash. Starr has verified the cash. Numerous banking analysts have verified the cash.
MW, Citron, et al would have us believe that the founder of CCME sneakily, fraudulently injected $100M of his own money into the company bank account over the past 12 months, pretending that the $100M was earnings. It would have to have been freakishly complicated, making it look like all that money came from umpteen different customers, customers that none of the sales people had actually sold anything to. Seriously, take a moment and try to imagine how hard it would be to inject $100M of cash into the company and make it look like it came from real customers.
And why would the founder have injected $100M of his own money to perpetrate this massive fraud, a fraud for which he could be executed? He put in all this CASH in order to earn more SHARES. Shares which he could only sell years later after additional Deloitte audits, which could only be sold to institutional investors who would examine the company's books and operations with a magnifying glass.
I'm sorry, but no. Makes zero sense. No, it's worse than that. It's a retarded concept.
The way frauds work is the opposite... the founder DOES NOT put cash into the company. He takes CASH OUT of the company. He inflates inventory and a/r to pretend there are earnings that aren't really there. He does secondary offerings to raise cash for the company. He pockets this cash by buying related parties at inflated values. That kind of thing.
I feel really, really bad for everyone who sold yesterday based on Citron's and MW's maliciously fraudulent reports. They knew they were lying. They knew were bankrupting people. I believe they will pay.

Anonymous said...

Check out Star agreement with CCME's founders. The penalty is so severe. Do you think MW's 17m revenue is possible ? In other words, DO you think CCME's founder take the chance to LIE for 3 years to dump his stocks ???


The Founding Stockholders will be required to pay certain Performance Adjustment Amounts to Starr in the event the Company’s audited consolidated net profits (“ACNP”) for 2009, 2010 or 2011 are less than US$42,000,000, US$55,000,000 and US$70,000,000, respectively (each, a “Profits Target”). The Performance Adjustment Amount payable in any of 2009, 2010 or 2011 will be a fraction of US$343,462,957 proportionate to the amount by which the Company’s ACNP in such year falls short of the then applicable Profits Target. The Performance Adjustment Amounts will be payable in cash or stock, but only to the extent such stock, together with the shares of Common Stock acquired or acquirable as a result of Starr’s ownership of the Purchased Shares, the Purchased Warrants and the Transferred Shares, will not exceed 19.9% of the total number of shares of Common Stock issued and outstanding as of the date of the Purchase Agreement.

Anonymous said...

One or two words to the bus advertising. Two or three years ago it became very popular by the local bus operators in Germany and many buses and tubes were equipped with it. BUT effectively only in the large cities as Hamburg or Munich their are advertising. And even there only on the main routes. In the smaller cities they either advertise their own bus company or the screens are switched off. Though... this is unfair, once in a while a local lawyer or plumber publicises his adress on the screen.

And the cash strapped municipality and the adverting company share the same goal, many viewers. A win-win situation.

Just for a thought: In economic hard times big newspapers buy advertising space from each other.

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