Analyst Discusses China Stock Picks (CN, TOMO, ASIA, ZNH)

by: Ezra Marbach

David Riedel is President of Riedel Research Group, an independent research firm focused on analyzing companies in emerging markets. In the latest issue of Barron's Riedel offers his thoughts on a number of Chinese stocks (full Barron's interview here -- subscription required):

On China Netcom (ticker: CN)

....Our Beijing analyst noticed a quiet but steadily growing telephone and broad-band-services provider in northern China called China Netcom (ticker: CN). We found most of the numbers out there on the company were far too low. Our estimates are 50% above the investment banks' consensus. We believe they are missing incremental broadband revenue which will prove very profitable. As Netcom increases its penetration in northern China and the Beijing area, this will drive earnings. Even after recent strength, valuation is still very reasonable at a P/E of under 10 times forward earnings. It's a great play on increasing broadband penetration in China.

On Tom Online (ticker: TOMO)

....Tom Online (ticker: TOMO) a leading provider of wireless value-added services, is a strong performer. It has assembled a very impressive array of companies and services through a series of acquisitions. It recently formed a partnership with Warner Brothers to be its exclusive distributor of Warner Brothers media online in China. It also has a promising co-branded service with Skype -- the VoIP [voice-over-Internet protocol] provider. The shares haven't done much recently, as a result of concern over the direction of short-message and other wireless services in China. But we believe investors will be surprised by the strong contributions from Tom Online's other niche markets.

On AsiaInfo (ticker: ASIA)

....ASIAInfo (ticker: ASIA), the country's leading software and IT provider to telecom companies, which has been suffering from government-mandated delays in telecom infrastructure rollout. The company's recent acquisition of the Lenovo consulting division puts more pressure on margins.

On China Southern Airlines (ticker: ZNH)

....China Southern Airlines (ticker: ZNH) -- an airline seeing tremendous growth in revenue and passengers but whose operating-expense growth is outpacing revenue growth. The company is suffering from higher jet-fuel prices and also from poor management. We don't believe it will survive the growing competition in the airline market, following liberalization.

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