Chinese Tech Stock Weekly Summary (Sept. 1-7)

by: IRG Ltd

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

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Investments/ Ventures

  • CITIC 1616 Holdings Ltd, in which CITIC Pacific Ltd holds 53 percent stake, would acquire IDD service provider China Motion Netcom Ltd [CMN] for HK$260 million (US$33.2 million) in cash from China Motion Telecom International Ltd. CMN is engaged in provision of wholesale and retail international direct dial [IDD] services across Hong Kong, Taiwan, Singapore, Japan, the U.K., the U.S. and Canada. Upon completion, the acquisition will help CITIC 1616 further develop its wholesale IDD business and save costs by sharing network resources together. CITIC 1616 provides telecom services in the Asia Pacific as a telecommunications hub, including voice service, mobile short messaging services [SMS] and other value-added services [VAS], such as signaling transit, prepaid roaming and VAS applications, and data service and telecom solutions to telecom carriers, mobile operators and Internet service providers [ISP]. Meanwhile, it offers telecoms hubbing services to telecoms operators, which principally engage in the provision of fixed line and hybrid telecoms services.


  • China is expected to maintain momentum in both production and marketing of mobile phones in the remaining of this year, according to CCID Consulting, a major IT industry consulting company. The company predicted that China would produce 605 million cell phones for the whole of 2008, a growth of 16.9 percent over last year, and sell 205 million at home, up 17.55 percent. The foreign sales would amount to 400 million units, up 16.8 percent. From January and June, 279 million cell phones were produced nationwide, up 21.2 percent on the same period of last year, and 96.4 million were sold, up 17.5 percent. Exports totaled 182 million units, up 22.7 percent. Nokia (NYSE:NOK), Samsung and Motorola (MOT) claimed nearly two thirds of the Chinese cell phone market, with the Finnish company Nokia taking a 41.0 percent share.


  • China Netcom Group, the parent of Hong Kong-listed China Netcom (CN-OLD), said it plans to issue 5 billion yuan (US$530.6 million) worth of 5-year fixed-rate bonds on the interbank market on Sept 3. The group said the yield will be set between 5.29 percent to 5.79 percent, while the final yield will be determined via book-building. Proceeds will be invested in fixed-line network building and upgrades. China International Capital Corp will be the main underwriter of the issue.
  • A huge equipment demand by telecom operators will appear in the rest of the year upon telecom industrial restructuring in China. The surging demand will exert a favorable influence on the performance of listed telecom equipment companies. Telecom operators will first concentrate on network development, from which telecom equipment enterprise will be able to benefit directly. Deng Yongkang, a security researcher in Shanghai, predicated that the fixed asset investment in the telecom industry would rise 21 percent on year to 277 billion yuan (US$40.5 billion) in 2008. However, Deng warned that the gross profit margin of equipment manufacturers would keep decreasing, as operators weakened equipment manufacturers' bargaining capability by centralized purchase and the prices of raw materials kept rising. Only large-scale leading enterprises that had formed complete industry chain and whose equipments could meet different technique standards would be able to seize the chance.
  • China's fixed-line carriers China Telecom (NYSE:CHA) and China Netcom reported further loss of fixed-line users in July. Subscribers of China Telecom's fixed-phone service subsided 60,000 to 214.3 million by end-July, and that of the company's broadband service rose 810,000 to 40.8 million. China Netcom lost 302,000 users in its fixed-line service, but enrolled 625,000 new broadband subscribers in July.
  • China Telecom is planning to raise up to 50 billion yuan (US$7.3 billion) via a corporate bond offering, sources reported. This is the first financing program launched after it acquired China Unicom's (NYSE:CHU) code-division multiple access [CDMA] mobile-phone operations. Industry insiders familiar with the situation indicate the move is to fund the company's CDMA deal with China Unicom, which involves total investment of RMB 110 billion. Reportedly, China Telecom has decided to enlarge the fundraising size to 80 billion yuan (US$11.9 billion) but subject to shareholders' approval.
  • Investors have been fleeing China's state-owned telecommunications giants since an industrywide restructuring was unveiled in May. The long-awaited restructuring combined six Chinese carriers, with differing business and geographic segments, into three nationwide carriers that provide fixed-line and wireless service. China Telecom, which had been the biggest of two fixed-line carriers, acquired a wireless network as part of the deal, and some analysts say it is the best bet of the trio of telecom companies for investors looking to take advantage of the sector-wide drop in stock prices.
  • Market sources said that China Mobile Communications Corporation [CMCC], the parent company of China Mobile (NYSE:CHL), has recently fixed 28 cities for the second round of its TD-SCDMA [TD] network construction. Shanghai Securities News reported that the cities are Shijiazhuang, Taiyuan, Hohhot, Changchun, Harbin, Nanjing, Hangzhou, Hefei, Fuzhou, Ji'nan, Zhengzhou, Wuhan, Changsha, Nanning, Haikou, Chongqing, Chengdu, Guiyang, Kunming, Lhasa, Xi'an, Lanzhou, Xining, Yinchuan, Urumqi, Ningbo, and Dalian. Industrial experts estimate that the total investment for this round of network construction will be more than 30 billion yuan (US$4.4 billion), with 18.3 billion yuan (US$3 billion) for base stations, 2.611 billion yuan (US$382 million) for core network, 2.089 billion yuan (US$305 million) for transmission network, 1.8 billion yuan (US$267 million) for backup network, and 1.3 billion yuan (US$191 million) for service network. A total of 26,762 base stations may be built in these cities.


  • Zhejiang Quartz Crystal Optoelectronic Technology Co. Ltd., a China-based photoelectric parts manufacturer, plans to issue 16.70 million A-shares through its planned initial public offering [IPO] in Shenzhen, as per industry sources. The Zhejiang-headquartered thin-film optics producer plans to sell the new shares at the par value of 1 yuan (US$.15) per share, accounting for 25 percent of its enlarged equity. ZQCOT, with a registered capital of 50 million yuan (US$7.3 million), plans to raise 213.2 million yuan (US$31.2 million) through the IPO to fund its investment in technology innovation as well as future business expansion. Domestic brokerage Industrial Securities Co. Ltd was hired to underwrite the share offering.