Chinese Tech Stock Weekly Summary

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

Internet

• China's eight leading online media officially sanctioned to publish news signed the "Chinese Pact on the Self-discipline on Visual-Audio Programs and Services of the Internet", urging all domestic websites to spread positive, healthy programs and boycott corrupt, outdated ones. It urges all the signatories to abide by the country's laws, regulations and policies on the development and management of the Internet culture and boycott programs, including films, teleplays and cartoons that advocate elements in the catch-all categories of violence, pornography, gambling and terror. The eight signatories are the official websites of Xinhua News Agency, People's Daily, the State Council Press Office, China Radio International, China Central Television, China Youth Daily, China Economic Daily, and the State Administration of Radio, Film and Television.

• Baidu.com Inc. (BIDU) said it intended to launch an instant messaging service in China. The Beijing-based Chinese language Internet search provider said the new IM service will be called “Baidu Hi” but no details were disclosed yet.

• Search engine advertising and in-game promotions pushed China's online advertising market up 75% to 10.6 billion yuan (US$1.5 billion) in 2007, according to the internet research group iResearch. The report said that the surge was driven by a boom in search engine optimization [SEO], which experienced a 108% increase. The report said SEO accounted for 27.3% of the market and this year would represent some 30% of all online advertising. Online brand advertising jumped 65.3% to 4.8 billion yuan (US$658.4 million) and by 2011 would reach 23.7 billion yuan (US$3.3 billion). The iResearch data is slightly higher than Nielsen Online's predictions that online advertising would hit more than 10 billion yuan (US$1.4 billion) in 2007. Nielsen's report said Lenovo (LNVGY.PK), Coca-Cola (KO) and Samsung, all Olympic sponsors, were among the internet's biggest spenders.

Mobile/Wireless

• Mobile entertainment is popular among the Chinese, with 34.8 percent reporting they listened to mobile music in the month, and 10 percent playing a downloaded mobile game, research firm M:Metrics said. The firm surveyed 5,163 Chinese mobile subscribers aged 13-54 via telephone in Beijing, Shanghai, Guangzhou, Shenyang, Chengdu, Wuhan and Xi’an. The survey said about 34.8 percent of respondents listened to music, while 6.1 percent accessed news via their mobile browsers. About 10 percent played downloaded games, while about 2.4 percent accessed a downloaded application. The survey also said about 15.2 percent of respondents had sent and received photos or videos, while about 4.4 percent purchased ringtones. According to the survey, 2.5 percent used their mobile emails, and 2.2 percent accessed social networking sites. Nokia (NOK) commands market share in emerging Chinese mobile media market with 30.9 percent among handset owners while Sony Ericsson is driving content consumption.

• Zhu Ling, Editor-in-Chief of China Daily, and Wang Jianzhou, Chairman of China Mobile (CHL) together launched China's first English-Chinese mobile paper called China Daily Mobile News. The mobile paper sends English-Chinese news to users' cell phones as multimedia messages through wireless technology. China Daily Mobile News is expected to allow the expected surge in visitors in China to receive updates about China's internationalization, technological advancements and improved English communication standards. China Daily was entitled to publish the official English newspaper for the Beijing Olympic and Paralympic Games, as well as Village News, the official newspaper of the Beijing Olympic and Paralympic villages.

Telecommunications

• China Unicom (CHU) is expected to sell its CDMA mobile network to China Telecom Corp. (CHA) as part of an industry restructuring plan. Analysts estimated the deal could be worth up to 115 billion yuan (US$15.8 billion). Beijing is widely expected to announce news of its industry restructuring plan as early as next month. The move is expected to create three full-service operators: China Mobile would merge with fixed-line network operator China Tietong, China Telecom would acquire Unicom's CDMA network and operations, and China Netcom (CN) would merge with Unicom's GSM business. Market watchers said once the government made the announcement, China Telecom's listing vehicle would kick off the process by acquiring Unicom's CDMA network and operations. China Unicom Group owns the CDMA network assets and leases network capacity to its listed subsidiary, leaving network investment and depreciation at the parent company level to maintain profitability. According to HSBC, it estimates Unicom's CDMA network to be worth 60 billion yuan (US$8.2 billion) and its user base 55 billion yuan (US$7.5 billion).

• Rumours that China United Telecommunications seeks to raise 60 billion yuan (US$8.2 billion) through a share sale pulled the value of its shares down. The company denied the rumor that the company was seeking the cash in preparation to buy China Netcom Group's assets in an industry restructuring. The market is rife with talk that China Unicom would sell its Code Division Multiple Access mobile network and services to fixed-line giant China Telecom, and that its Global System for Mobile Communications services would be combined with China Netcom's fixed-line business.

• China's Datang Telecom released full-year financial results of 2007. Total revenues reached 2.5 billion yuan (US$340 million) compared to 2.2 billion yuan (US$300 million) in 2006. Net profit amounted to 31.6 million yuan (US$4.3 million), a significant turnaround from the net loss of 731.8 million yuan (US$100.4 million) in 2006.

• China’s National Development and Reform Commission said it has allocated funds for the development of fourth-generation [4G] mobile technology. The planning agency said development of telecom network equipment, chips and components for broadband, and Internet applications will receive primary financing. It did not say how much funds will be allocated, but added that state-owned companies and research agencies can apply for funding. Earlier media reports said that China is expected to put together a research plan for 4G after the National People's Congress in March, involving total investment of over 70 billion yuan (US$9.6 billion).

• China Mobile will offer a self-developed video-on-demand [VOD] service targeted at the Beijing Olympic Games during its TD-SCDMA 3G trial networks. The VOD service is more convenient to use than those offered through WAP sites or those that require special software, and older consumers who are not technology-savvy will find it more user-friendly. This VOD service is targeted for the Olympic Games but after the games are over, it will provide a broader selection of programs. China Mobile now offers mobile TV service to 2.5G mobile phone users through its Monternet WAP portal, in cooperation with Shanghai Media Group, CCTV and China Radio International.

• China Telecom Corp. Ltd. announced that its extraordinary shareholder meeting approved the company's plan to consolidate 20 of its wholly-owned subsidiaries including Shanghai, Guangdong and Jiangsu Telecom. In addition, China Telecom's subsidiary Northern Telecom will become its directly-controlled northern China telecommunications business department.

• Tata Communications Ltd. (TCL) has entered into a network-to-network-interface [NNI] agreement with China Enterprise Netcom Corp. Ltd. (China Entercom) to expand its global VPN service to China. Under the NNI agreement, TCL and China Entercom have interconnected their respective multi-protocol label switching infrastructure. This will allow TCL's corporate customers VPN connectivity to 347 cities in China, in addition to 120 cities in India and 19 major business centres across North America, Asia and Europe.

Media, Entertainment and Gaming

• NetDragon Websoft Inc. announced that it repurchased 15,975,000 shares in its capital in 16 rounds from December 18, 2007 to February 19, 2008. The price paid by the Group was approximately HK$195 million in total, or between HK$11.04 and HK$14.48 per share. The company claims that the repurchase reflects its complete confidence in the company's future prospects. The company also aims to enhance its returns on equity to reward its shareholders.

• Shanda Interactive Entertainment (SNDA) reported a 21.8 percent increase in fourth-quarter profit after it upgraded titles and strengthened promotions. Profit for the quarter reached US$40.1 million, as sales surged 51.8 percent to US$97.8 million from a year earlier. The company expected first-quarter revenue to grow another 6 percent to 9 percent to between US$103.6 million and US$106.6 million, against a consensus estimate of US$97.5 million. Active paying accounts increased 12.7 percent from the previous quarter to US$3.47 million, but the average rate dropped 3.1 percent to 57.8 yuan (US$7.92) per month. According to JP Morgan, Shanda's portfolio is diverse compared with other leading mainland game companies making the company less risky compared to its competitors. Shanda operates 11 games and plans to launch eight more in the next two years. It also runs a set of casual games, such as card games, which account for 12 percent of its total revenue.

• Mobile Entertainment Inc., a Chinese interactive mobile game and wireless application developer, announced that the WAP version of its game, The Ninth Heaven, has begun trials on China Mobile and China Unicom's WAP sites. Game subscribers will be allowed to play the game for free during the trial period. After the game is formally launched, players will be required to pay for in-game items if they wish to enhance their game characters. The operators and Mobile Entertainment will share this revenue, according to the announcement. Mobile Entertainment began making the game suitable for WAP sites last December. The Ninth Heaven is a massively multiplayer online role-playing game [MMORPG] with an East Asian and martial arts theme.

• Giant Interactive Group (GA) reported 1.13 billion yuan (US$155.8 million) in net income for 2007, a 364.5 percent increase from the previous year. The company issued its unaudited financial results for the full year and fourth quarter ended on December 31, saying online game net revenues for the fiscal year, mainly from the popular "ZT Online" game, stood at 1.52 billion yuan (US$208.5 million). Net revenues for the fourth quarter were 434.8 million yuan (US$59.6 million), an increase of 7.3 percent from the previous quarter, and 151.8 percent from the corresponding period in 2006. According to the company, "ZT Online" witnessed a climax of 1.07 million players playing at the same time, a commercial success only "World of Warcraft" and "Fantasy Westward Journey" had achieved before. According to CCID Consulting, the online game market in China grew by 74.6 percent year on year to 11.4 billion yuan (US$1.6 billion) in 2007. It is expected to reach 18.7 billion yuan (US$2.6 billion) in 2008.

• CDC Games International has launched “Lunia”, a massively multiplayer online roleplaying game [MMORPG] based on the popular manga-style comic art form for commercial availability in North America. Lunia, which was developed by South Korea-based ALLM, can be played at the CDC Games portal 12FootTall.com powered by IBM servers and hosted at a Terremark data centre that provides direct access to the core of the North American internet. Lunia is played like an action arcade game, allowing players to move around using a keyboard's arrow keys, rather than a mouse. The game can also be played with a console D pad style controller, which makes the game familiar to Xbox users.

• CDC Corp. (CHINA) is looking to accelerate China’s software sector's progress by becoming the market's first company with US$1 billion revenue. The company plans to meet that goal within the next three years in a move to help stimulate further development in the mainland software market. According to a Thomson Financial survey, CDC's sales should grow 15.6 percent to US$426.1 million this year from US$399.7 million last year. Net profit is forecast to rise 6.1 percent to US$33.1 million from US$31.3 million. CDC adds that it is looking for new acquisitions that will help it expand its business, especially in the fast-growing mainland market.

Hardware

• CCID Consulting, a consulting and IT outsourcing service provider, recently released its forecast of a 16.1% growth in server sales in China in 2008. The report said that in the first 3 quarters of 2007, China's x86 server market slowed down. Sales volume reached 423,000 sets, generating sales revenue of 7.95 billion yuan (US$1.1 billion), up by 16.1% and 12.6%, respectively. The main driving forces for market growth came from the fast-growing telecom and value-added telecom services, the accelerating IT applications in the transportation sector, the warm-up of the SMB market and emerging new applications such as online banking and securities trading, new socialist countryside building and city emergency system building. In 2007, competition in Tier-3 and 4 markets intensified. Foreign firms' inroads into the low-end market and implementation of regional channel strategies meant that the price and channel advantages upon which domestic firms relied no longer existed. Multi-core and virtualization technologies became new growth points and were the directions and opportunities which firms needed to grasp. Operational efficiency and reliability will be the major challenges that firms need to face.

Semiconductor/Alternative Energy

• LDK Solar Co.'s (LDK) fourth-quarter net income grew 18 percent from the previous quarter to reach US$49.2 million amid increasing demand for sources of clean energy, such as solar. Revenue more than tripled to US$192.8 million from a year earlier. The company revealed that rising prices for raw materials, such as polysilicon, which is also used in computer chips, are expected to cut into LDK's margins. LDK is however prepared to face this issue as it obtains many of its materials under long-term contracts with fixed pricing. In 2008, the company expects to continue to experience strong demand for its wafers coupled with a significant backlog of long-term supply contracts. The construction on its new polysilicon plants is progressing as planned and is expected to enjoy further cost reductions and the advancement of production processes.

• Wang Yusuo, founder of liquefied natural gas [LNG] supplier Xinao Gas Holdings, is betting 10 billion yuan (US$1.4 billion) on solar energy equipment production, making further forays into this fledgling and costly renewable energy segment. Mr. Wang is capitalizing on the state policy of promoting sustainable energy sources. So far, 1.4 billion yuan (US$192.0 million) in private funds have been spent on building a factory in Langfang, Hebei province. It is expected to start producing thin film solar cells by the end of the year, said the chairman of the Hong Kong-listed company. According to Mr. Wang, the state policy not only boosts demand for equipment on wind and solar power, but also lets investors achieve a viable return through incentives including preferential loans and a system whereby electricity distributors are obligated to buy renewable energy rather than energy derived from fossil fuel. Funding would come mainly from a listing on the Hong Kong stock exchange and low-interest loans from China Development Bank.

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

Comments

[sunrises]

Hi,

With the given information above then you would consider CHL a buy? The PEG 1.28 is the best amongst it's competitors.