Chinese Earthquake Affects Focus

Focus Media Holding (FMCN - Snapshot Report) announced strong revenue growth for the first quarter. However, its performance in the second quarter will be negatively affected by the Sichuang Earthquake.

FMCN is well-positioned to leverage the great growth opportunity of out-of-home and Internet advertising market in China. We think its current stock price doesn’t reflect the company’s growth prospects. Therefore, we are maintaining a Buy recommendation on FMCN’s stock.

It is estimated that outdoor media accounted for around 12% of the total advertising spending in China. According to ZenithOptima, the compounded annual growth rate (CAGR) of outdoor media in China in the next three years is 20%. The potential opportunity for online usage in China is huge. The market should generate a CAGR of about 15% for the next five years. According to iResearch, online brand advertising business in China will grow to RMB 37 billion yuan in 2011.

It is believed that FMCN has more than 90% market share in the commercial building network and frame poster network in China. FMCN also has more than 50% market share in wireless advertising market in China.

The stock is trading at 19.9x our 2008 EPS estimate, which is lower than the industry mean. The stock is also trading at 12.8x our 2009 EPS estimate, which is much lower than the industry mean. Using a P/E multiple of 16.5x our fiscal year 2009 earnings per share estimate of $2.43 yields a target price of $40.00, which we believe reflects the company’s growth prospects.

Read the full analyst report on FMCN