Chinese Tech Stock Weekly Summary (5/12-5/18)

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

• • •

Software

• Kingdee International Software Group Co., Ltd. (KGDEF.PK) announced on May 8, 2008 that it would kick off its proposed share subdivision and the new board lot size on May 9, 2008. Under the plan, each share will be split into four and per value of each share will be subdivided to HK$0.025 (US$0.03) from HK$0.1 (US$0.01) while the board lot size will be increased to 2,000 shares from 500 shares. In the meantime, for those option shares held by the Hong Kong-listed company's employees that had not exercised till May 8 will be subdivided too, based on the same proportion.

Internet

• Chinese e-commerce group Alibaba.com has entered into a tie-up with Intel Corp. (INTC) for a PC targeted at small and medium-sized enterprises (SMEs). There are 42 million small and medium enterprises in China. However, only a small number of them have launched E-commerce services, which will significantly limit their growth. Alibaba sees a significant potential in this market. Alibaba will embed its new E-commerce platform into the PCs, while Intel will provide support on Internet security and services based on its chip platform. Intel and Alibaba are currently selecting domestic PC manufacturers to make the PCs and bring in IT service providers to integrate their services in the product. Alibaba expects the first machines to be offered this year.
• Alibaba.com plans to expand overseas market after making profit in the first quarter. Company's total revenue amounted to 680.1 million yuan (US$97.2 million) in the first quarter of this year, up 53.2 percent year on year, and its net profit, 300.7 million yuan (US$43 million), up 111.7 percent from last year. The company's share price rose 1.05 percent to close at HK$15.4 (US$2) on May 6. Alibaba is expected to stretch its business on new markets to cope with global trade pressures brought by the economic downturn in the U.S., and taking advantages of its low costs and widely covered trading network.
• Ctrip (CTRP) reported a better than expected 52 percent increase in first-quarter profit. The company reported US$14 million in quarterly profit, beating the US$12.6 million forecast by Reuters Estimates. Sales grew 47 percent to US$49 million. However, shares of the company fell on concerns the earthquake will erode the company's earnings Chief financial officer Jane Sun said the impact of the earthquake could be significant, Sichuan travel accounted for less than 10 percent of the firm's business, holidaymakers might delay trips for safety concerns. The company stated that revenue would rise 30 percent in the current quarter, slightly less than its full-year forecast of 35 percent.

Mobile/Wireless

• Sales of smartphones in the Chinese market increased 4.8 percent during the first quarter, compared with the fourth quarter of last year. Sales hit 8.24 million units in the first quarter, accounting for 19.1 percent of all types of cellphones sold on the domestic market. Sales value stood at 20.4 billion yuan (US$3 billion) in the first three months, representing an increase of 7.6 percent over the same period last year. The average price of a smartphone in China is around 2,470 yuan. Compared with high-end ones, low-end smartphones are more popular among buyers.
• Datang Mobile, one of the core developers of China's TD-SCDMA mobile standard, plans to launch a domestic initial public offering within three years. The company also announced that it does not have a problem with expertise in technology and management in response to reports that there is trouble within the company as several senior officials have left.
• Staff at China Mobile (CHL) and China Unicom (CHU) expressed that cell phone service in the southwestern Sichuan and northwestern Shaanxi provinces were affected by the earthquake. An investigation was under way. An earthquake measuring 7.8 on the Richter scale jolted Wenchuan County of Sichuan Province. Tremors were felt in a large part of China.
• China Unicom announced its launching of 'Stock in Palm' service on GSM network. Three editions including trading edition, quotation edition and text messaging edition are involved in the GSM 'Stock in Palm'. The trading edition supports online share trading, immediate quotation and rankings, stock information and trading commission, covering 80 percent of end user market. Quotation edition mainly provides stock-related information, including new share issue, A-share market index quotation, and plates analysis.
• China Mobile has invested 14.2 billion yuan (US$2 billion) in the TD-SCDMA project, and will start a second round of TD mobile phone procurement in the near future. There are only 6 types of products of 6 brands available in present TD mobile phone market, and insufficient terminal quantity and variety are the pivotal factors affecting the result of TD trial commercialization. And China Mobile's procurement is aiming to solve the problem. 14,000 base stations have been built in eight Chinese cities, involving Beijing and Shanghai, for TD network test, with the total investment heretofore reaching 14.2 billion yuan (US$2 billion).
• Huawei Technologies Co., Ltd. is reportedly brewing to sell billions of U.S. dollars shares of its mobile terminal division to a foreign investor, which can help it foray into the North American market. The deal was still in its early period, and would become the largest foreign investment got by Chinese companies when completed. Huawei plans to invite strategic investors and private equity funds later this month, which will send a tender offer for large quantities of shares of its mobile terminal division. Insiders point out that the news is believable, because Huawei's rivals are unanimously brewing to spin off similar businesses.

Telecommunications

• AsiaInfo Holdings Inc. (ASIA) announced that it has won a tender with China Telecom to develop an Online Charging System [OCS] in Zhejiang province. Under the terms of the agreement, AsiaInfo will develop an OCS solution that is based on the Third Generation Partnership Project (3GPP) standard and adheres to China Telecom's (CHA) OCS specifications. The company's OCS solution is a convergent online charging system that can accommodate real-time billing for both prepaid and postpaid accounts. It offers customer credit control and risk management analysis functionalities to lower credit risk in developing new business and expanding customer bases.

Media, Entertainment and Gaming

• China's online game market is valued at 3.985 billion yuan (US$570 million) in the first quarter of this year, representing a sequential increase of 14 percent over the previous quarter. Shanda Interactive Entertainment Ltd. (SNDA) leads the sector with a market share of 18.7 percent and operational revenue of 745 million yuan (US$107 million) for the quarter, followed by Netease.com (NTES), 13.3 percent, The9 (NCTY), 11.5 percent and Giant Interactive Group Inc., 11.3 percent.
• China's The9 Ltd. will launch a large-scale recruitment for talents to expand its independent R&D force. The9, which used to be an agency for big foreign games rather than an independent developer, is paying more and more attention on independent R&D. An investment of US$38 million in a Korea-based online game company that is the developer of the popular game Audition in China. The9 has an R&D team of around 200 at present.
• NetDragon announces that the increase in the company's total revenue was mainly due to the continuing popularity of its core games Conquer Online, Eudemons Online, Zero Online and Tou Ming Zhuang Online. To improve the quality of these games, the company allowed players to download free upgrades for each of them on a weekly basis. Currently, the Group is actively developing three 2.5D MMORPGs, namely Heroes of Might and Magic Online, Way of the Five, and Tian Yuan. The company has also entered into a licensing agreement with UserJoy Technology Co., Ltd. for the operation of a traditional Chinese version of Eudemons Online in Taiwan. The game is expected to be launched in Taiwan this summer.
• Sina Corp. (SINA) reported a 73 percent increase in profit, fuelled by strong brand advertising growth and stable wireless revenue. Net profit for the first quarter reached US$19.6 million, as revenue grew 39 percent to US$71.3 million from a year earlier. Sina forecasts second-quarter revenues would be even better at US$88 million to US$90 million, or an about 47 to 50 percent increase from a year earlier, higher than the consensus estimate of US$82.1 million. Brand advertising, which accounted for 67 percent of the Beijing firm's total revenue, soared 51 percent from a year earlier, much more than the usual 40 percent annual rate. Wireless services, which have dragged down Sina's margin since China Mobile introduced its user protection policy in 2006, also showed significant improvement. It reached US$21.7 million in the first quarter, representing an increase of 19 percent from a year earlier and 16 percent from the previous quarter. The company expects 50 percent revenue growth this year. But most analysts believe the growth rate will slow down after the Olympics. Mr. Wei said the online advertising market would grow 20 to 30 percent next year, down from the 30 to 40 percent range of the past few years.
• NetDragon announces its first quarterly results for the three months ended March 31, 2008. Total revenue amounted to 175.6 million yuan (US$25.1 million) representing an increase of 63.7 percent over the same period last year. Gross profit and profit for the period were 159.0 million yuan (US$22.7 million) and 69.9 million yuan (US$10 million) respectively, representing increases of approximately 57.7 percent and 19.6 percent over the corresponding period in 2007. The directors do not recommend payment of interim dividends for the period.

Hardware

• Chinese liquid crystal display maker SVA Electron Co. unveiled a 2.65 billion yuan (US$380 million) deal to take over LCD assets from its parent and an affiliate, funded mostly by a private placement of shares. SVA Electron planned to take over a fifth-generation TFT-LCD manufacturing unit from its parent company and SVA Information Industry. The unit is expected to book a 216 million yuan net profit this year, turning around after a net loss of 318 million yuan in 2007. Shares in both SVA Electron and SVA Information Industry tumbled by their 10 percent daily limit as they resumed trade after a four-month suspension, catching up with a one-third drop during that period in the broader market index.
• This year ZTE is about to invest as much as 100 million yuan (US$14.3 million) in mobile phone marketing and promotions. The company hopes to build itself a leading 3G handset brand as its products cover several 3G standards such as WCDMA, CDMA2000, and TD-SCDMA. In the traditional 2G sector, several foreign brands such as Nokia and Samsung are playing dominantly; Chinese local handset makers can hardly make a breakthrough in the market. In such case, ZTE is dying to take a lead in the 3G era to lick its handset brand into shape as China's 3G handset market is still blank.

Semiconductor

• Semiconductor Manufacturing International Corporation (SMI) is putting the final touch on introducing a foreign strategic investor. It is likely to be finalized in the first half of 2008, an insider close to the company disclosed. SMI hopes to introduce the strategic investor at a reasonable price for the interest of its previous shareholders.

Comments

[weng ho teng:]

Keep your eye on MYST.OB.

They are full partners with Google and China Netcom.

MYST.OBs subsidiary subaye.com will launch Subaye English B2B platform to compete with Alibaba.com and Alibaba English. The beta site is up and about to be activated.

MYST.OB is profitable and growing Q over Q.

This is a contender in 2008 for strong upward movement.

2008 May 20 06:31 PM

[Medici:]

NTES was very strong today on a weak day recovering most of the losses from the day prior. This stock is near a 52 week high and should break out from here

2008 May 20 07:07 PM

[Lisa:]

I'm surprised that CHL's stock price hasn't been more impacted by the earthquake.

2008 May 25 04:57 PM