Seeking Alpha
Profile| Send Message| ()  

The following is excerpted from IRG's weekly stock report:

• • •

Internet

  • Ctrip (CTRP) reported third quarter revenue of 370 million yuan (US$55 million), slightly below estimates, but met its 15% year-on-year low-end guidance. The main issue was lower air ticket price resulting in lower commission income per ticket. Fourth quarter revenue guidance of 5% to 15% year-on-year was weaker than expected. Net income was 104 million yuan (US$15 million) in the third quarter of 2008, down 5% year-on-year. Hotel reservation revenues amounted to 186 million yuan (US$27 million), 6% increase from the same period in 2007. Air-ticketing revenues were 166 million yuan (US$25 million), a 21% increase from the same period in 2007 primarily due to a 37% increase in air-ticketing sales volume, which was offset by a 12% decrease in commission per ticket primarily due to a decrease in ticket prices. Packaged-tour revenues were 28 million yuan (US$4 million), up 37% from the same period in 2007.
  • 51.com (JOBS) is expected to enter the online game market more smoothly, with the support from Giant Interactive Group Inc. (GA) China's leading online game developer and operator, which bought a 25 percent 51.com stake in June 2008. Before the end of this year, the website would launch a terminal with more than ten casual online games like poker card and mahjong. The move is considered to be the best way for it to benefit from its vast user base, which had reached 130 million by the end of August, including 25 percent active ones. However, analysts suspected that 51.com has some problems in spreading the terminal and establishing a payment system, due to the lack of strong technological strength and a robust distribution network.
  • Ninetowns (NINE) Internet Technology Group Company, a China provider of online solutions for international trade, reported its financial results for the six month period ended June 30, 2008, with a net loss increase by 51% to US$4.2 million. Total net revenues were US$7.4 million, 12% increase from US$6.0 million for the first half of 2007. According to the company’s CEO, the increased loss was due to changes to China's export tax refund regulations that were implemented in late 2007, which decreased certain incentives and benefits of the international trade business; the global financial crisis reduced overall procurement order sizes; and the quality-related discoveries in the Chinese food and toy industries have diminished the credibility and businesses of many Chinese companies.
  • China Distance Education Holdings Limited (DL) reported net profits of US$2.7 million in the fourth quarter of fiscal year 2008, declining 18.2% from a year ago. Total net revenues reached US$7.7 million, jumping 64.2% year on year. Net revenues from online education service grew 36.5% year on year to US$5.5 million given rising course enrollments. The number of registered students totaled 285,000 by the end of the fourth quarter, swelling 212.7% from Q4 2007. In FY 2008, net revenues amounted to US$17.6 million, leaping 48.4% from the previous year. However, net profits decreased 26.6% to US$4 million, with a profit margin of 34.9%.
  • Noah Education Holdings Ltd., (NED) a leading provider of interactive education content in China, announced its financial results for the first quarter of fiscal 2009 ended Sept. 30, 2008, with a net revenue decrease by 18.3% to 202.2 million yuan (US$29.8 million), compared with 247.5 million same period last year. Net income decreased 19.5% to 35.8 million yuan (US$5.3 million) compared with the first fiscal quarter of 2008, but exceeded the Company's previous guidance of 21 million yuan to 24 million yuan. According to recent market research by CCID Consulting, Noah currently owns a 34% share of the Digital Learning Device (DLD) market. The Company remains China's industry leader in terms of both sales and volume and continues to address the large and expanding target market of 5 to 19 year-olds. Noah has expanded the number of schools in the Access Noah program to 820, an increase of 17% from the 700 schools reported in the fiscal fourth quarter.

Semiconductors

  • Sales of China's semiconductor makers are expected to rise 6.7 percent to US$81.7 billion this year, driven by domestic sales of wireless and consumer electronics products. China's fabless integrated circuit (IC) industry, crowded with more than 550 companies, is expected to outperform with a 12.3 percent rise in sales to US$3.5 billion in 2008, up from US$3.1 billion in 2007. Beijing Olympics had encouraged the release of new handsets supporting the 3G standard, boosting sales of associated ICs in China, home to top domestic contract chipmaker Semiconductor Manufacturing International Corp. (SMI). Despite the economic uncertainty, iSuppli forecast sales of China's fabless IC market would grow further to US$4.1 billion in 2009 and US$5.1 billion in 2010.

Software

  • Pansoft Company Limited reported selected unaudited financial results for the third quarter ended 30 September 2008, and an update of its guidance for the full year 2008. The company's sales revenues for the third quarter were US$2.17 million, an increase of 49.93 percent when compared to US$1.45 million for the same quarter of 2007. Net income was US$1.06 million (US$0.23 per diluted share), an improvement over the net income of US$0.73 million (US$0.17 per diluted share) in the third quarter a year ago. Gross margin was 67.99 percent, up from 54.27 percent in the same quarter in 2007.

Telecommunications

  • China Mobile Ltd. (CHL) is set to unveil a mobile handset made by Nokia Corp. (NOK), the world's largest handset maker by shipments, that runs on the locally developed third-generation mobile technology. Nokia will begin supplying the dual-band handsets, compatible with global system for mobile communications technology and TD-SCDMA, very soon. In China, Korean electronics manufacturers LG Electronics Inc. (OTC:LGERF) and Samsung Electronics Co. (SSDIF.PK) are the only foreign companies to supply TD-SCDMA handsets. Wang also reiterated that China Mobile, the world's biggest telecom operator by subscribers, is keen on investing overseas and is currently looking at telecom assets in emerging markets including Asia. China Mobile is looking at taking a majority stake or investments with or without management control.
  • ZTE Corp. (OTC:ZTCOF) is in talks with AT&T Inc. (T) and Verizon Wireless (VZ) of the U.S. to supply telecom equipment as Chinese telecommunications equipment maker looks to penetrate developed markets to diversify its customer base. Even though it sees a slowdown in the global telecom equipment market next year obtaining these contracts will help the company diversify its product offerings. The company still expects to maintain double-digit revenue growth next year despite a global economic slowdown on the back of continued strong demand for telecom equipment orders in emerging markets such as China, India, Africa and South America. ZTE plans to continue to invest 10 percent of its revenue on research and development next year. ZTE, which competes with telecom equipment vendors such as Ericsson (ERIC) and Nortel Networks Corp. (NT), will work to improve its cost structure amid the global economic downturn but doesn't plan any work force reduction.
  • ZTE has announced the signing of a contract worth 1.33 billion yuan (US$195 million) with China Telecom (CHA) for the first phase of a CDMA network construction project commencing this year which will cover both wireless and service networks. Under the agreement, ZTE will provide China Telecom with CDMA wireless equipment, technical documentation, and services worth 1.27 billion yuan (US$186 million) and service network equipment, technical documentation and services valued at 60 million yuan (US$8.8 million). Other contracts for the construction of the core network and for the provision of additional telecom equipment are expected to be agreed upon by the two companies soon. ZTE is one of the equipment vendors China Telecom has chosen for supplying equipment for its recently acquired CDMA network from China Unicom. Dow Jones had in August reported that China Telecom selected ZTE, Huawei, and Alcatel-Lucent (ALU) to expand its CDMA network.
  • The number of fixed telephone users of China Telecommunication Corporation declined by 1.09 million to 212 million users in October 2008, the largest monthly loss since February. In the period, however the number of broadband users increased by 700,000 to 42.88 million users and in the first ten months of 2008 the number rose by 7.23 million users. China Telecommunication Corporation attributes the declining user number to the more fierce market competition and its strengthened sales control towards the low-end users.
  • The Chinese government is expected to award the country's three telecom operators licenses to operate 3G networks before the end of the year, prompting speculation that China Unicom (CHU) will soon begin trialing its WCDMA-based 3G network in Wuxi City, Jiangsu Province. Authorities will issue 3G licenses towards the end of the year. China Unicom is not allowed to switch on its WCDMA base stations until it receives a 3G license.
  • Ethiopia Telecoms Corp (ETC) plans to raise its cell phone subscribers from 2.2 million to 15 million by 2010, with US$1.5 billion financing from ZTE. The company has agreed to set up a handset manufacturing plant with Janora Technology and the Organization for Rehabilitation & Development in Ethiopia. The plant, involving total investment of US$5.2 million, is capable of producing 3,000 cell phones per day. To expand its presence in Ethiopia, ZTE also planned to build a CDMA network with capacity for 2.4 million users. Earlier this month, ZTE won RMB 1.27 billion worth of wireless equipment contract from China Telecom, the largest fixed-line operator in China. It was in talks with China Telecom on a core network and ancillary equipment contract.
  • Datang Telecom Technology Co., Ltd. set up a wholly-owned subsidiary, Datang Telecom (Tianjin) Communications Terminal Manufacturing Co., Ltd., in the Tianjin Airport Industrial Park. With cash investment of 10 million yuan (US$1.5 million), the new subsidiary is mainly engaged in terminal and access business. The mobile phone business is expected to grow into one of the company's five pillar segments in one to two years. In late October, Datang Telecom reached an agreement with related parties in Tianjin. Making using of the southern Chinese city's cost advantage and the nation's preferential policy for the Binhai New Area, the Beijing-headquartered telecommunications equipment producer will develop its software, communications access, and terminal business after setting up its technology industrial park in Tianjin.
  • China Mobile will pay increasing attention to potential acquisition opportunities but believes the financial tsunami will affect demand for telecom services. The company would slow down investment as the demand for telecom services and service fees drop. With a weaker financial market and fewer business travelers, China Mobile's roaming income and stock market-related service income will also drop. China Mobile's MOU (Minutes of Usage) tops at 497 minutes and has shown signs of weakening whereas three years ago, its MOU was 300 minutes. In 2009, China Mobile will step up expansion into the rural market, depending on the development of the macro-economy. But a price war, if occurs, will hurt the overall telecom sector. In acquisition, China Mobile favours emerging markets in Asia but will be rational. It prefers to take a controlling stake and believes asset pricing is more reasonable.

Alternative Energy

  • LDK Solar Co (LDK) , a Chinese maker of silicon wafers used in solar cells, third-quarter profit more than doubled, beating analyst estimates, on higher production and sales. Net income increased to US$88.4 million, or 77 cents a share, from US$41.6 million, or 37 cents, a year earlier, beating analysts' average estimates of 72 cents. Sales more than tripled to US$541.8 million but gross margin fell to 22.7 percent from 30.8 percent a year earlier because of higher polysilicon prices. LDK more than doubled its annual production capacity to 1,200 megawatts and plans to expand to 1,400 megawatts by year- end. The company plans to expand capacity to 2,300 megawatts next year, an increase of 100 megawatts from its earlier forecast. Wafer shipments rose to 252.7 megawatts, more than the 230 to 240 megawatts the company forecast on Oct. 8 and up from 78.9 megawatts a year earlier. LDK plans to ship 1,800 to 1,850 megawatts to customers next year, generating sales of US$2.9 billion to US$3.1 billion.
  • The world's largest solar module maker, China's Suntech Power Holdings Co (STP), reported lower-than-expected quarterly profit and cut its full-year sales forecast because of the weak global economy. Third-quarter net income rose to US$55.9 million, or 33 cents per share, from US$53.3 million, or 32 cents a share, a year earlier, and below the 42 cents per share analysts had on average expected, according to Reuters Estimates. Third quarter 2008 total net revenues grew 53.7% year over-year to US$594.4 million. Margins suffered from the sharp 20 percent drop in the euro against the dollar and a slight increase in the cost of silicon wafers. Due to the depreciation of the Euro versus the U.S. dollar, combined with the impact of tighter credit markets, Suntech has revised its full year 2008 revenue guidance from a range of US$2.05 billion to US$2.15 billion to a new expected range of US$1.85 billion to US$1.87 billion. It also revised its full year 2008 PV product shipment target from 550MW to approximately 490MW. Suntech intends to hold PV cell production capacity at 1GW in 2009 until credit market visibility has improved. Suntech expects to reduce capital expenditures to approximately US$80 million in 2009 from approximately US$300 million in 2008.
  • Chinese solar company Trina Solar Ltd. (TSL) reported sharply higher quarterly earnings but trimmed its full-year sales and margins forecast because of the poor economic conditions. Third quarter revenues reached US$290.7 million, slightly higher than the US$289.9 million that analysts had expected and net income was US$32.1 million, or US$1.17 per share, compared with US$7.8 million a year ago. Wall Street analysts, on average, had been expecting earnings of $1.10 per share, according to Reuters Estimates. But gross margin of 22.4 percent fell short of its forecast of 23 percent to 25 percent as costs for polysilicon weighed. Sales of solar panels have risen sharply in recent quarters as companies such as Trina have ramped up production of the clean power source. According to Reuters, tightening access to credit and a pullback in government subsidies in key markets such as Spain and Germany, however, have sparked concerns that an oversupply of solar panels will send prices tumbling and hurt manufacturers' profit margins. The company expected 2008 total net revenues to be in the range of US$800 million to US $850 million, compared to previous guidance of US $850 million to US$900 million. Total PV module shipments between 200 MW to 206 MW, compared to previous guidance of 210 MW to 220 MW.
  • Canadian Solar Inc. (CSIQ), a Chinese manufacturer of solar power cells, reduced its full-year revenue forecast to US$650 million to US$750 million from guidance in August of US$850 million to US$970 million. Revenues rose 159.1% year-on-year to US$252.4 million with earnings of US$0.41 per share, excluding stock-based compensation. Canadian Solar was expected to earn 48 cents, the average of seven estimates compiled by Bloomberg. Given the uncertainty of project and customers' financing coupled with softening solar market demand in Europe and USA at the year-end, the company has shifted its short-term operational emphasis to preserving cash and minimizing risk from the credit environment. Based on this adjustment, Q4 shipments are estimated to be approx 20 - 25 MW. The company anticipates that it will have US$40 million available in unused credit lines by the end of Q4 and is actively negotiating more credit facilities with local banks. For FY09, Canadian Solar is maintaining its guidance of 500-550 MW with margins of 13% - 15%.

Media, Entertainment and Gaming

  • Giant Interactive Group Inc. won the bid for broadcasting ads right after everyday CCTV News, signaling the beginning of CCTV's 2009 advertising bidding invitation, the so-called weatherglass of the Chinese economy. CCTV's 2008 ad bids swelled 1.2 billion yuan (US$176 million) to 8 billion yuan (US$1.2 billion). Giant Interactive's bidding price reached 43.3 million yuan (US$6.3 million) this time, surging nearly 20 percent from 35.1 million yuan (US$5.1 million) a year earlier. The competitions for the 2009 naming right of CCTV's TV play program in the prime time are bitter. Finally, wash and oral care products manufacturer Nice Group beat the Inner Mongolia Mengniu Dairy (Group) Co., Ltd. (Mengniu Group) with a total price of 305 million yuan (US$44.6 million), jumping 30 percent from 230 million yuan (US$33.7 million) a year ago. They are not motivated by impulsions, pointed out an analyst of market research institute CTR. The negative effect of the bad economic situation has not spread to China, and even if it does, it will not overturn the Chinese advertising market, as analyzed by Professor Huang Shengmin, dean of College of Advertising at Communication University of China (CUC).
  • NetDragon Websoft Inc. (OTC:NDWTF), reported on Nov. 18 that its third quarter net profit fell by 54.58 percent year-on-year to RMB 50.88 million (US$7.5 million). For the first nine months of 2008, NetDragon recorded net profit of approximately 166.08 million yuan (US$ 24.3 million), representing a 37.6 percent drop compared to the same period in 2007. The company's revenue over the three quarters amounted to approximately 459.5 million yuan (US$67.9 million), maintaining a steady level compared to the 453.3 million yuan (US$66.4 million) revenue it recorded for the same period a year ago. The company's game portfolio consists of a range of MMORPGs in various styles. Titles include Eudemons Online, Conquer Online, Zero Online, Tou Ming Zhuang Online and Heroes of Might and Magic Online.
  • China-based media group Xinhua Finance Media Limited (XFML) reported a loss for the third quarter compared to profit reported in the same quarter last year, primarily due to a US$16.5 million provision for impairment of a principal protected note. Third quarter net loss was recorded at US$16.5 million compared to a profit of US$9.0 million in the same period last year. Net revenues rose 25% to US$51.1 million from US$40.7 million in the year-ago period. On a segmental basis, revenues from the company's Advertising group rose 25% to US$30 million, Broadcast group sales rose 68% to US$18.1 million, while Print group division recorded a 50% decline in sales to US$3.0 million. For full year 2008, the company has lowered its adjusted net income per ADS to a range of $0.28 to $0.30, from earlier expectation in the range of $0.33 to $0.35 per ADS. Revenue guidance has also been lowered to a range of US$185 million to US$187 million from initial guidance of US$198 million to US$208 million. In October 2008, the Company entered into a secured convertible loan facility for up to US$80.0 million from affiliates of an existing large shareholder, Patriarch Partners. This is intended to fund investment in its broadcast business, with a focus on sports, while current cash on hand will be used for daily operations and earn out payments.

Hardware

  • Dell Inc's (DELL) sales in China slowed last quarter, but Beijing's economic stimulus measures are likely to boost technology spending. Revenue in China in the quarter ended Oct. 31 was up 18 percent, lagging the previous quarter's 33 percent rise and well behind India's 48 percent growth. Combined revenue for consumer and commercial products in Asia, including Japan, rose 11 percent for the quarter. Dell had experienced a reduction in spending by small Chinese businesses that have been affected by the financial crisis. Much of the growth for the quarter came from the consumer side, while commercial products grew at a slower pace as smaller firms suffered from a cash crunch.

Mobile/ Wireless

  • China's CDMA cell phone market is expected to recover and the output will hit a record high in November with the conclusion of reshuffling China's telecom industry. The sales volume of CDMA mobile phones in September saw a low of 241,000 units, down 25 percent from August, maintaining drops for three months running. The sharp decline of the sales volume was attributed to attraction from GSM services of China Mobile and China Unicom, apart from the fallouts of the country's telecom industry reshuffle, in which China Unicom transferred CDMA network to China Telecom and the latter failed to haste out business promotions in the month. Although the telecom industrial revamp dented the sales volume of CDMA handsets, it was not fatal; the development of CDMA progresses rapidly after it was taken over by China Telecom, and CDMA handset shipment will hit a record high in November.
  • KongZhong Corporation (KONG) generated US$25.1 million in income in the third quarter of 2008, up 46 percent year-on-year. The mobile value-added services contributed US$22.1 million to the total, up by 38 percent year-on-year, whereas the mobile game services generated US$2.37 million in income, soaring by 179 percent year-on-year. However, the company incurred US$21.57 million in losses in the period.
  • Wireless value added service provider Hurray! Holding Co., Ltd. (HRAY) reported a net loss from continuing operations for the third quarter of US$9.5 million, narrower than a net loss of US$11.5 million reported in the same quarter last year. Net loss for the quarter included an impairment charge of US $6.1 million in respect of the company's music business representing a goodwill impairment charge of US$1.7 million, an impairment loss for the investment in music equity affiliate of US $1.9 million, a write-down of US $2.5 million on other acquired intangible assets from this business and a foreign exchange loss of US $4.5 million on currency holdings. Total revenues for the quarter decreased 0.7% to US $13.5 million from US $13.6 million in the comparable quarter last year. On a segmental basis, revenues from wireless value-added services increased 20.1%, while recorded music revenues declined 30.2% from the same quarter last year. For the fourth quarter, the company expects total revenues in the range of US$14 million - US$15 million.
  • Linktone Ltd. (LTON) announced that its subsidiary Shanghai Langyi Advertising Co., Ltd has terminated its exclusive advertising partnership with Tianjin Television and will not be acting as its advertising agent. Shanghai Langyi signed the exclusive agreement with Tianjin Television in October 2007. Linktone is assessing the economic losses incurred by the termination of the exclusive advertising agreement.
Source: Chinese Tech Stock Weekly Summary (Nov. 17 - 23, 2008)