Avenir Capital Investment Theses: Clear Media Write-Up

July 27, 2015 By Avenir Capital

Company: Clear Media (HKSE:0100)
Exchange: Hong Kong Stock Exchange
Date: June 18 , 2015
Current Price: HK $9.53
Shares Outstanding: 541 million shares
Market Cap: HK$5,162
Net Debt: HK$-1,049.6
Enterprise Value: HK$4,112
Target Price: HK$17.00
Upside: ~80%

*All amounts in HKD ($) unless otherwise noted

Clear Media (HKSE:0100) is a leading outdoor media company in China and is listed on the main board of the Hong Kong Stock Exchange. The company is the largest bus shelter advertising panel operator in China with a market share of 90% in top-tier cities (Beijing, Shanghai, Guanzhou, and Shenzhen) and 60% share in many 2nd and 3rd tier cities. Clear Media has created a standardized bus shelter network covering regions across China with over 41,000 display panels.

Clear Media has a market capitalisation of HK$5.2Bn (US$670M) and net cash of 20% of the market capitalisation giving an enterprise value of HK$4.1Bn (US$530M). Despite achieving revenue and EBITDA growth of 13% and 12% per annum respectively over the past 10 years and with net cash equal to 20% of market cap, the company trades at 5.9x 2014 trailing enterprise value-to-EBITDA and approximately 5.4x enterprise value to our estimate of 2015 EBITDA.

The company is highly profitable and cash generative and has been able to self-fund its solid growth while throwing off excess cash. Clear Media has paid over HK$1.3Bn (US$167M) in ordinary and special dividends over the past four years while keeping net cash balances constant and growing revenue and EBITDA by 40% and 49% respectively over the same period.

Year Dividend Amount Total:
2011 Final HK$0.05/share HK$26.4M (US$3.4M)
2012 Final HK$0.15/share HK$79.3M (US$10.2M)
2013 Final HK$0.15/share HK$80.4M (US$10.3M)
2013 Special HK$1.32/share HK$708.4M (US$91.3M)
2014 Final HK$0.15/share HK$80.6M (US$10.4M)
2014 Special HK$0.56/share HK$300.9M (US$38.2M)

Clear Media is growing solidly, its market position is strengthening and it is converting its increased scale and improved market position into an increasing return on invested capital that is approaching 20% having increased, on average, by 2 ppts per annum from 11% in 2010.

Despite these attributes, the company trades at a significant discount to peers with leading global comps such as JCDecaux, Clear Channel Outdoor, Outfront Media and Lamar Advertising trading at 12-15x trailing EBITDA.

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