Chinese Tech Stock Weekly Report

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

Internet

• Yahoo China President Xie Wen resigned after only staying in the job for 40 days. The company said that the reason for resignation was personal. Yahoo China was absorbed by Alibaba last year when Yahoo bought a 40 percent stake for US$1 billion. Following the takeover, Alibaba dubbed Yahoo China as a search engine to compete with Baidu and Google. Yahoo China, however, with its 12.9 percent market share, has remained a distant No.3, compared with 56 percent for Baidu. Since then, Yahoo China has switched back to a more portal-based format, which to experts led to some confusion regarding its identity.

• 51job.com (JOBS) announced the dismissal of consolidated securities class action complaint filed against the company and some of its directors and senior executive officers. The online job site recalled that in January 2005, complaints were filed in the U.S. District Court for the Southern District of New York, with the complaints seeking unspecified damages on alleged violations of federal securities laws during the period from November 4, 2004 to January 14, 2005. The Court subsequently consolidated the complaints and appointed a lead plaintiff. On November 17, 2006, the Court entered an Order dismissing the action with prejudice.

Media, Entertainment and Gaming

• Finet Group, a GEM-listed financial news service provider, announced plans to invest some US$30 million the next two years on mainland portals, mobile value-added services and online game operations. Earlier, Finet entered into a memorandum of understanding to spend US$3 million for a 50 percent stake in China PR News, which operates a portal called China Business Press Release Newswire, with an option to take a controlling stake in the future. Finet’s top official said the company is seeking new funding from shareholders to finance the deal. The China PR News portal has more than 5,000 contacts in the mainland media. Finet posted a net loss of HK$1.6 million (US$206,000) for the year to March on revenues of HK$29 million (US$3.7 million). China PR News has set up partnerships with more than 100 mainland online portals to distribute stock market mandatory disclosures and offer other investor relations services. After the acquisition, Finet said it aims to be more aggressive with its expansion into the mainland Internet market, with the company focusing on mobile value-added services and online game markets. The company said it has a target list of about 20 online game operators in China, each holding 10 million registered users.

• DVN (Holdings) Limited announced that its wholly-owned subsidiary [DVNS] has entered into a non-legally binding letter of intent [LOI] with Nanchong City Broadcasting TV Network Transmission Center [NCBN] of Sichuan, to establish a joint venture company to develop the digital broadcasting business in Nanchong City, in Sichuan. Under the LOI, both parties intend to set up a joint venture, with DVNS owning up to 49 percent stake and NCBN taking the remaining 51 percent stake. Under the agreement, DVN is expected to be responsible in providing the platform and equipment for the integration of digital broadcasting of the network, while NCBN will inject the relevant rights of the network and equipment. NCBN will also be responsible to procure the JV to become the exclusive operator, providing digital broadcasting and related services to Nanchong City and obtain all approvals from the relevant government authorities. The two companies said the details of the LOI will be finalized once the formal agreement has been signed.

Mobile/Wireless

• Tencent announced its move to work with the Industrial Bank Company to launch a virtual credit card, considered the first of its kind in China. The two firms said they aim to have the new credit card, dubbed QQ Show Card, combined with Tencent's online payment platform Tenpay to create a new online payment option for users. Under the offering, QQ Show Card is attached to a tangible card and can be used to prepay for shopping items or online value-added services after being connected with a user's QQ number. The launching of this service follows Tencent’s earlier launching of a QQ debit card. The All-in-One-Card was made in cooperation with China Merchants Bank.

Software

• Kingdee International Software Group announced its aim to generate up to 40 percent of annual international sales from its operations in Singapore, Malaysia and Indonesia by the end of next year. The company’s top official said that the sales push with Kingdee's partners into Southeast Asia's SMEs represented an opportunity to become a market leader with enterprise resource planning [ERP] products. The company also noted the absence of a dominant ERP vendor to SMEs in Asia. Industry observers noted that German firm SAP, the world’s largest supplier of business management software has tried, but is only the high-end vendor to large enterprises. Kingdee's growth in Southeast Asia has been supported by local technology consultants and software solutions providers such as Malaysia's YGL Convergence, Emation Technologies of Singapore and Indonesian-based Astragraphia Technologies. Kingdee said it plans to boost brand awareness and marketing in Thailand and Vietnam. Between 2008 and 2010, the targets for expansion include India, Australia and countries in the Middle East. Kingdee's first-half revenue went up by 17 percent to 286.7 million yuan (US$36.6 million) from 244.6 million yuan (US$31.2 million) in the same period last year. Kingdee listed in Hong Kong in 2005.

Hardware

• Industry sources said that Meadville Technologies Group, maker of printed circuit boards and laminates, disclosed its plans to generate as much as US$200 million from an IPO in Hong Kong next quarter. Sources said that the offering will feature both old shares, as part of an employee shareholding plan, and new shares, with the final structure yet to be decided. The funds raised through the IPO are expected to be used for the firm’s expansion in the mainland. The company, which operates seven factories, is looking to capture more of a global PCB market. According to Japan Marketing Survey Data, the PCB market is expected to grow from 7.5 to 8 percent in 2008. The global market for laminates, which are used in PCB construction, registered a 23 percent growth in 2005. China is expected to contribute 34 percent of world production in 2008, which is expected to hit HK$69 billion (US$8.8 billion) in the same year. The products of Meadville, connect electronic components needed to operate computers, mobile telephones and computer games. According to the market sources, HSBC and Citigroup are arranging the deal, which expects see at least 25 percent of the company floated. No comment from Meadville was available.

• Kingboard Chemical Holdings revealed its plans to generate up to HK$5.8 billion (US$746 million) from listing its laminates division in Hong Kong. The unit, Kingboard Laminates Holdings, is valued at 11 to 14.3 times expected earnings for this year. Kingboard Laminates controls 32 percent of the mainland market for rigid laminates, more than double the 14 percent controlled by Guangdong Shengyi Scitech, its largest rival. Kingboard holds 10 percent of the global market, the largest share held by a single company along with Japan's Matsushita Electric Industrial, which holds a similar amount. Nan Ya of Taiwan holds about 9 percent. The company said about 60 percent of funds generated by Kingboard will go towards expansion and the rest will be used to repay debt and for general working capital. Industry observers note that global PCB makers have been relocating to China to be closer to the production facilities of electronic goods makers and to tap the lower labor costs offered by the country.

• Shinhint Acoustic Link Holdings, a manufacturer of headphones and loudspeakers, revealed plans to sell flat speakers. Earlier in June, the company obtained exclusive rights for balanced radiator technology from NXT, a sound solution provider listed in Britain, to produce flat speakers. It expects to have orders for about one million units in the first year. Shinhint said it is seeking to sell these flat speakers to Royal Philips Electronics (PHG) of the Netherlands and other makers of liquid-crystal display televisions to boost gross profit margins from the 11.8 percent achieved in the first half of this year. The firm will share profit with NXT. The company posted 53 percent sales growth to HK$465 million (US$59.8 million) in the first half while net profit fell 5.5 percent to HK$7.8 million (US$1 million). The company said sales of its multimedia products, which accounted for 44 percent of revenue in the first half, posted a 24 percent rise to HK$205 million (US$26.3 million), a growth the company ascribed to demand from U.S. customers such as Logitech (LOGI) and Altec Lansing for personal computer speakers. The company looks to continue growth to the company's core division in coming years.

• Changhong, a premier electronics manufacturer in China, announced that it has initiated a restructuring of its management by moving responsibilities to lower levels. With the restructuring, Changhong is now divided into four strategic units including Black Home Appliance (Multimedia), White Home Appliances, Accessories and Overseas Business. The changes have also brought in an addition by way of Changhong Jiahua, Guohong Communications, Hongwei Electronics, Information Technology and Digital Technology parallel with the four SBUs. The company said it adopted a new pattern for the SBU, transforming each of them into an independent branch, with separate presidents and a board of directors.

Ventures/Investments

• Market sources said that China Communications Services [CCS], a China Telecom Group (CHA) company is aiming to generate up to HK$2.8 billion (US$360.1 million) in an IPO and has attracted strong demand from institutional investors. The demand came even after CCS has upped its offer price by 12 percent last week. CCS provides infrastructure, business process outsourcing, content and other services to major mobile operators, including China Mobile, China Unicom (CHU), China Netcom (CN) and China Railcom. A company official also said that the company has made an investment of about 100 million yuan (US$12.7 million) in preparation work for the new 3Grelated technology. China International Capital Corp. and Goldman Sachs are the book runners.

• Langchao and Intel (INTC) announced the latest Memorandum of Understanding [MOU] entered into by them, which is seen as enhancing the strategic partnership between the two firms. In the latest development on their partnership, Langchao, the top server brand in China, and Intel, the global server giant, will now see Langchao enter Intel's Platform Strategic Review [PSR]. With the MOU, the two firms will work jointly on the whole cycle of server products ranging from server platform research and designing to manufacturing and sales. A top Langchao official stated that his company’s entry into Intel's PSR is expected to bring an end to the lack of core and competitive technologies in the local server industry and bring Chinese servers into a new era of being domestically made.

Telecommunications

• Industry sources said that Huawei Technologies, the mainland's largest telecommunications equipment maker, has entered into a deal to sell its stake in a mainland Internet infrastructure venture to partner 3Com and Goldman Sachs for about US$2 billion. Market sources said that 3Com, a U.S.-based computer network equipment maker, is interested in having control of Huawei-3Com because it has almost no presence in the mainland market other than the joint venture. Huawei-3Com's operational income climbed 70 percent to US$324 million in the first half of this year.