China: Three Bets On An Ad Recovery

Looking for plays on a Chinese advertising market recovery?

Then today is your day.

Morgan Stanley analyst Richard Ji this morning raised his ratings on both Sina (SINA) and Focus Media (FMCN) to Overweight from Equal Weight, in part due to expectations for an advertising recovery in China. Some details:

• For Sina, Ji puts fair value at $48.90, above Friday’s close at $38.64. He sees the company advertising sales next year rising 35%, after an 11% decline in 2009. He notes that SIna’s top three ad categories - autos, property and financials - are heavily leveraged to an economic recovery. Ji estimates that 40% of Sina’s readers hold college degrees, versus 5%-6% for the Chinese public over all, “which should be appealing to premium advertising clients, who will lift their marketing budgets in 2010.” Ji thinks there could be upside to Street estimates for Q3.


• For Focus Media, he estimates fair value to be $20.80, about 60% above Friday’s close at $13. He sees FMCN posted 20% higher ad sales in 2010, after a 30% drop in 2010. He says that about 90% of the professional in the office buildings in which FMCN has electronic advertising signage hold college degrees, an appealing market for high-end advertisers.

Meanwhile, Pali Research analyst Tian Hou this morning upgrades Sohu (SOHU) shares to Neutral from Sell, asserting that the company’s ad business can improve in Q4, noting that China’s online ad sector is benefiting from an economic rebound in the country. On the other hand, he says Q3 will likely be in linem, and he remains concerned about the company’s games business.

In today’s trading:

• SINA is up $2.25, or 5.8%, to $40.89.


• FMCN is up $90 cents, or 6.9%, to $13.90.


• SOHU is up $3.14, or 4.9%, to $67.86.