CCME Top Pick of 2011 Northland Securities

NASDAQ: CCME
Update
1/7/11
Opinion: Outperform CCME; Pricing Power And Bus Network Drive Upside To 2011; Establishing As Top Pick
Risk: Aggressive We are establishing CCME as a 2011 Top Pick and believe, at current valuation (3.5x 2011
Target: $32.00 EBITDA vs. 38% y/y growth), with a projected 2011 free cash flow yield of ~16.0%, an
announced dividend, a growing core bus network, and new incremental revenue channel, that
Darren Aftahi - Senior Analyst could add tremendous revenue to its story long-term, that CCME, is a must Buy. We remain
(612) 851-4910 staunch believers shares are undervalued by a material factor, Street 2011 estimates
daftahi@northlandcapitalmarkets.com remain conservative based on our belief ad rate increases are likely to be well above our
Changes
revised modeled 12% (which increases our estimates across the board), and reiterate our
$32 price target and Outperform rating, which is based on approximately 7.5x EV/
• Raising 2011E Rev/EPS to $329.2M /
$3.04, respectively
EBITDA multiple, a 30% discount to its Chinese DOOH peers, to our $207 million revised
estimate.
Stock Data
Price $16.33 Key Points:
52 Week Range $8.50 - $14.82
Market Cap. $560M • When we initiated last July, we highlighted that as CCME grew its bus network across
Avg. Volume (3 Months) 1,181K
Shares Out. 40.3M
Mainland China (PRC) that its value to the advertiser/agency community would grow,
Float 33% giving it stronger “pricing power”. We believe the Company, with approximately 26k+
Institutional Ownership 9% buses (although not linear) entering 1Q’11, has reached critical mass, to a point, it can
Insider Ownership 82% raise ad rates more than historical annual rates of 10%.
Shares Short 3.6M • According to the China Economic Review, CCTV, the benchmark for advertising
Net Cash / Share $4.42
Tang. BV $4.77
mediums in China, has increased its ad rates by about 20% for 2011, compared with
Source: Thomson, NCM estimates
increases of more than 40% at other domestic networks.
Estimates (FY = December)
• Based on our checks, we believe CCME could increase rates by as much as CCTV in
2011, however, we believe approximately 10%-15% may be more realistic. As such,
Rev $Mil. 2009 2010 2011 we have raised our 2011 ad rate increases from 10% to 12%.
1Q Mar 18.8A 44.5A N/A • We are raising our estimates for 2011 on CCME driven by 1) higher than
2Q Jun 19.1A 53.5A N/A
expected ad rate increases, 2) slightly better than expected ending bus count, and
3Q Sep 26.1A 57.0A N/A
4Q Dec 32.0A 61.3E N/A 3) incremental revenue (albeit modest) from the Company’s recently announced
FY 95.9A 216.3E 329.2E SWITOW B2C channel.
P/S 6.9x 3.0x 2.0x • The combined, results in 2011 Revenue/EBITDA/ FD EPS increasing ~9%/4%/3%,
3-5 yr. Rev. Growth 30-50% respectively.
• Of our $26.7 million increase in 2011 revenue, we expect it to be comprised of ~$5.4
EPS $* 2009 2010 2011 million from SWITOW, ~$2 million from increased bus counts, ~$19.3 million from ad
1Q Mar 0.36A 0.54A N/A rate increases.
2Q Jun 0.40A 0.80A N/A
• We believe our increased revenue estimate will drive gross margin expansion to 70.3%,
3Q Sep 0.56A 0.81A N/A
4Q Dec 0.62A 0.61E N/A an increase of ~1.5% from our old estimate of 68.8%.
FY 1.81A 2.75E 3.04E • We note, we expect the new SWITOW business to add approximately $2.0 million to
P/E 9.0x 5.9x 5.4x total cost of revenues in 2011 from fees for exclusive rights agreements. We also
3-5 yr. EPS Growth 20-25% estimate total 2011 operating expenses could increase approximately $14.0 million due
to the new SWITOW business. As such, we believe EBITDA margins could compress
* Non-GAAP EPS
slightly in 2011 from our old estimate of 65.9%, or $199.5 million, to 62.8%, or $206.8
million. However, we believe as SWITOW ramps in 2012, that its will be
incrementally positive to CCME’s profit structure.
IMPORTANT DISCLOSURES
AND ANALYST
CERTIFICATION STARTING ON
PAGE 6
China MediaExpress Holdings, Inc. (CCME)  Northland Capital Markets, Inc. | Equity Research | 45 South 7th Street, Suite 2000 | Minneapolis, MN | 55402
Page 1 of 8 Toll Free (800) 851-2920 | Main (612) 851-5900 | Trading (800) 851-4595 | Fax (612) 851-4954
Estimate Changes
Raising estimates driven by confidence CCME can raise ad rates beyond historical 10% levels in 2011.
We are raising our estimates for 2011 on CCME driven by 1) higher than expected ad rate increases, 2) slightly better than
expected ending bus count, and 3) incremental revenue (albeit modest) from the Company’s recently announced SWITOW
B2C channel.
When we initiated, we highlighted that as CCME grew its bus network across Mainland China (PRC) that its value to the
advertiser/agency community would grow, giving it stronger “pricing power”. We believe the Company, with approximately
26k+ buses (although not linear) entering 1Q’11, has reached critical mass, to a point, it can raise ad rates more than historical
annual rates of 10%.
According to the China Economic Review, CCTV, the benchmark for advertising mediums in China, has increased its ad rates
by about 20% for 2011, compared with increases of more than 40% at other domestic networks. Based on our checks, we
believe CCME could increase rates by as much as CCTV in 2011, however, we believe approximately 10%-15% may be more
realistic. As such, we have raised our 2011 ad rate increases from 10% to 12%.
We are raising our ending total bus count estimate for 2011 (from 28,546 to 29,786 (+4.3%)), largely due to two recent
contract wins, which will increase CCME’s inner-city bus network by 2,067 in 1Q11. This comparatively large increase in the
Company’s bus network during the first quarter of 2011 results in incremental revenues in 2Q11/3Q11/4Q11, which along
with increased ad rate increases, drives our 2011 revenue estimate increase from ~$302.6 million to ~$329.2 million.
Additionally, we are modeling for Company’s recent SWITOW business addition (B2C platform) to see relatively limited
traction in the early stages of 2011, estimating incremental revenue of ~$5.4 million in the first year of operation. To derive
this estimate, we assume total bus passengers in 2011 of which 10% are unique passengers, and purchasing conversion rates
increase from 0.5% to 1.5% throughout the year. We also make an assumption about ASP levels ($50-$65) and CCME
revenue share rates of 5%, which, in our view, is conservative.
Of our $26.7 million increase in 2011 revenue, we expect it to be comprised of ~$5.4 million from SWITOW, ~$2 million
from increased bus counts, ~$19.3 million from ad rate increases. We believe our increased revenue estimate will drive gross
margin expansion to 70.3%, an increase of ~1.5% from our old estimate of 68.8%. We note, we expect the new SWITOW
business to add approximately $2.0 million to total cost of revenues in 2011 from fees for exclusive rights agreements. We
also estimate total 2011 operating expenses could increase approximately $14.0 million due to the new SWITOW business.
As such, we believe EBITDA margins could compress slightly in 2011 from our old estimate of 65.9%, or $199.5 million, to
62.8%, or $206.8 million. However, we believe as SWITOW ramps in 2012, that its will be incrementally positive to
CCME’s profit structure.
We have also adjusted our model to account for the ~$10 million cash infusion (in 4Q’10) from Starr International’s exercise
of 1,545,455 common stock warrants at $6.47 each on December 9, 2010.
NCM Estimate Change Summary
($ in millions, except per share data)
2011E
Ending Bus Count Old 28,546
New 29,786
Change 1,240
Change-% 4.3%
Revenue Old $302.6
New $329.2
Change-$ $26.7
Change-% 8.8%
EBITDA Old $199.5
New $206.8
Change-$ $7.3
Change-% 3.7%
Non-GAAP Old $142.5
Net Income New $147.4
Change-$ $4.9
Change-% 3.4%
Non-GAAP Old $2.90

Diluted EPS New $3.04
Change-$ $0.14
Change-% 5.0%
Free Cash Flow Old $124.2
New $126.2
Change-$ $1.9
Change-% 1.5%
Source: Northland Capital Markets estimates
* May not add due to rounding
Valuation
CCME Price Target Calculation

($ in millions except per share data) 2011
Projected CCME 2011E EBITDA $207
Assigned Enterprise Value (EV)/EBITDA Multiple 7.5x
Discount to peer group multiple 30%
Implied EV $1,560
1
Current cash on hand $170
Implied Market Capitalization $1,730
FD Shares including 2010/2011 earnouts 54.3
Implied price per share of CCME $31.85
Source: Northland Capital Markets, Com pany Filings
1
As of 9/30/2010
Risks to the Achievement of Price Target
Variable Interest Entity (VIE) Structure
CCME relies on contractual arrangements rather than equity ownership in controlling its key operating
subsidiary Fujian Fenzhong Media which operates as a variable interest entity. If Chinese regulations
regarding foreign investments in VIE change materially, it could have an adverse effect on CCME.
Increased Competition
Although the market in which CCME operates is very fragmented, if a competitor experiences success in
expanding its network it could put pricing pressure on CCME and potentially take market share from CCME.
Ability to obtain free entertainment content

If CCME is unable to obtain free entertainment programs from its Chinese media partners, or extend existing
agreements to obtain free content, it may be forced to purchase additional content and could substantially
increase CCME’s cost of operations.
Concession fee agreements

CCME enters into and negotiates framework agreements with its bus operators to display advertisements and
entertainment content. If CCME is unable to negotiate reasonable framework agreements, its concession costs
may increase substantially.
Bus operators
More than one-fifth of inter-city express buses carrying CCME’s network are operated by three bus operators.
If any major bus operator experiences a business disruption it might suspend or stop its transportation services,
and in turn the number of inter-city express buses carrying CMEs network could decrease significantly.
Strategic Alliance with TTAVC

If CCME is unable to maintain its agreement with the TTAVC it may be unable to expand its network as
planned. Moreover, CCME would lose its exclusive rights and other advertising network operators may
establish in vehicle television systems on buses. CCME’s agreement with the TTAVC is set to expire October,
2012.
China
Operating in China presents certain inherent political, governmental, and economic risks which could affect
CCME’s business.
Management
The chairman and CEO, Mr. Zheng Cheng effectively owns ~35% of CCME outstanding stock and is a major
contributor to the vision, execution and growth of CCME’s operations. Should anything happen to Mr. Cheng,
CCME operations could be adversely affected.
Capital Structure
TM Media was a former special purpose acquisition company (SPAC), which typically is associated with a
large amount of warrants and potential share dilution. However, through the reverse merger and share
exchange as well as actions by the company, all public warrants have been redeemed during the first quarter of
2010.
Readers should recognize that the risks outlined above do not represent a comprehensive list of all risk
factors that may impact price target achievement. See 10-k and company filings for additional
disclosures.
China MediaExpress
($ in m illions except per-share data)
Actuals Estim ates
Fiscal Year Ends Decem ber 2008A 1Q'09A 2Q'09A 3Q'09A 4Q'09A 2009A 1Q'10A 2Q'10A 3Q'10A 4Q'10E 2010E 2011E
Total net revenues $63.0 $18.8 $19.1 $26.1 $32.0 $95.9 $44.5 $53.5 $57.0 $61.3 $216.3 $329.2
Cost Of Revenues
Total Cost of Revenues $25.1 $7.1 $7.2 $8.6 $9.9 $32.9 $17.9 $11.4 $13.2 $18.4 $60.9 $97.9
Gross Profit $37.9 $11.6 $11.9 $17.5 $22.0 $63.0 $26.6 $42.1 $43.8 $42.9 $155.4 $231.4
Operating expenses
Selling $1.1 $0.3 $0.3 $1.4 $1.6 $3.5 $1.8 $2.1 $2.3 $2.6 $8.7 $12.9
Administrative Expenses $1.7 $0.8 $0.5 $0.6 $0.9 $2.8 $0.6 $1.7 $0.2 $2.2 $4.7 $10.5
SWITOW Operating Expenses $14.0
Total operating expenses $2.8 $1.1 $0.8 $2.0 $2.5 $6.4 $2.4 $3.8 $2.5 $4.8 $13.4 $23.4
Incom e from operations $35.1 $10.5 $11.1 $15.5 $19.5 $56.6 $24.3 $38.3 $41.2 $38.1 $141.9 $208.0
Interest Income, net $0.1 $0.0 $0.0 $0.0 $0.0 $0.1 $0.1 $0.1 $0.1 $0.1 $0.4 $2.6
Incom e before Incom e Taxes $35.2 $10.6 $11.1 $15.6 $19.5 $56.8 $24.3 $38.4 $41.4 $38.2 $142.3 $210.6
Income Tax Expense $8.9 $3.1 $2.8 $3.9 $5.2 $15.0 $6.2 $9.8 $10.2 $9.6 $35.7 $49.1
Deemed dividends on convertible preferred ($9.2)
Foreign currency translation $0.0
Net Incom e (GAAP) $26.4 $7.5 $8.3 $11.7 $14.3 $41.7 $8.9 $28.6 $31.1 $28.7 $97.3 $161.4
Non-GAAP Net incom e $26.4 $7.5 $8.3 $11.7 $14.3 $41.7 $18.2 $28.6 $31.1 $28.7 $106.5 $147.4
EBITDA $35.1 $11.1 $11.7 $16.4 $20.6 $59.8 $26.0 $40.3 $43.3 $40.3 $149.9 $206.8
GAAP-EPS (Basic) $1.26 $0.36 $0.40 $0.56 $0.66 $1.97 $0.29 $0.86 $0.93 $0.83 $2.91 $4.34
GAAP-EPS (FD) $1.26 $0.36 $0.40 $0.56 $0.62 $1.93 $0.27 $0.80 $0.81 $0.61 $2.49 $3.04
Non-GAAP Basic EPS $1.26 $0.36 $0.40 $0.56 $0.66 $1.93 $0.58 $0.86 $0.93 $0.83 $3.22 $4.31
Non-GAAP Diluted EPS $1.26 $0.36 $0.40 $0.56 $0.62 $1.81 $0.54 $0.80 $0.81 $0.61 $2.76 $3.04
Fully Diluted Shares Outstanding 20.9 20.9 20.9 20.9 23.0 23.0 33.5 35.8 38.4 46.9 38.7 48.4
Margin Analysis:
Total Cost of Revenues 39.8% 38.0% 37.8% 33.0% 31.1% 34.3% 40.2% 21.3% 23.2% 30.0% 28.2% 29.7%
Gross Profit 60.2% 62.0% 62.2% 67.0% 68.9% 65.7% 59.8% 78.7% 76.8% 70.0% 71.8% 70.3%
Selling 1.7% 1.4% 1.6% 5.2% 5.0% 3.7% 3.9% 4.0% 4.0% 4.2% 4.0% 3.9%
Administrative Expenses 2.7% 4.5% 2.6% 2.3% 2.8% 3.0% 1.3% 1.7% 2.0% 2.4% 2.2% 3.2%
Total operating expenses 4.5% 5.9% 4.2% 7.5% 7.9% 6.6% 5.3% 7.1% 4.4% 7.8% 6.2% 7.1%
Operating Margins 55.7% 56.1% 58.0% 59.5% 61.0% 59.0% 54.5% 71.6% 72.4% 62.2% 65.6% 63.2%
Non-GAAP Net Profit Margins 41.9% 39.7% 43.4% 44.6% 44.8% 43.5% 40.8% 53.4% 54.7% 46.8% 49.3% 44.8%
EBITDA 55.7% 59.4% 61.2% 62.8% 64.5% 62.4% 58.3% 75.3% 76.1% 65.8% 69.3% 62.8%
Percentage Change (Yr/Yr):

Total net revenues 143.8% 24.3% 24.4% 65.5% 90.6% 52.3% 137.2% 180.1% 118.0% 92.0% 125.5% 52.2%
Total Cost of Revenues 90.1% 22.1% 19.3% 33.6% 48.3% 31.4% 151.2% 57.7% 52.9% 85.3% 85.0% 60.6%
Gross Profit 199.8% 25.8% 27.7% 87.6% 118.7% 66.1% 128.7% 254.6% 150.2% 95.0% 146.6% 48.9%
Selling 18.6% 1.9% 20.0% 338.0% 492.3% 220.4% 562.6% 611.3% 66.4% 58.3% 148.6% 48.4%
Administrative Expenses 134.1% 87.0% 4.0% 12.2% 240.2% 65.7% (28.6%) 236.2% (61.2%) 143.8% 65.6% 122.0%
Total operating expenses 69.8% 55.7% 9.4% 134.1% 367.7% 125.9% 113.7% 376.9% 28.1% 89.0% 111.4% 74.2%
Operating Income 219.4% 23.3% 29.2% 83.0% 104.7% 61.3% 130.2% 245.8% 165.6% 95.8% 150.6% 46.5%
Non-GAAP Net income NA 15.9% 29.6% 83.3% 99.6% 58.2% 143.5% 244.5% 166.9% 100.5% 155.4% 38.4%
Non-GAAP FD EPS NA 15.9% 29.6% 83.3% 81.5% 43.9% 52.0% 101.3% 45.3% (1.8%) 51.9% 10.5%
EBITDA NA 30.4% 36.4% 93.3% 116.4% 70.4% 133.0% 244.9% 164.2% 95.8% 150.6% 37.9%
Source: Northland Capital Markets, Company Filings
Analyst Certification
I, Darren Aftahi, certify that (1) the views expressed in this report accurately reflect my personal views about the subject
company and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific
recommendations or views expressed in this report.
Important Disclosures
China MediaExpress Holdings (CCME) Ratings History
Explanation of Ratings:
Outperform (BUY) Outperform the S&P 500 by at least 10%.
Market Perform (HOLD) Perform within 10% above or below the S&P 500.
Under Perform (SELL) Under perform the S&P 500 by at least 10%.
Estimates, ratings and/or price target are subject to
Under Review
possible changes in the near term.
Risk Profile:
Conservative Lower risk and volatility.
Moderate Average risk and volatility.
Aggressive Above average risk and volatility.
Rating Distribution Breakdown as of January 7, 2011:

Coverage Universe Count Percent
Outperform (BUY) 74 79%
Market Perform (HOLD) 16 17%
Under Perform (SELL) 4 4%
Investment Banking Relationships Count Percent

Outperform (BUY) 10 11%
Market Perform (HOLD) 0 0%
Under Perform (SELL) 0 0%
.
Important Disclosures
Northland Securities intends to seek compensation for investment banking services from the subject company in the next 3 months.
Northland Securities makes a market in the subject company's security.
The analyst responsible for preparing this research report receives compensation that is based upon various factors including
Northland's institutional trading commissions and total revenues which may be generated by Northland's investment banking
activities.
Other Disclosures
Northland Capital Markets computes the relative valuation ratios of the covered company and typically measures price-to-earnings,
price-to-book, price-to-sales, price-to-cash flow, and computes free cash flow to the firm and discounts it back at the firm’s cost of
capital to derive a net present value per share. The primary analyst may be contacted to discuss the inputs that were used to determine
the target price range.
Northland Capital Markets reports will provide short-term commentary, but our ratings are forward looking by at least 12 months,
unless otherwise noted, to reflect our financial model expectations. Northland’s investment thesis, valuations and ratings are subject to
change without notice and the primary analyst should be contacted to ensure that our opinions have not changed since the date of this
report.
Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other
sources, believed to be reliable. However, we have not verified such information, and we do not make any representations as to its
accuracy or completeness. Any statements nonfactual in nature constitute only current opinions, which are subject to change.
Individual investors are advised to carefully consider the risks associated with investments in equity investments, particularly in small
cap and micro cap securities. Northland’s research universe includes a large proportion of this type of investment. This research report
does not take into account the investment objectives, financial needs and risk parameters of individual investors. Individual investors are
advised by Northland Securities to discuss their particular financial situation with their investment representative and other professional
advisors, prior to acting upon any recommendations in this report.
Past performance is not necessarily an indication of future performance. This report reflects our current opinion. We do not assure
future performance. Security prices fluctuate.
Unless otherwise noted, the price of a security mentioned in this report is the market closing price as of the end of the prior business
day.
‘Northland Capital Markets’ is the trade name for certain capital markets and investment banking services of Northland Securities,
Inc., member FINRA/SIPC.
Further information is available upon request.
Northland Securities, Inc.

45 South 7th Street
Suite 2000
Minneapolis, MN 55402
Member FINRA/SIPC
NORTHLAND CAPITAL MARKETS| EQUITY RESEARCH
RESEARCH
Mike Grondahl, Director of Research Richard Shannon, CFA
mgrondahl@northlandcapitalmarkets.com rshannon@northlandcapitalmarkets.com
(612) 851-5982 (612) 851-5908
Chad Bennett Eric Stine

cbennett@northlandcapitalmarkets.com estine@northlandcapitalmarkets.com
(612) 851-5965 (612) 851-5930
Chris Krueger, CFA Darren Aftahi

ckrueger@northlandcapitalmarkets.com daftahi@northlandcapitalmarkets.com
(612) 851-4913 (612) 851-4910
Mike Latimore Ian Kell

mlatimore@northlandcapitalmarkets.com ikell@northlandcapitalmarkets.com
(404) 386-0850 (612) 851-5945
Marty Beskow, CFA Ryan Wright

mbeskow@northlandcapitalmarkets.com rwright@northlandcapitalmarkets.com
(612) 851-4911 (612) 851-5926
INSTITUTIONAL SALES
Tim Mitchell, Director of Institutional Sales Scott Peterson
tmitchell@northlandcapitalmarkets.com speterson@northlandcapitalmarkets.com
(612)-851-5921 (612) 851-4928
Steve Austin Jeff Sheley

saustin@northlandcapitalmarkets.com jsheley@northlandcapitalmarkets.com
(612) 851-5971 (612) 851-5929
Steve Denault Bill Swanson

sdenault@northlandcapitalmarkets.com bswanson@northlandcapitalmarkets.com
(612) 851-4912 (612) 851-5947
Paul Manley Kyle Haas

pmanley@northlandcapitalmarkets.com khaas@northlandcapitalmarkets.com
(612) 851-5948 (415) 336-5953
TRADING
Brian Gifford, Director of Trading Pete Glanville
bgifford@northlandcapitalmarkets.com pglanville@northlandcapitalmarkets.com
(612) 851-5934 (612) 851-5942
Bill Beise Bill Schaeder

bbeise@northlandcapitalmarkets.com bschaeder@northlandcapitalmarkets.com
(612) 851-5935 (612) 851-4944
Kristen Eisinger Eric Soderberg

keisinger@northlandcapitalmarkets.com esoderberg@northlandcapitalmarkets.com
(612) 851-5932 (612) 851-5938
Steve Dragos
sdragos@northlandcapitalmarkets.com
(612) 851-4943

CCME Top Pick of 2011 Northland Securities

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CCME Top Pick of 2011 Northland Securities

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NASDAQ: CCME

Non-GAAP Old $2.90

CCME Price Target Calculation

Ability to obtain free entertainment content

Concession fee agreements

Strategic Alliance with TTAVC

Percentage Change (Yr/Yr):

Rating Distribution Breakdown as of January 7, 2011:

Investment Banking Relationships Count Percent

Northland Securities makes a market in the subject company's security.

Further information is available upon request.

Northland Securities, Inc.

Chad Bennett Eric Stine

Chris Krueger, CFA Darren Aftahi

Mike Latimore Ian Kell

Marty Beskow, CFA Ryan Wright

Steve Austin Jeff Sheley

Steve Denault Bill Swanson

Paul Manley Kyle Haas

Bill Beise Bill Schaeder

Kristen Eisinger Eric Soderberg

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