Chinese Tech Stock Weekly Update

by: IRG Ltd

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


Tencent Holdings announced a 43.3 percent climb in its in second-quarter net profit to 267.9 million yuan (US$33.5 million) for the three months ended June 30 on a 111 percent increase in sales to 705 million yuan (US$88.3 million) in the period. The Internet and mobile phone value added services provider owns the mainland Internet portal, ascribed the rise to the strong growth of its online avatar and community business. Tencent said its revenue from Internet value added services went up by 172 percent to 462.3 million yuan (US$58 million) in the quarter compared with the same period last year. The company said active instant messaging accounts for its QQ service increased over the quarter by 1.7 percent to 224.2 million users compared with 170 million a year ago. Its mobile and telecommunications value-added services such as ring tones and special messages accounted for 25 percent of sales during the quarter.

The state media of China said it has closed down more than 100 web sites for copyright violations since a new regulation came into effect in July, which banned the uploading and downloading of Internet material without permission of the copyright-holder. The web sites included those that provided free downloads of movies and music. Under the regulation, anyone uploading texts, performances, sound and video recordings to the Internet for downloading, or copying, must have permission from copyright owners and pay the required fee. Details about the web sites shut down were not revealed even as some of the cases were being considered for criminal prosecution. (NASDAQ:CTRP) and, both online travel service providers, have both confirmed that from October 17, all their respective air ticket agents will be required to sell e-tickets. According to Ctrip the company's e-ticket bookings has accounted for 50 percent of the total tickets sold. The figure, according to the company, goes beyond the global average rate of 49 percent. disclosed its decision to include (NASDAQ:JOBS) to its international network in a bid to bring more recruitment resources to employers and job seekers. According to the U.S.-based firm, the recruitment landscape has changed dramatically; employers now need to have access to candidates in multiple countries. It looks to the alliance as not only introducing clients to China's most influential recruitment site and vice versa, it will allow access to the fast-growing Chinese recruitment market. Under the partnership, and 51job will have links to each other on their sites as well as sell job postings and access to their resume databases. The partnership is also expected to provide job seekers in both countries instant access to a multitude of new job opportunities in virtually every industry.


China Unicom (NYSE:CHU) announced an 11.4 percent rise in its said net profit for the second quarter to 1.4 billion yuan (US$175.5 million), up from 1.2 billion yuan (US$150.4 million) in the year-ago period. The company ascribed the growth after it cut handset subsidies for its CDMA network and boosted sales of value-added services. The company said its turnover went up by 8.2 percent to 46.7 billion yuan (US$5.8 billion) from 43.2 billion yuan (US$5.4 billion). The company disclosed that its GSM network achieved two consecutive halves of pretax profitability for its CDMA business for the first time. In the first half, it earned 295 million yuan (US$37 million) from 282 million yuan (US$35.3 million) in the second half of last year. It suffered a 482 million yuan (US$60.4 million) pretax loss a year ago. Unicom's GSM network had 100.6 million users at the end of June, while the smaller CDMA service had 34.5 million. China Mobile (NYSE:CHL) had 273.8 million users by June 30. The company said it would spend almost half of its 22 billion yuan (US$2.7 billion) capital expenditure budget this year to add capacity for 12 million more new GSM users.

Industry sources state that the number of mobile phone users in China has climbed to more than 431 million. The number, as of the end of July, showed a 44.9 percent increase over the same time last year, following the data coming from the country’s Ministry of Information Industry. The report said the country’s total number of telephone users have gone beyond 798 million at the same time.

Global Music International announced an alliance with China Unicom (CHU) for the joint development of China Unicom's wireless music services and broadcast of its music video content throughout China Unicom's cellular network. The deal calls for the joint development of China Unicom's Wireless Music services, designing the framework, perfecting the wireless music market, and establishing new digital music consumption models and concepts. The agreement also covers distribution of Global's music video programming, on a monthly subscription basis, for broadcast on mobile phones. The mobile digital music platform developed by China Unicom for both GSM and CDMA networks can support a variety of music services such as ring tone download, ring back tones, IVR, song dedications, and on-demand music video.

Media, Entertainment and Gaming

CDC Games, a wholly owned subsidiary of CDC Corporation's (NASDAQ:CHINA) Inc., announced the acquisition of the mainland China game license to Special Force from South Korean developer Dragonfly. Special Force will be free to play with players paying for virtual merchandise. Special Force will leverage the nationwide server network developed by CDC Games to support Yulgang's operations. The new game is expected to launch by the end of 2006. Software

Kingsoft Corp., a software maker, announced that it had raised US$72 million in venture funding from a group that included New Horizon Fund and GIC Special Investments, the private equity investment arm of the Singapore government, and Intel Corp. (NASDAQ:INTC). The company disclosed it is working towards an overseas listing worth US$100 million or more in the next year. Kingsoft started out as a traditional software maker, but added online games to its portfolio in 2003 to diversify into the popular area. The company said its revenues grew between 70 percent and 100 percent in the past two years and was expected to continue growing in that range this year. Kingsoft said the amount of US$72 million in new funding was intended to provide support for the company as it moves into the online game business.

CDC Corporation (CHINA) reported a 19 percent rise in its total revenue to US$77.0 million for the second quarter ended June 30, from the same period last year. The company said its adjusted net income of US$10.5 million for the second quarter of 2006 exceeded prior estimates issued on May 25, 2006, that placed adjusted net income in the range of US$5.8 million to US$6.3 million. The company said its total software revenues from its CDC Software subsidiary in were US$57.7 million, an increase of 8 percent from US$53.7 million in the second quarter 2005. Total revenues for during the second quarter 2006 were US$19.2 million, an increase of 77 percent from US$10.9 million in the same period last year.


Dazhong disclosed its plan to sell itself for 3 billion yuan (US$376.1 million). In a related development, it mentioned that it is negotiating stock transfers with three home appliance-retailing giants Suning, Best Buy (NYSE:BBY), and Gome. Earlier, Dazhong had reached an agreement with Yongle on a possible merger. The agreement did not materialize because Yongle reached another agreement with Dazhong's competitor Gome, pushing Dazhong to end the contract with Yongle. According to Dazhong, Suning was the first choice because it has fewer stores in Beijing, and the procedures of IRG Technology, Media and Telecommunications and Life Sciences Weekly Market Review Week of 20 August– 26 August 2006

ZTE Corp. revealed a 47 percent decline in its net profit in the six months to June to 347.1 million yuan (US$43.5 million) from 660 million yuan (US$82.7 million) in the same period last year. The company said its sales went up by 1.8 percent to 10.4 billion yuan (US$1.3 billion), with the gains coming from emerging markets, which posted a 25.8 percent growth to 3.9 billion yuan (US$489 million) from 3.1 billion yuan (US$388.6 million) in the same period last year. ZTE said its domestic sales saw an 8.8 percent plunge to 6.5 billion yuan (US$815 million) in the first half from 7.1 billion yuan (US$890.1 million) a year ago. The country’s second-largest telecommunications company said it has focused on emerging markets like Pakistan, Egypt, and Nigeria in search of growth because its technology is not competitive in more developed countries. The drive into such emerging markets has helped boost operating expenses up 8.4 percent and created a rise in accounts receivable to 6.3 billion yuan (US$789.1 million) as of June 30 from 4.6 billion yuan (US$576.7 million) at the same time last year.

Hong Kong-based China Netcom Group Corp. (CN-OLD), announced a 1.7 percent decline in its first-half profit from its main business to 5.7 billion yuan (US$714.6 million), against a restated 5.8 billion yuan (US$727.1 million) a year ago. The company said its turnover went up by 43.1 billion yuan (US$5.4 billion) from 42.7 billion yuan (US$5.3 billion). The company attributed the drop to its payments of higher finance charges. China Netcom said the rising number of clients using mobile phones to replace their landlines had contributed to the weakening of its voice revenue, which posted a 6.6 percent drop to 20.8 billion yuan (US$2.6 billion) from 22.3 billion yuan (US$2.7 billion). The company said its number of fixed-line subscribers posted a 1.9 percent growth to 89.6 million from 88 million a year ago. Its broadband users went up by 28.6 percent to 13.5 million from 10.5 million a year ago. China Netcom revealed that is finance charges climbed by almost 14 percent to 1.9 billion yuan (US$238.2 million) from 1.7 billion yuan (US$213.1 million). It also declared that it would continue to work with its 20 percent-owned subsidiary PCCW in Internet television, telephone directory, and mobile business in China.

Market experts point to China Telecom (NYSE:CHA) and China Netcom (CN-OLD) and other local and foreign service providers as leading efforts to generate greater demand for contact center outsourcing in the mainland. According to a new study by Frost & Sullivan Asia-Pacific, the contact center sector of the country has entered its growth period, with the mainland outsourced contact center market posting a 23.3 percent growth year on year in 2005 to reach revenues of US$126 million. The study said sales are expected to reach US$162.6 billion this year and US$872.7 billion by 2012. The study mentioned the low cost of labor as the one main factor behind the growth. Other factors helping the growth are broader Internet adoption, advanced network infrastructure development, differentiated services offerings, and improved customer care. Demand from banking, financial services, and telecommunications and information technology enterprises in China and overseas will be central to growth in the sector this decade, with the travel and hospitality industry forming the next wave of outsourcing opportunities. Frost & Sullivan said that offshore outsourcing is a global phenomenon that has driven the growth in the contact center outsourcing market in Asia-Pacific. The study also indicated that while outsourced contact center prospects in the mainland will continue to look bright, the Hong Kong sector will be challenged by low-cost operations and the larger workforce across the border. Contact center outsourcing revenues in Hong Kong totaled US$84.7 million last year, and it seen as growing only to US$92.5 million this year and US$142.1 million in 2012.

China Netcom Group and its publicly listed subsidiary Hong Kong-based China Netcom (CN-OLD) announced the completion of the sale of Asia Netcom to an Investor Group led by Ashmore Investment Management, Spinnaker Capital, and Clearwater Capital Partners. The total value of the transaction is US$402 million comprising US$169 million for the international service unit of the company owned by China Netcom (Hong Kong) and US$233 million for the company's pan-Asian submarine cable network owned by China Netcom Group. Asia Netcom operates an extensive telecom network infrastructure and services platform in the Asia Pacific region. IRG, a leading boutique investment bank focused on the TMT sector in Asia, including Japan, acted as the financial advisor to the Investor Group for this transaction.

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