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SCMP Reporter

HONG KONG  investors have been suffering from a bout of indigestion after being served large helpings of richly priced China-themed outdoor advertising stocks.

Clear Media, MediaNation and Media Partners International have all gone public in the past couple of months and all are trading below their offering prices.

Investment bankers felt they were justified in slapping a high price sticker on the stocks because of investor eagerness to get access to the mainland advertising industry's vibrant growth.

The post-listing slide tells them they may have overegged the story.

Media Partners closed yesterday at HK$1, down from the HK$1.10 offering price.

Chief executive Winnie To Pik-shan said investors should look beyond the short-term disappointment and focus on the long-term growth prospects for the company in the outdoor advertising market, which is expanding by 21 per cent a year.

'The environment we are operating in is a high-growth market and by definition that will be reflected in the share price,' Ms To said.

There are some numbers to back her up. With two thirds from China and one third from Hong Kong, Media Partners saw revenues jump from HK$149.18 million in 1999 to HK$220.46 million in 2000. The bottom line swung from a loss of 4 cents to a profit of 2.1 cents.

In its prospectus before listing on the Growth Enterprise Market, the company promised to deliver earnings per share (EPS) for last year of at least 3.6 HK cents when it reports on about March 18.

This year EPS could leap again to 7 HK cents, according to a forecast by UBS Warburg. That would put Media Partners on a forward price-earnings ratio of 14 times based on its closing price yesterday against a growth rate of 94 per cent.

Clear Media is trading on 28 times ING Baring's expectations for this year's earnings while MediaNation is on 29 times the earnings UBS Warburg forecasts.

Whatever the valuations for Media Partners and its rivals there is undoubtedly a colourful story of growth. Multi-nationals and Chinese companies alike are increasingly keen to get their message and brands across to 1.3 billion consumers in a country with a rapidly growing economy and middle class.

Outdoor advertising has been a good way of doing that, with 89 per cent of Chinese surveyed seeing at least one such ad a week. The outdoor market soared from US$85 million in 1999 to US$130 million in 2000 and is growing faster than total advertising expenditure.

Media Partners is majority owned by Morningside, the investment vehicle of Hong Kong's Chan family, which owns the Hang Lung group. Despite that, it claims to have as good a toehold in the China market as Clear Media, which is a Chinese company specialising in bus-shelter advertising.

Media Partners has the rights to display advertising on more than 12,800 bus bodies in seven cities in China.

Exclusive contracts for Guangzhou Metro Line One and Shanghai Subway Number One in China and the Airport Express in Hong Kong give it another 33,800 spots.

Blue-chip names such as HSBC, Carlsberg and Starbucks Coffee are among the more than 1,400 clients Media Partners served last year.

Media Partners has the rights to Shanghai's busiest bus route, ironically number 911. One catchy advert plastered on the route's buses by Virgin Atlantic, asking 'Going to London?' helped the airline promote its new route between the two cities. Lipton Tea, Nescafe, Nokia and Ericsson were also among the Western brands looking to build a presence through ads on Media Partners' spaces.

There is a lot of scope for even more multinationals to come in. China's entry to the World Trade Organisation will open up the banking and insurance sectors in the next few years, for example. Ms To said the big names in the industries would want to start building brand recognition in the world's biggest market well ahead of that.

Chinese banks and insurers, which traditionally have done little in the way of advertising, will have to respond with their own campaigns or face losing market share.

There is also the growth kicker from the Olympic Games.

'In Sydney before the Olympics, the demand for outdoor advertising spaces shot up by more than 30 per cent one or two years before,' Ms To said.

Besides growing competition to reach consumers, Media Partners could have pricing leverage from growing ridership on China's subways. There are now 450,000 to 500,000 passengers per day on Shanghai Subway Number One, up from 200,000 to 250,000 at the start of 2000, according to Ms To. Extensions to the line now under way could make ridership one million per day.

'Once you get the subway system on an exclusive basis you tend to have a lot of pricing opportunities in your hand because you can price the advertising panel according to the traffic flow. That is measurable,' she said.

Ms To said Media Partners took a different approach from Clear Media and MediaNation as to how it structures its agreements with mainland landlords. Instead of negotiating a short-term contract to lease space from bus and metro companies, Media Partners sets up a long-term joint venture.

At the outset Media Partners injects some cash into the venture which may, for example, help a bus company upgrade its fleet and make the advertising more effective.

In most of its joint ventures, Media Partners takes 80 per cent of the profits, leaving the rest for the landlord. The joint venture and profit-sharing resolves the problem of short-term leases - that growth in revenues can make a landlord 'jealous' and inclined to seek a new deal at higher rates.

'The concession lasts for 15 to 30 years, meaning that for 15 to 30 years I do not have to worry that people will take away my concession, they will increase the price or ask for an additional investment,' Ms To said.

'We also get the best legal protection. This is the unique model which helps us in the long run.'

The focus for Media Partners is to increase the occupancy rate for its advertising spaces.

'We definitely see our occupancy rate will be increasing up from the 40 per cent level to a minimum of 70 per cent in the next two to three years,' Ms To said.

She said the beauty was that costs did not rise much when the occupancy rate went up. That should lift net margins, now between 10 per cent and 20 per cent, and allow additional revenues to go straight to the bottom line.

There were plenty of possibilities for Media Partners to get access to new advertising sites, with at least 15 Chinese subway and light rail systems due to come on line in the next three to five years.

Graphic: med01gbz



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