Chinese Tech Stock Weekly Update

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Includes: BIDU, CHA, CHL, CHU, CTRP, GOOG, JOBS, NCTY, TOMOY
by: IRG Ltd

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

Internet

Ctrip.com (NASDAQ:CTRP) reported a 7.1 percent rise in its net profit to 61 million yuan (US$7.6 million) in the second quarter from a year ago, attributing the growth to increasing mainland travel. China’s biggest online travel company reported a 47 percent increase in its revenues to 190 million yuan (US$23.8 million). Ctrip said its revenue from hotel bookings went up by 28 percent to 118 million yuan (US$14.7 million), with air ticket booking revenues posting a 94 percent rise to 73 million yuan (US$9.1 million). The company said it sold 1.4 million tickets compared with 800,000 a year earlier. Analysts are confident that even if Ctrip’s annual revenue growth has fallen from its past high levels of 70 percent to 80 percent, it will meet its sales increase projection of 40 percent for the third quarter. Industry observers also noted that Ctrip’s sales are about three times the size of eLong, its closest rival.

The9 (NASDAQ:NCTY) reported its second-quarter net income rising to US$10.5 million, compared with US$7.4 million in the previous quarter. The online game operator declared that the growth in profit got its boost from a Chinese government subsidy of US$1.4 million, the details of which were not articulated by the company. It reported net revenue of US$32.2 million. The9, whose revenue derives much from its operation of World of Warcraft, stated that it plans to widen its offering away from that game by seeking licenses for titles from NCsoft Corp's Guild Wars to Hellgate: London published by Japan's Namco Bandai Holdings. That single game accounted for US$32 million of The9's revenue in the quarter even as the company said it plans to launch a new version of the World of Warcraft. The9 also revealed its plans for regional expansion, noting the rapid increase of online game markets in the Southeast Asian region.

51job, Inc. (NASDAQ:JOBS), a leading provider of integrated human resource services in China, announced a 26.2 percent increase in unaudited total revenues to 147.4 million yuan (US$17.8 million) from 116.8 million (US$14.6 million) for the same quarter in 2004. The company said its print advertising revenues for the second quarter of 2005 increased 22.4 percent to 90.5 million (US$10.9 million) compared with 73.9 million (US$9.2 million) for the same quarter in 2004. The revenue increase was primarily due to a greater number of recruitment advertisements placed in 51job Weekly (formerly translated as Career Post Weekly in English), which was offset by lower average revenue per page. Online recruitment service revenues for the second quarter of 2005 were 38.9 million yuan (US$4.7 million), representing a 52.5 percent growth from 25.5 million yuan (US$3.1 million) for the same quarter last year. The increase was principally attributable to a higher number of customers using the company's online recruitment services. The company said its net income for the second quarter of 2005 was 15.9 million yuan (US$1.9 million) compared with 16.4 million yuan (US$2.1 million) for the same period in 2004. For the third quarter of 2005, based on current market and operating conditions, the Company's revenue target is in the range of 145 to 155 million yuan (US$18.2 to US$19.4 million). 51job, Inc. is a leading provider of integrated human resource services in China with a strong focus on recruitment related services. 51job also provides executive search services and a number of other value-added human resource services, including training, proprietary software applications, business process outsourcing and salary surveys.

Google (NASDAQ:GOOG) revealed its plans to open a center in Shanghai in a bid to aid its expansion of its database and create services aimed at countering the presence of Baidu.com (NASDAQ:BIDU). The company said the development facility, which will be Google’s second in China, may be operational this year. The move is part of Google’s attempt to get the market share from Baidu by hiring more engineers to increase the size of its Chinese-language search database and to introduce more local services. Baidu remains the most used search site in China. According to iResearch, the Internet search market in China is seen as creating sales worth 5.6 billion yuan (US$702 million) in 2007, up from 3.6 billion yuan (US$451.2 million) this year.

Alibaba.com Corp and Yahoo (YHOO) said they are discussing with record companies on how to offer music legally over the Internet. Alibaba operates Yahoo China, the nation's second-largest search engine which provides links on its web site to illegally copied music on non-affiliated sites. Industry observers see the talks as a means to help Alibaba avoid a lawsuit by the International Federation for the Phonographic Industry on infringement charges. The federation said it plans to sue the companies in a few weeks. Alibaba's sales doubled to US$100 million in the first half from a year ago, matching its revenue for the all of last year.

Tom Online (NASDAQ:TOMO) reported a 15 percent increase in its profit to US$11.7 million but predicted revenue might go down by 35 percent in the third quarter because of new pricing rules imposed by China Mobile (NYSE:CHL). Tom Online estimated third-quarter revenue to be US$32.5 million to US$34.5 million, down by 31 to 35 percent from the same quarter last year. Its second-quarter revenue was US$50.1 million, up 17.1 percent from a year ago and 3.1 percent from the first quarter. Earlier in June, China Mobile, the mainland's largest mobile-phone carrier, said that wireless value-added service providers including Tom Online would have to confirm new subscriptions twice before they could start charging their services. This is to reduce customer complaints. The company only allowed content providers to charge handset users fixed monthly packages instead of charging on the level of usage. The company said wireless Internet business was Tom Online's single most significant income driver, rising 12.4 percent to US$45.7 million in the second quarter and accounting for 91 percent of its total revenue.

Mobile/Wireless

Analysts are saying the highly popular Xiaolingtong, a limited-range mainland wireless service may disappear within five years of the arrival of 3G mobile-phone services. Contributing to its demise is the factor of 2G operations slashing prices further to compete for customers. The device based on personal handyphone system technology, had 92 million users as of the end of June and earns fixed-line operators China Telecom Corp. (NYSE:CHA) and China Network Communications Group about 40 yuan (US$5) per month revenue per customer [ARPU]. The service has no roaming capability, with the government classifying it as an extension of the fixed-line service. As inexpensive 2G units became available, Xiaolingtong's handset production went down by 30 percent to 6 million units for the first half, from 8.7 million in 2005. With half of Xiaolingtong users also owning a China Mobile (CHL) or China Unicom (NYSE:CHU) number at the same time, analysts are looking to them as the first target for China Telecom and China Netcom to link them up to 3G.

Semiconductors

Advanced Semiconductor Manufacturing Corp., a mainland chipmaker partially owned by Royal Phillips Electronics, posted a net profit of 22.1 million yuan (US$2.7 million) in the first half, with the company ascribed the growth to the nearly 50 percent climb in its sales of eight-inch wafers. Partially owned by Royal Phillips Electronics, the Shanghai-based chipmaker said revenue posted a 51.8 percent rise to 653.8 million yuan (US$82 million) from 430.7 million yuan (US$54 million) a year ago. The firm makes five-inch, six-inch and eight-inch wafers at two fabrication plants in Shanghai. The company said the utilization rate at its two fabrication plants went up by 69 percent in the second quarter, from 62 percent in the first three months of this year. A top company official said financing costs in the first half tripled to about 32.4 million yuan (US$4 million), with the company ascribing the rise to a one-time payment to banks for refinancing a loan. The company, which gets more than half of its sales from North America, disclosed that it will pay no interim dividend.

Telecommunications

Foreign firms seeking to provide Internet service in China will be ordered to win approval from the local government ahead of such service. Foreign telecommunication companies that wish to invest in China's Internet service should apply for relative licenses. They are not allowed to bypass China's regulation procedure and make a detour into China's market, said the Ministry of Information Industry of the People's Republic of China in an announcement. The announcement said that domestic telecommunication enterprises cannot rent, transfer, or scalp the license to foreign investors. Furthermore, they should not provide any source, place, or equipment to the foreign companies that engage in telecommunication service illegally in China.