Chinese Tech Stock Weekly Summary

by: IRG Ltd

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


• (NASDAQ:BIDU) and independent Chinese language record label Rock Music announced that they will jointly provide an advertising-supported online music streaming service. Under the agreement, a selection of Chinese language music from RMG's repertoire will be made legally available for streaming and at no charge to Baidu users. Internet advertising will be displayed while users listen to music licensed under the agreement. Under the partnership, the two companies will share revenues generated from the advertising. Baidu has signed such agreements with major music companies in the past. Its partnership with EMI Group PLC on a free music streaming service in China is similar to the deal recently reached with the Taiwanese group. Baidu operates the most popular search engine in China. Rock Music has offices around Asia, including Taipei, Hong Kong, Beijing, Singapore and Tokyo to seek new talent and produce records.

• The board of directors of (NASDAQ:NTES) announced their approval of a new share repurchase program, an agreement which involves up to US$120 million of the company's outstanding American Depositary Shares for a period not to exceed 12 months. The new authorization follows Netease's completion of a share buyback program in which about 5.3 million of the company's issued and outstanding ADSs were purchased for an aggregate purchase consideration of US$95.7 million. Under the terms of the approved program, Netease may repurchase its issued and outstanding ADSs in open-market transactions on the NASDAQ Global Select Market.

• iPass (NASDAQ:IPAS) and Chunghwa Telecom (NYSE:CHT) announced their entering into an agreement to work on Asia's first regional flat-rate pricing for unlimited Wi-Fi, wired broadband and dial-up access. The two companies came up with the service as a response to the study that pan-Asia trips make up more than 83 percent of total travel traffic. The service will then develop a predictable monthly flat-rate pricing. The new Chunghwa Enterprise flat-rate pricing plan offers business professionals an integrated service with unlimited redundant dial-up and nearly 23,000 Wi-Fi hotspot locations across the region, which includes areas like Australia, Bangladesh, Bhutan, Brunei, Cambodia, China, Fiji Islands, Guam, India, Indonesia, Japan, Republic of Korea, Laos, Macau, Malaysia, Mongolia, Myanmar, N. Mariana Island/Saipan, Nepal, New Zealand, Pakistan, Papua New Guinea, Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam, and Hong Kong.

Media, Entertainment and Gaming

• Shanda Interactive Entertainment (NASDAQ:SNDA), a leader in online gaming in China, announced that it will operate hit Japanese video game "Dead or Alive" [DOA] in China's huge gaming market. Under the deal, Shanda said it will develop a PC version of the game for release in China, Hong Kong and Macao. Shanda’s deal is seen as the latest in a series of international agreements tapping China’s market of about 32 million, mostly young and male, gamers who play online at least once a month. Shanda said DOA will be played under the "come-stay-play" revenue model. In this model, gamers are allowed to play for a fee, with revenues made by selling them added powers for online avatars. No subscription fee is charged under this model. Shanda said it expects to earn more than US$250 million in 2007, an amount based on the most recent quarter's earnings of US$60 million.

• Xinhua Finance Media (XFMedia) (XFML) announced its acquisition of a 100 percent interest in Convey Advertising Company (Convey), a major outdoor advertising operator in Hong Kong and across southern China. The acquisition is seen as expanding XFMedia's outdoor advertising network to seven additional cities and includes significant high traffic and key transit routes linking mainland China with Hong Kong and Macau. Founded in 1986 in Hong Kong, Convey has advertising rights to over 3,000 outdoor media assets, 2,000 of which are exclusive. These outdoor media assets include traditional outdoor billboards, LED and LCD boards and others in Dongguan, Shenzhen, Guangzhou and Foshan in Guangdong province, Hong Kong and Macau in the south and Tianjin in the north. The transaction was closed on July 2nd, 2007. Under the agreement, XFMedia acquired control of Convey through the purchase of 100 percent of the shares of its holding company Good Speed Holdings Limited. Under the deal, XFMedia has made initial cash payment of US$33 million, and may make further payments in cash and Class A common shares of XFMedia depending on Convey's financial performance in 2007 and 2008. Xinhua Finance Media is China's leading diversified financial and entertainment media company, which reaches its target audience via TV, radio, newspapers, magazines and other distribution channels.

• Shanda Interactive Entertainment announced its acquisition of Chengdu Aurora Technology Development. The MMO developer is the leading 3D MMORPG developer and operator behind the MMOs Feng Yun Online and Legend Online in mainland China. The announcement noted that Feng Yun Online has roughly 1.5 million active accounts as of second quarter 2007. The chairman and CEO of Shanda said they consider the acquisition of Aurora Technology as expanding its user base as well as enriching its content portfolio. Shanda also sees the acquisition as helping it set up a new R&D center in Chengdu to make full use of local talents and technologies for game development.

• Industry sources announced the formal unveiling and opening of China’s National Animated Cartoon Industry Property Right Trade Center at the Shanghai United Assets and Equity Exchange [SUAEE]. The center was established by China National Cartoon and Games Industry Base and SUAEE to help promote the development of China's animated cartoon industry through information transfers, property rights transfers, acquisitions and evaluation services. SUAEE provides investment and financing services to various investors, and promotes the convergence of state capital with private capital, foreign capital with domestic capital, science with economy, tangible assets with intangible assets, incremental assets with stock assets. Currently, the global animated cartoon industry is estimated to be about US$250 billion. The country’s animated cartoon industry, which is still developing, is valued at 18 billion yuan (US$2.3 billion).

• Dynasty Gaming (OTC:DNYFF) disclosed its signing of a letter of intent with Shanghai's 3Q1 Technologies for the acquisition of an initial 10 percent stake in 3Q1 in exchange for an undisclosed amount of cash. With the deal comes the option for Dynasty Gaming to eventually acquire up to a 25 percent holding in 3Q1. According to Dynasty’s CEO, the initial purchase of a stake in 3Q1, which is an online mahjong game developer and operator, will give Dynasty entry to the world of online mahjong players, most of whom are 3Q1 users. The transaction is expected to be completed by the end of August this year.

• Nineyou International Limited, a Chinese online game software developer, will list on the Osaka Securities Exchanges’ Hercules market on July 12. For its IPO, the company will offer 97,000 shares to the public, with 46,000 being newly issued shares and 51,000 shares currently held in private. The company expects to net 7.3 billion yen (US$59.1 million) from the offering. For the current fiscal year December 2007, the company forecasts a consolidated net income of US$40.1 million on sales of US$109.50 million. Morgan Stanley acts as the lead underwriter of the offer. Industry observers see the strength of the company in its online games that can be played in a short time. The company also sells advertising space on its game sites.


• Guangzhou Global Telecom, a mobile phone handset distributor, announced entering into a distribution agreement with China Unicom's Guangzhou Branch. Under the deal, Global Telecom will distribute CDMA and GSM phone cards and other value added services in Guangzhou. Industry sources place the number of users of GSM and CDMA phones throughout China, as of April 2007, at 110.2 million and 38.2 million, respectively.

• Alcatel Shanghai Bell and Datang Mobile have secured a contract to deploy half of China Netcom’s (CN-OLD) TD-SCDMA expansion project in Qingdao. Alcatel Shanghai Bell is Alcatel-Lucent’s (ALU) Chinese subsidiary. The deal follows a TD-SCDMA contract the two companies recently secured with China Mobile. Under the project, Alcatel Shanghai Bell and Datang will provide China Netcom with core and radio equipment aimed at boosting the TD-SCDMA network. The deal will also enable Alcatel Shanghai Bell to provide China Netcom with intelligent network and streaming media service platforms, with all the macro node B and distributed node B (base station) equipment to be manufactured by Alcatel Shanghai Bell. Industry analysts say that when the project is completed, China Netcom will be able to provide a broad suite of advanced 3G services to subscribers in central business districts, government, tourist locations and sites related to the 2008 Olympic Games. TDSCDMA, initially developed by Datang Mobile, is officially recognized as an international standard for 3G mobile communications.

• According to its CEO, RIM’s (RIMM) BlackBerry is finally coming to China following the certification allowing it to be sold in China during the first quarter of 2007. RIM has been working with China Mobile Communications to launch the "push e-mail" devices in China. Last year, RIM had said it expected to be selling the BlackBerry in China as early as May 2006. Analysts said that with more than 400 million mobile device subscribers, the China market is a very important one for RIM. There are no details yet about the launching but Canadian sources say the device would be available in Chinese shops by month's end. The device would be sold for about CDN$700 (US$661).


• Market sources said Centron Telecom International Holdings Limited was able to raise US$108 million in its Hong Kong IPO. Centron Telecom is one of the top three wireless coverage solution providers in China in terms of revenue. Wireless coverage solutions refers to solutions that help extend the reach of wireless networks to areas with weak or no coverage, such as high-rise buildings, highways, railways and tunnels. The company also helps to ensure that mobile phones work in remote regions and in complicated topographical areas like mountains, coastlines and grasslands.

• Media sources said that Huawei Technologies Co. Ltd., the country’s largest communications network equipment maker, has won a contract to help Vodafone (NASDAQ:VOD) expand its Spanish 3G telecoms network. Huawei announced that the deal will allow it to expand Vodafone’s high-speed packet access network covering seven major Spanish cities, including Madrid and Barcelona.


• According to its president, Gome, the biggest home appliance retailer in China, is considering making major acquisitions. The company is reportedly in talks with a number of different companies. Media releases indicate that Gome has a sales revenues target of 19.8 billion yuan (US$2.6 billion) for mobile phones, aiming to take 10 percent of the market share in the mobile market in China this year. Gome has already opened up to 20 mobile stores to date and it is looking to open 100 more. Gome said it plans to acquire 200 stores from its parent company as it waits for the go-signal from the country’s Ministry of Commerce.

Disclaimer: IRG is not responsible for the accuracy of the news compiled within this article, which is based on publicly available information.