Services sector: Buy China Lodging Group (HTHT), E-house Holdings (EJ) and Focus Media Holdings Ltd. (FMCN). Martin Currie dropped the following holdings:
- its $19 million position in Ctrip.com International ADR (CTRP), a China-based consolidator of hotel accommodations and airline tickets targeting individual business and leisure travelers;
- its $6 million position in E-house Holdings Ltd. ADS (EJ), a provider of real estate agency, secondary real estate brokerage, consulting and information services for the Chinese market;
- its $4 million position in Autochina Intl. Ltd. (AUTC), a Chinese operator of 310 new and used commercial truck dealerships in the Hebei, Shanxi, Shandong and Henan provinces;
- its $3 million position in China Lodging Group ADS (HTHT), an operator and franchisor of 438 lodging properties with 50,438 rooms in 65 cities in China;
- $1 million from its $26 million position in Focus Media Holdings Ltd. (FMCN), a Chinese provider of audio-visual digital advertising through 131,006 flat-panel and 324,364 poster frame displays.
The position in CTRP was opened in the mid-$30s in early 2010, so the selling in the $40s last quarter was at a slight profit. CTRP trades at a high forward price-to-earnings (P/E) ratio of 28, near the top of its historic P/E range while earnings are projected to grow at only a nine percent annual rate from $1.26 in 2010 to $1.49 in the 2012 fiscal year. We believe the stock is fully valued based on current fundamentals, and the company faces significant competition limiting earnings growth going forward.
The position in EJ was opened in the high-teens in early 2010, so the selling out of this position in the last quarter in the low- to mid-teens is a high conviction sell by Martin Currie. However, the stock has been under significant pressure recently, dipping as low as below $8, as news from the Chinese property sector has continued to be negative, with homes sales and prices in both Beijing and Shanghai reporting steep declines this year. Of the eight analysts covering the company, four rate it a buy, three a hold, and only one a sell. Analyst price targets are in the mid-teens, a significant upside from current $8-$9 levels. The stock has $570 million, or over $7 in net cash available, and is trading at $8-$9. We consider it attractive and would buy it at these levels. The stock is also a favorite among leading hedge and mutual fund gurus, including SAC Capital Advisors LP, Royce & Associates LLC and Platinum Investment Management Ltd.
The position in HTHT was opened in the mid-teens in early 2010, so the selling in the low-$20s last quarter was profit taking. HTHT trades at a forward 20 P/E, at the bottom of its historic P/E range. Of the nine analysts covering the company, eight rate it at a buy / strong buy, and the remaining one rates it at a hold. Analyst price targets are in the mid-$20s, giving it a significant upside above current levels. The stock is also a favorite among leading hedge and mutual fund gurus, including Maverick Capital, SAC Capital Advisors LP, Royce & Associates LLC and Gotham Asset Management LLC.
The position in FMCN was opened in the mid-teens in early 2010, so the sale of only $1 million last quarter from its $26 million position, as the stock rocketed up to the $30s, is high conviction holding. FMCN trades at a forward 17 P/E, still in the lower third of its historic P/E range and well below its growth rate in the 25%-30% range, giving it an attractive PEG ratio of well below 1.0. Furthermore, fundamentally, the Chinese advertising market continues to be attractive as both domestic and global corporations seek ways to reach Chinese customers out of their home. The company continues to perform well, beating analyst revenue and earnings estimates for the most recent March 2011 quarter. Of the eleven analysts covering the company nine rate it a buy / strong buy and the remaining two rate it a hold. Analyst price targets are in the $40-$45 range, a significant upside from current levels. We would start accumulating at these levels, and buy more if the price dips once again near $25, testing the lows of last week.
- Martin Currie cut $12 million from its $36 million position in Perfect World Co. Ltd (PWRD), a Chinese developer of 3-D online games;
- it cut $5 million from its $22 million position in Sina Corp. (SINA), a Chinese internet portal offering media content and services for China and global Chinese communities;
- it cut $3 million from its $6 million position in Vanceinfo Tech ADS (VIT), a Chinese provider of outsourced software research and development, maintenance, testing and IT services.
The position in PWRD was opened in the $40 range in early 2010, so the selling of a portion in the low-$20s last quarter was at a significant loss; but Martin Currie retains three-quarters of their position, which is indicative of their still having faith in this position. PWRD trades at a forward 6 P/E, at the bottom of its historic P/E range, while revenue and earnings are projected to be flat for 2011 but then resume growth at 15% growth for fiscal year 2012. Furthermore, the company has $270 million or $5.40 in net cash available, so adjusted for cash the stock trades at a very attractive forward P/E of just over four. Of the 19 analysts covering the company, eleven rate it a buy / strong buy, six at a hold and only two at underperform. We would be buyers at this level.
Company | Ticker | Action | Market Value at end of March 2011 Quarter | Change in Value from Prior Quarter | Percent of Chinese Portfolio | Percent Shares Owned |
New 13G 5% Ownership Filing Since End of March 2011 Quarter | ||||||
None | ||||||
Top Buys and Sells | ||||||
Ctrip.com Intl. Ltd. | CTRP | Drop | $ 0 million | ($ 19) million | 0.00% | 0.00% |
Perfect World Co. Ltd. | PWRD | Cut | $ 24 million | ($ 12) million | 7.47% | 0.62% |
E House China Holdings Ltd. | EJ | Drop | $ 0 million | ($ 6) million | 0.00% | 0.00% |
Mindray Medical Intl. Ltd. | MR | Cut | $ 46 million | ($ 6) million | 14.35% | 2.01% |
Sina Corp. | SINA | Cut | $ 17 million | ($ 5) million | 5.32% | 0.29% |
Autochina Intl. Ltd. | AUTC | Drop | $ 0 million | ($ 4) million | 0.00% | 0.00% |
Daqo New Energy Corp. | DQ | New | $ 4 million | $ 4 million | 1.14% | 0.27% |
JA Solar Holdings Co. Ltd. | JASO | Add | $ 13 million | $ 3 million | 4.18% | 1.38% |
VanceInfo Technologies Inc. | VIT | Cut | $ 3 million | ($ 3) million | 1.03% | 0.38% |
China Lodging Group Ltd. | HTHT | Drop | $ 0 million | ($ 3) million | 0.00% | 0.00% |
Netease.com Inc. | NTES | Cut | $ 1 million | ($ 2) million | 0.42% | 0.03% |
ATA Inc. | ATAI | Cut | $ 2 million | ($ 2) million | 0.75% | 0.59% |
China New Borun Corp. | BORN | Add | $ 5 million | $ 2 million | 1.44% | 3.84% |
China Biologic Products Inc. | CBPO | Cut | $ 1 million | ($ 1) million | 0.31% | 0.40% |
Spreadtrum | SPRD | Add | $ 6 million | $ 1 million | 1.78% | 0.30% |
Top Holdings | ||||||
Wuxi Pharmatech | WX | Same | $ 66 million | $ 66 million | 20.65% | 0.68% |
Focus Media Holdings Ltd. | FMCN | Cut | $ 25 million | ($ 1) million | 8.11% | 0.12% |
Cninsure Inc. | CISG | Add | $ 23 million | $ 1 million | 7.16% | 0.14% |
Autonavi Hldgs. Ltd. | AMAP | Cut | $ 11 million | ($ 1) million | 3.50% | 0.42% |
Hollysys Automation Tech. | HOLI | Cut | $ 12 million | ($ 1) million | 3.46% | 2.01% |
