At the end of this month 40-year old Mr. Cheong Chia Chieh will arrive in London on a flight from Kuala Lumpur. Briefcase in hand, he will step off the plane determined to spark a bit of life into a company that has been lying dead in the backwaters of the stock market every since it was admitted to AIM in late 2008.
This is RedHot Media International (RHM), of which Mr. Cheong is the founder, managing director, and holder of 8.3 million shares worth about £6m.
For conspiracy theorists I must stress that RedHot Media International has absolutely nothing to do with Red Hot Penny Shares.
But it does have an intriguing story – one that illustrates just how inefficient the stock market can be for small, promising companies. Despite the company’s record of achievement and its continually bullish statements for the future, RHM’s shares have gone nowhere.
Mr. Cheong is at a loss to understand why.
A deeply misunderstood Asian dynamo
The story began in 2005 when Mr. Cheong led a management buy-out of RHM from one of Malaysia’s major news companies. At the time, the majority of its activities came as a media broker in Malaysia, buying advertising space on behalf of clients and earning commissions from the media owners.
But RHM’s most exciting innovation is its AxChange barter exchange model. Here RHM agrees to distribute the products of its customers, using the sales proceeds to purchase media space on their behalf.
These barter trade contracts are typically of one year in duration and provide for RHM to purchase a certain amount of media space, in return for allowing it the right to draw down the customer’s inventory at or below the generally available wholesale price.
In addition to the standard commission earned on media buying, RHM also generates a profit margin by selling the customer’s product through its distribution network.
These products could be white goods for the home; motor vehicles; or insurance; but in either case RHM only draws down products against an order, with this typically delivered to the customer without its intervention.
This sounds like a neat business model, and it has particular advantages in developing countries where the approval process needed to move capital can be slow. The AxChange model allows manufacturers to develop their sales using RedHot’s distribution network and settle the cost of their local marketing through actual sales of their products, rather than through the investment of capital.
Can Mr Cheong get the share price moving?
Having started in Malaysia, RedHot has been expanding into China. The business climate could hardly be more favourable. Newly-affluent consumers are itching to buy imported goods, and foreign producers are eager to satisfy them.
RedHot now has offices in Beijing and Shanghai, and has built a network of media partners and distributors in China. It now derives more than one-third of its revenues from the country.
As Chairman Datuk Oh Chong Peng put it: “the Group has been able to carve for itself a share in China’s lucrative markets”.
Despite this, RedHot Media’s share price has barely budged, and trading in the shares has been almost non-existent. And nor has RedHot’s financial progress done anything for the shares.
In fact, the overall record is highly impressive. Revenues have grown at 29% per annum since 2005, the gross profit has risen steadily from RM1.9m to RM13.7m, and broker Daniel Stewart is forecasting a near-doubling of revenue in 2010/11 and a near-trebling of earnings per share to a figure for this year of 7.2p.
When he meets investors in a few weeks time, Cheong Chia Chieh will no doubt draw attention to this rapid growth and to a series of recent advertising contracts (including one for Porsche Malaysia).
But most of all he will want to explain how RedHot Media intends to tap the opportunity for interactive advertising within the booming social media sector, and explain a proposed merger. This is with Malaysia’s PUC Founder Berhad, a Chinese-backed company that specialises in electronic publishing and has access to China’s largest electronics companies.
Cheong Chia Chieh will not be the first business executive from Asia to arrive in London frustrated by the apparent inability of investors to appreciate the rapid progress of an Asian business. London investors have plenty of experience of being seduced by Asia’s rapid growth and entrepreneurial culture, only to be disappointed.
But if he can say the right things, Cheong Chia Chieh could spark some interest in this obscure story, and get the share price moving at last. I’ll be paying close attention to this stock in the weeks and months ahead.