SINA - Sina is a top online media portal in China plus mobile value added service provider. The company just blew away earnings estimates, saw earnings grow over 50%, revenues grow at 17%, increased margins, and saw growth in every category. Most interesting to me was the news the other day that SINA has stopped using Google as their official search engine and took the google logo down off of all of their websites. My guess is SINA is going to enter the search engine space and attempt to give BIDU a run for its money. The stock market seems to have assumed that BIDU will get all of the Google's (GOOG) lost revenues now that GOOG is backing out of China but I wouldn't be surprised to see SINA pick up some of that. With $828mm in cash and no debt, strong revenue and earnings growth, I think this is a solid play for the next year.
NTES - China's online gaming market has a slow first half of the year but that should reverse itself in the second half, according to a research report put out by Wedge Partners, a boutique firm specializing in China stocks. According to their report they expect " uniform top-line growth of 25-30% for the year." Part of the reasons for the slower growth in Q2 was that only 14 games were commercially released in Q2 10 versus 20 in Q2 09. With many games in the pipeline for Q3, the Chinese gaming stocks should experience a strong comeback. I like the leader in the space, Netease, which is releasing "Ghost" in Q3 plus (as Wedge noticed) the numbers seem to be going up for their traditional games: Fantasy Westward Journey, World of Warcraft, etc. With $1.1bb cash in the bank, no debt, and trading for just 13x forward earnings, NTES can easily double from here if they continue to surpass on earnings. The $1.1bb gives a good cushion. I also like that super-hedge fund Renaissance Technologies owns $61mm worth of the stock, which they increased by 81,000 shares the past quarter.
- Expedia (EXPE) has been steadily buying shares. It now owns a big chunk of the company. My guess is eventually it will buy the entire company and it is simply trying to buy stock on the cheap right now.
- Great balance sheet with $140 million in cash and no debt.
- Revenue is growing at a 30% annual rate.
- Its interesting to compare LONG’s use of search engine optimization compared with competitor, Ctrip (CTRP). Searching on “Shanghai hotel reservation” on China Google results in this page. You don’t need to read Chinese to see that eLong shows up higher on the search results than its bigger competitor. Location is everything on Google and the higher you are, the more sales you get. Here is the same search on Baidu. Here's another article on the booming travel market in China.
CXDC - China XD Plastics. the best story now coming out of China is the growing middle class and the growth in car purchases in the country. In 1992, 1mm cars were sold in China. Last year over 14mm cars were sold, making it the #1 car market in the world. CXDC is the largest domestic supplier of plastics to the car industry in China. The company has a forward P/E of just 8 despite 90% revenue growth and over 200% earnings growth over the past year. McKinsey estimates that China's car market will grow 10-fold between now and 2030. This will drive growth to every parts supplier in the industry. Additionally, the Chinese government has been making a big push towards electric vehicles. Berkshire Hathaway, for instance, has made money investing in Chinese electric car company BYD. CXDC recently announced a deal to supply the plastic casings for the batteries to potentially power electric cars.
KGJID.OB - Alongside the growth in autos is the growth in the China middle class. 25% of the country now can be considered middle class, up from 5% a decade ago. With 50mm people a year being added to the middle class one thing is for sure: the luxury market is on a growth surge. The second largest consumption item in China after autos is jewelry. Kingold basically buys gold at the Shanghai Gold Exchange where its a member, designs it into necklaces and other jewelry, and sells it throughout China. Sales are up 60% over the past year and should be on pace to continue that trend or higher. I wrote about the stock here and mentioned:
- Strong growth: 2008 revenue was $110mm, 2009 revenue: $250mm, and 2010 revenue will probably come in greater than $500mm.
- Strong earnings growth: 2008 earnings were approximatey $6mm. 2009 earnings were approximately $9mm. Q1 2010 was $4mm and I expect 2010 earnings to be between $20-25mm.
- Low multiple - the company trades for approximately 9 times my projected 2010 earnings. As opposed to a company like Tiffany (TIF) at 17x with much slower growth.
- While I don't think gold itself is a good investment, I do think that the rise of the middle class in China will lead to broader demand for 24 karat gold (both as a luxury item and as a store of value with an increasingly floated currency) in China. I like the idea of buying a jewelry company to play that increase in demand.
Disclosure: Long SINA, long NTES, long CXDX, long KGJID.OB, long LONG