I have written a few pieces in the past about Chinese small cap stocks such as China Marine Food (CMFO) and Universal Travel Group (UTA) as stocks with high promise and high risk due to their explosive growth prospects and not so pristine accounting practices. Here is another such stock to keep on your screens as one with great promise. The stock is called China MediaExpress Holdings (CCME).
According to Yahoo! Finance, the company provides television advertising network on inter-city express buses in China. It offers advertisements on its network of television displays installed on express buses originating in five municipalities of Beijing, Shanghai, Guangzhou, Tianjin, and Chongqing.
Contract Wins
The stock has been a strong performer of late, and the company released some good news last week. It signed three new long-term contracts which added 774 more express buses to its advertising network. Most of them were inter-city buses originating from the Henan Province. The CEO was optimistic about the new airport express buses, which includes eight of China’s largest airports in terms of passenger traffic.
Fraud? Dividend Says No
Chinese small caps are rife with fraud allegations, but this stock doesn’t seem to fit the profile. In December, it initiated a dividend policy on its common and preferred shares where a semi-annual cash dividend of 5% to 10% of net profit will be paid upon receipt of the related financial statements by the Board. A company, especially a small one, doesn’t pay a dividend unless it is confident in the growth and sustainability of future cash flows.
One has to be impressed looking at some of the financial numbers. It has an amazing ROE of almost 81%, and that too with no debt on the balance sheet. Advertising is a high margin business and the company boasts a net profit margin of 49.3%. The stock is trading at a low price/earnings ratio of about 6.8x 2011 estimates of $1.96 per share. If some of these Chinese stocks can shake the doubt about their financial accuracy, they will soar and this stock will be one of the frontrunners. Based on just the numbers, it is worth at least twice the current price, but trust won’t come overnight. I think this stock could hit $30 within the next year.
Another Chinese Name to Keep An Eye On is an article from: 
