4:07 PM, Aug 14, 2009 --

• DJIA -76.7 or 0.8% to 9,321
• S&P 500 -8.6 or 0.9% to 1,004
• Nasdaq -23.8 or 1.2% to 1,986

GLOBAL SENTIMENT

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Internet

Mobile/Wireless

Telecommunications

Media, Entertainment and Gaming

Hardware

Alternative Energy

After spending the last two weeks on a precious metals binge, preparing for the good ol' dollar's demise, I've returned to hunting for more of what my portfolio is built around: Undervalued Chinese companies driven by domestic consumption, not exports. Normally these searches lead me to thinly traded OTC stocks with less than transparent finances. Surprisingly, three companies that still meet my stingy criteria are traded on major exchanges.

1. China Cablecom Holdings (CABL): I don't say there aren't drawbacks to my findings and this company has major ones. CABL announced last month that it received a default notice for the last $2.2M owed to one of its subsidiaries from a prior joint venture. Additionally, CABL operated to the tune of a $14M loss in 2008. Surely this one sounds a little overboard on the contrarian side so far, but the stock IPOd at over $6/share a year ago and traded at over $7/share before Asian markets crashed. Establishing infrastructure for television service is expensive and costs can be expected to decline, although doubtfully enough to result in a profitable 2009. Still, with $30M in cash and assets totaling $183M, this $5M company is heavily undervalued. Insiders still own 38% of outstanding shares and nobody dares to short this stock at the current valuation.

Many foreign stocks that trade as ADRs in the US have fallen heavily in-line with their home country’s market performance. In order to identify the ADRs that are down more than 80% year-to-date, I ran the screener and ended up with the 38 stocks listed below.

Foreign ADR Stocks Down > 80%

• • •

Telecommunications

• Fixed-line operators China Telecom Corp (CHA) and China Netcom Group Corp (CN) are raising their Hong Kong exposure this year to enhance regional connectivity as two new submarine cables are due to connect with the city in the near future, promising to boost cross-border data traffic. The submarine cables, Intra Asia, and Asia American Gateway, which more than 20 telecommunications carriers have invested in, will land in Hong Kong in the near future. The cables can provide more than 1,125 gigabytes per second of bandwidth and can also be linked with the mainland. Hong Kong has installed bandwidth of about 2,178 gigabytes per second, of which 1,439 gigabytes per second has been activated.
• Huawei Technologies says that it hopes its sales in Europe can exceed US$ 2 billion this year. Last year the company made total sales revenues of US$ 2 billion in the continent, in contrast to US$ 770 million in 2006. The company believes that Europe has significant strategic meaning to Huawei  and it will invest more in this area. Though Huawei made much headway in Europe, it recorded merely US$ 100 million in the U.S. in 2007. Huawei won big orders from Vodafone (VOD) last year in Greece, Rumania, and Spain, and orders from France Telecom (FTE) in Belgium and France.
• Chinese Unicom's (CHU) shares fall as it reveals a higher-than-expected investment figure. China Unicom expects to invest 100 billion yuan (US$14.58 billion) in third-generation wireless services over the next two years a higher than expected figure that pushed its shares down sharply. Investors responded to the news which appeared on page 38 of a lengthy company statement covering a number of topics by punishing China Unicom shares in Hong Kong.
• China Mobile (CHL) is still talking with Apple Inc. (AAPL) about introducing the iPhone in China. Both sides are interested in bringing the iPhone to China, but haven't reached any agreement, he said, adding there is no timetable for introducing the iPhone in the country. Last month, China Mobile had resumed talks with Apple about launching the iPhone in China, which has the most mobile-phone users in the world, after earlier talks ended in January.
• AsiaInfo Holdings (ASIA) has signed a contract with China Mobile to provide a system monitoring and management platform and related services to China Mobile's headquarters during the 2008 Beijing Olympic Games. Its system monitoring and management platform and services will work to ensure continuous operations and the security of China Mobile's business operation support system, business intelligence system and other business support systems during the Olympic Games. The platform will also provide real-time analysis and monitoring of China Mobile's Olympics-related business, allowing the company to manage its partners more effectively during the Olympic Games.

Internet

• Ctrip.com (CTRP), China's top online travel agent, posted a 35 percent rise in second-quarter net profit but said revenue growth would slow this quarter because of a drop in domestic travel during the Olympics. A drop in air traffic caused by May's earthquake in Sichuan would continue into the third quarter due to a slowdown in business and individual travel during the August 8-24 Olympics. The company said it expected its revenue to grow in the range of 15-20 percent in the third quarter and slightly lowered its whole-year revenue growth rate guidance to 30-35 percent from 35 percent.

Mobile/Wireless

• Wireless coverage equipment maker China GrenTech (GRRF) posted a quarterly loss, hurt by a steep fall in revenue from base station radio frequency products, sending its shares down as much as 22 percent. The company said the mainland government's plan to restructure the country's telecommunications operators had led to a temporary drop in demand. The company expects third quarter revenue from its radio frequency [RF] business, which accounts for about 16 percent of its revenue, to be lower than a year ago. China GrenTech, however, expects to see a rise in demand for its RF products following the restructuring and the development of 3G network in China.

Media, Entertainment and Gaming

• Giant Interactive Group (GA) announced that its board of directors has approved a share repurchase program. Under the terms of the approved program, Giant may repurchase up to US$150.0 million worth of its issued and outstanding American Depositary Shares from time to time in open-market transactions on the NYSE Euronext. The repurchases will be made from time to time  on the open market at prevailing market prices, in negotiated transactions off the market, in block trades or pursuant to a 10b5-1 plan.
• AirMedia Group (AMCN), which operates the largest digital media network at mainland airports and aboard aircraft, plans to set up more joint ventures and secure long-term contracts to address investor worries about sustaining its triple-digit growth. The first joint venture of this kind was in  March with China Eastern Airlines (CEA), one of the mainland's leading carriers. AirMedia took a 49 percent minority stake. The firm is negotiating with other airports and airlines but declined to identify them.

Hardware

• China's laptop sales surged 47.5 percent from a year earlier to 1.897 million units in the second quarters of 2008. The top five computer makers led by Lenovo Group Limited (LNVGY.PK) took 71.4 percent of the Chinese market. Dual core processors have become the mainstream configuration for laptops. The hardware tended to have big screens, large capacity, and high definition. VISTA was still unable to beat Windows XP in the operating system market. Laptops are likely to take the place of desktops in the mounting home computer market, where Dell Inc. (DELL) was enlarging its share after broadening retail channels, and Samsung was consolidating its foothold after product and price adjustment.
• Amoi Electronics Co. reported net losses of 404 million yuan (US$59.3 million) for January-June 2008, more than 351 million yuan (US$51.1 million) a year ago. Sales revenues plunged 24.2 percent year on year while gross profit decreased by 51.39 percent. Sales expenditures, management expenditures and financial expenditures totaled 479.7 million yuan (US$70 million), roughly at par with a year earlier. Mobile phone business contributed 70 percent to the company's revenue from major businesses, up 10 percentage points yearly. TV business contributed 8 percent, down 18 percentage points, and IT business contributed 8 percent, up 6 percentage points. Gross margin of major businesses stood at 3.65 percent.
• H3C expects sales growth of 15 percent on the mainland this year and improved brand awareness globally due to the Olympic Games. The company, which generates about 70 percent of revenue from domestic sales, saw total sales rise 6.3 percent to US$757 million last year, compared with US$712 million in 2006. The company was previously selected to be the supplier of several Olympics-related projects, including a "Good Luck Beijing" pre-event in Hong Kong, the Beijing public transportation surveillance system upgrade, the new terminal building's network at Beijing International Airport, and technical support for Sohu.com (SOHU), the official mainland website for the Olympics.

Alternative Energy/Software

• Jiangsu Zhongneng Polysilicon Technology Development Co. under GCL Silicon Technology Holdings Inc. has inked an agreement for the production of silicon ingots and silicon wafer. The project, with a total investment of US$ 1.1 billion, is expected to be able to produce 2,700-megawatt silicon ingots and silicon wafer, and generate 30 billion yuan (US$4365 million) of sales revenues a year after being put into production in 2010. Chinese photovoltaic [PV] companies are unanimously extending reaches to upstream silicon wafer field, completing their industrial chains.
• CDC (CHINA) posted better-than-expected quarterly results, helped by strong performance at its software division, CDC Software, sending its shares up 6 percent. Revenue for the quarter rose 10 percent to US$111 million. Software revenue increased to US$65.8 million from US$59.4 million a year earlier. During the quarter, the company said it eliminated US$15 million in annual overhead costs by reducing facilities and administration expenses and eliminating certain positions.

July was a volatile month for the U.S. markets. The Dow Jones Industrial Average started the month with some big losses, even closing below 11,000 for the first time in two years on July 15th. But since then, the index has reclaimed some of the losses after a pair of strong rallies, fueled by declining oil price. For the month, the Dow rose a meager 0.25%, the NASDAQ rose 1.42% and the broader S&P 500 index declined just about 1%.

During the month, the Shanghai Composite Index (^SSEC) showed some signs of life, briefly going over the 2,900-point mark early in the month before settling at 2,775.72. That’s a gain of 1.45%. The Hang Seng Index (^HSI) also recovered from the deep drop in June, gaining 2.84% in July.

Comparing to what happened to Chinese stocks listed on U. S. stock exchanges, the drop in major U. S. equity indexes is minor, though the Dow Jones Industrial Average did lose more than 10% in just one month (10.19%). During the same time period, the NASDAQ dropped 9.12% and the S&P declined 8.57% as jitters in the financial sector continued and there was no sign that the housing market has bottomed. In fact, the loss in June was the severest monthly loss since the Great Depression.

However,  if you are investing heavily in Chinese ADRs (like me), then I am sure you feel even more depressed when looking at your stocks’ performances last month. Of the 82 Chinese ADRs I track regularly, only 6 of them ended the month in the positive territory. All other 76 stocks dropped, and they dropped like a rock: 30 stocks lost more than 20% and 10 more than 30%.

• • •

Semiconductor

• NXP Semiconductors and T3G Technologies announced that the 3G cellular system solution T3G7208 is now commercially available to the Chinese market. Special edition T3G7208 TD- SCDMA phones with added push-to-talk functionality have also been provided by Samsung to the Beijing Olympic Games Organizing Committee. TD-SCDMA services are now in commercial trial across eight cities in China, including Beijing, Shanghai and Guangzhou. With the T3G7208-powered Samsung SGH-L288, featuring video telephony, data communication at 384 kbps downlink and 128 kbps uplink and a 2 megapixel camera, end users will be able to employ multimedia and data transfer through the 3G networks.

Telecommunications

• Ruey-bin Kao, president of Motorola China, announced that China is not only Motorola's manufacturing base but also an innovation, research and development base. Motorola has already invested US$3.8 billion in China, one of the largest amounts of foreign funds flowing in the country from a single investor, with Tianjin enjoying most of these funds. More specifically, since the establishment of the company's manufacturing base in China, investment in research and development has accounted for almost US$1 billion.
• ZTE Corp. announced that its share in the global optic transmission product market grew the fastest compared to all other in the industry in 2007. Annual growth rate for the company's share in the global optic transmission product market was over 100 percent in 2007, far higher than the industry average of 24 percent. The company was found to have the second largest market shares in the global market sub-sectors for LH-DWDM (Long Haul - Dense Wavelength Division Multiplexing) and ADM (Add/Drop Multiplexer) products in 2007. The company generated RMB 6.37 billion (US$917.87 million) in revenue from its optic communication and data communication system products, up 64.3 percent year-on-year due to increased sales.
• ZTE Corp. has been selected by Zapp, Romania's fourth largest mobile operator, to roll out a WCDMA/HSDPA commercial network as well as upgrade Zapp's CDMA network to CDMA2000. Zapp plans to launch 3G commercial services in early autumn this year, and the WCDMA/HSDPA network is slated for completion by 2011. The WCDMA/HSDPA equipment to be provided by ZTE is compatible with Zapp's existing network and will be used to build a network fully dedicated to data services. The network will enhance the quality and speed of services offered by Zapp by increasing its data transfer rate from 2.4 Megabits per second (Mbps) to up to 7.2 Mbps.
• China GrenTech (GRRF) expects China's long-awaited telecoms industry overhaul to spur multi-billion dollar spending on networks and drive its revenue considerably higher in 2009. If the telecom revamp can be completed by the end of September as expected, revenue growth at GrenTech, a small-cap firm which makes networking components that can boost signals in sites from subways to skyscrapers, could rise a further 5-10 percentage points this year.

Mobile/Wireless

• China Mobile (CHL) has begun to allow ZTE, Yulong, Samsung and LG to sell TD-SCDMA handsets directly to customers through China Mobile service centers in eight cities, signaling a step from the trial of TD-SCDMA handsets to full commercialization. Prior to the move, China Mobile's service centers only sold TD-SCDMA handsets that the operator had purchased from handset manufacturers to sell to customers taking part in the trials. An official from ZTE confirmed to Interfax that ZTE has started selling TD-SCDMA handsets through China Mobile's service centers in the eight cities of Beijing, Tianjin, Shanghai, Guangzhou, Shenzhen, Shenyang, Xiamen and Qinhuangdao, where China Mobile is conducting TD-SCDMA network trials.
• China Mobile has cut short message service [SMS] fees for Beijing subscribers using the "Easy Own" service package. Subscribers to the service package will pay 10 yuan (US$1.4) for 100 short messages or 15 yuan (US$2.16) for 180 messages per month, including messages to China Unicom users. Customers who do not take this service package now pay 0.15 yuan (US$0.02) to send a short message to China Mobile users and 0.20 yuan (US$0.03) to China Unicom users. The "Easy Own" package payment plan is widely used, accounting for more than 70 percent of China Mobile's customers nationwide. There was no indication of a possible roll-out of the fee reduction outside Beijing.

Media, Entertainment and Gaming

• NetDragon Websoft, an online game developer and operator in China, plans to switch its listing to Hong Kong's main board from the growth enterprise market [GEM]. The company received in-principle approval from the listing committee of the stock exchange for the switch. It expects the company's shares to start trading on the main board from June 24, subject to shareholders' approval at a special meeting on June 12. The company made its GEM board debut in November last year.
• NetDragon Websoft also announced that the company will be added to the Morgan Stanley Capital International [MSCI] China Index, effective as of the market close on May 30, 2008. The company believes that this inclusion will further enhance its position in the international capital market.
• Digital Music Holdings is hoping to ride on the restructuring of the country's telecommunications industry to boost its profitability. A8 Digital Music promotes music from its own platform (www.a8.com), as well as from other record labels through the internet and the wireless networks of mobile operators. Most of its revenue comes from selling songs and music in the form of ring tones, ring-back tones and interactive voice responses to mobile-telephone users on the mainland.
• Beijing Gehua CATV Network Co. Ltd. [BGCTV] announced that it will invest US$17.03 million in a joint venture with two foreign companies to provide broadband access services to residents and business customers. BGCTV will have a 51 percent stake in the joint venture, while the two foreign companies, Liberty Global Inc. (LBTYA) [LGI] and PRC Venture Partners LLC, will hold the remaining 49 percent stake. The joint-venture agreement was reached based on a framework agreement signed by the three parties in October of last year. The joint venture will need a total investment of US$100 million, of which the three parties will invest US$33.4 million. The remaining funds will be raised through other methods.

Hardware

• Haier (HRELF.PK) is considering buying the consumer electrical appliance business of General Electric (GE) and is in discussion with China Development Bank on acquisition financing. The GE unit mainly covers manufacturing of electrical appliances such as refrigerators, bakers, and dish-washing machine. Haier has not yet contacted GE about the acquisition. The acquisition cost of the GE unit is estimated to reach US$4 - 8 billion.

Software

• Sybase (SY) does not expect its China business to slow with IT spending remaining steady. Sybase's major clients include China Mobile, Agriculture Bank of China, China Petroleum and Chemical Corp (SNP), Haier and the State Grid Corp of China. China Mobile last week awarded Sybase a project, for an undisclosed amount, to extend the mobile operator's international short-messaging service to 44 additional countries and over 130 operators. Sybase had first quarter global revenue growth of 13 pct year-on-year to US$260.1 million.

Investments/ Ventures

• Dragon Capital Group, a holding company of emerging high-tech companies in China, reported that its unaudited consolidated revenue for the year ended December 31, 2007 was approximately US$47.8 million, an increase of 13 percent from US$42.3 million for 2006. Gross profit on an unaudited basis for 2007 increased 53 to US$4.6 million, compared with gross profit of US$3.0 million for 2006. For the fourth quarter of 2007, the company’s consolidated revenue was US$14.3 million, an increase of 14 percent from US$12.5 million for the comparable quarter in 2006 and a sequential improvement of 21 percent from US$11.8 million for the third quarter of 2007.

Internet

• Google Inc. (GOOG) aims to become a market leader in China's Internet-search market in about five years. Google also is exploring investments in Chinese companies that focus on social networking and mobile Internet as part of its strategy to expand in China. Google has gained share and overtaken Alibaba Group's Yahoo China (ALBCF.PK) but continues to lag behind Baidu.com (BIDU). Google, based in Mountain View, California, will eventually become the leader in China. Google accounted for 26 percent of China's Internet-search revenue in the fourth quarter, up from 17 percent a year earlier. Market leader Baidu.com's share of the market rose to 60 percent from 58 percent.

Internet

As shown in the chart of China's Shanghai Composite, the index recently held its long-term uptrend, made a double bottom, and broke its short-term downtrend.

click to enlarge

Internet

• NetEase.com (NTES) announced its unaudited financial results for the quarter ended September 30, 2007, with its net profit for the quarter reaching 260.2 million yuan (US$35.1 million), compared to 312.6 million yuan (US$42.1 million) it posted for the preceding quarter. The Internet portal reported total revenues of 571.1 million yuan (US$77 million) for the third quarter of 2007, compared to 558 million yuan (US$75.2 million) for the preceding quarter. Revenues from online games, advertising and wireless value-added services revenues were 468.7 million yuan (US$63.2 million) and 85.5 million yuan respectively, compared to 475.1 million yuan (US$64.1 million) and 65.3 million yuan (US$8.8 million) for the preceding quarter. Total operating expenses reached 179 million yuan (US$24.1 million), compared to 142.8 million yuan (US$19.2 million) for the preceding quarter mainly to the rise in the spending on the promotion of promotion of Westward Journey Online III and Fantasy Westward Journey.

If you missed out on investing Baidu (BIDU), which traded below $70 per share a couple years ago and is now over $360, there are plenty of other Chinese companies that are worth looking at for investments. Baidu is China's answer to Google (GOOG), and has far outperformed Google.

Here is some interesting trivia about China:

We've been getting a number of requests for a list of Chinese ADRs recently, so we thought we'd share the list below. We sorted the list by percent change year to date, and we highlighted the ones that began trading after the start of the year.

As shown, quite a few are up more than 100% this year, but some are down quite a bit as well. Click here to download the list in Excel.

TRANSCRIPT SPONSOR

China GrenTech Corporation Limited (GRRF)
Q1 2007 Earnings Call
May 14, 2007 8:00 am ET

TRANSCRIPT SPONSOR

China GrenTech Corporation Limited (GRRF)
Q4 2006 Earnings Call
March 12, 2007 8:00 am ET

INTERNATIONAL TRADER: Beijing Expected to Tap Big 3G Winners by Jon Ogden

Highlights from EDU's prospectus can be found here. Offering details (from the most recent F1 filing):

Business:

There is also constant work on the exploitation of EMFs through clever algorithms (think Qualcomm and CDMA, etc.), and more basic infrastructure work on just getting useful transmission and detection networks built. The research, detection, and exploitation of EMFs is a wide ranging and hugely important field (microwaves, lasers, cell phones, space travel, interaction of light and matter, quantum tunneling, and it just goes on and on...).

From the F-1: