Chinese Tech Stock Weekly Summary

by: IRG Ltd

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


• Analysts say (NASDAQ:BIDU) needs to further diversify from a search-service provider into an integrated Internet company. BDA China, an industry consulting firm, forecasts that the rate of annual revenue growth at Baidu may slow to 30 percent within five years, owing to the company's increased base. Baidu will also be spending more on a wider range of product lines, as it looks to compete in areas dominated by other Internet companies such as Tencent Holdings and Alibaba Group. Baidu is launching an instant-messaging service and a customer-to-customer online auction platform. A service letting customers receive search results by phone is also in the works. Baidu has also teamed up with Omniture (OMTR), a provider of online-business software, to help companies market in China. However, problems such as a vacancy in the chief financial officer's slot and lawsuits over Baidu's music services are some of the issues weighing Baidu down.

• Tencent Holdings reported a 47.2 percent rise in profit on increasing sales from online advertising, online games and virtual identity products. Last year's profit grew 1.6 billion yuan (US$221.1 million) from 1.1 billion yuan (US$150.3 million) a year earlier. Revenue rose 36.4 percent to 3.8 billion yuan (US$541.7 million). Driving earnings were its virtual identity products, such as avatars and virtual pets, which accounted for 1.71 billion yuan (US$242.4 million) of total revenue, up from 1.2 billion yuan (US$170.2 million) a year earlier. Revenue from online games increased to 805 million yuan (US$114.1 million) from 627 million yuan (US$88.9 million) a year earlier. Online advertising showed the most growth, surging 84.9 percent to 493 million yuan (US$69.9 million). According to the company, its portal is the most popular in China for entertainment news and general news. So, this will put Tencent in direct competition with Sina (NASDAQ:SINA) and Sohu (NASDAQ:SOHU).

• Alibaba Group was seeking investors to buy the 39 percent stake in the internet company held by Yahoo (YHOO), outlining a plan that could stop Microsoft Corp (NASDAQ:MSFT) from getting the Alibaba stock. It thinks that Microsoft is likely to win its US$42.4 billion bid to buy Yahoo, in which case the Chinese company would prefer increased independence. Alibaba believes a 2005 agreement with Yahoo gives it a "right of first offer" to buy Yahoo's stake, which would be invoked if Microsoft buys Yahoo. Chief Executive Jerry Yang, President Susan Decker and Chief Financial Officer Blake Jorgensen, had begun a roadshow to seek support from key institutional investors in the U.S and prove the Microsoft offer was too low. Yahoo declined to comment on the Alibaba talks and Microsoft was not immediately available for comment.

• Shares of plunged to a record low even though the company reported a fourfold increase in profit. Net income grew 340 percent to 967.8 million yuan (US$137.2 million) last year, up from 219.94 million yuan (US$31.1 million) in 2006, partially benefiting from 350.5 million yuan (US$49.7 million) in interest income from oversubscriptions of its public offering in November last year. Excluding interest income, among other factors, profit would have been 678.5 million yuan (US$96.2 million), a 208.5 percent increase over a year earlier. Revenue rose 58.6 percent to 2.16 billion yuan (US$306.3 million), driven by more paying members and an increase in average spending. The results beat the estimate of six analysts polled by Thomson Financial, which anticipated a net profit of 897.6 million yuan (US$127.3 million). Nevertheless, the stock fell 20.98 percent to HK$12.20 (US$1.60), below its initial public offering price of HK$13.50(US$1.74).

• plans to invest in expansion overseas in 2008 starting with Taiwan. Among the global market, Taiwan, Hong Kong and Japan will be the first batch that it expects to enter. is expected to gain a partnership with Hong Hai Precision Industry that took a 0.35 percent stake in Ltd. through its subsidiary last year when the latter was listed on the Stock Exchange of Hong Kong. In Japan, it plans to set up a joint venture with Softbank Corp. (OTCPK:SFTBF), the nation's second largest Internet access provider. It set up a customer service center in Hong Kong and a regional headquarters for Europe as well as the first European customer service center in Swiss.


• Lehman Brothers forecasted that China United Telecommunications Ltd. will reap 40 billion yuan (US$5.7 billion) from the sale of its code division multiple access [CDMA] user base and pay 96 billion yuan (US$13.6 billion) for equity in China Netcom Group Corporation (Hong Kong) Ltd. (CN-OLD). There will be two possible ways for the merger between China Unicom (NYSE:CHU) and China Netcom, noted the global finance service provider. One way is that China Unicom will acquire China Netcom via cash plus bond issuance or new share issuance and the other one is that China Unicom will combine with China Netcom equally.

• Credit Suisse (NYSE:CS) expects Unicom to benefit the most from the restructuring plan as the wireless phone company will likely sell its CDMA assets at a premium and ensure its future profitability as it swaps assets with China Netcom. According to CS, Unicom will have better bargaining power and its minority shareholders should be protected under the Hong Kong listing rules as they will likely be asked to vote on deals relating to the sale of the company's assets. Credit Suisse has upgraded the stock to an “outperform” from a “neutral” and raised its price target to HK$24.00 from HK$15.50 on the expectation that China will formally announce a restructuring plan this quarter.

• China Satcom is likely be broken up during China's impending telecom industry restructure, and its terrestrial business acquired by China Telecom (NYSE:CHA) and its satellite business merged with China Direct Broadcast Satellite Co. Ltd. Guo Hao, vice president of China Satcom, will become China Telecom's vice president. Previous rumors about China's telecom industry reshuffle stated that China Telecom will acquire China Unicom's CDMA business, China Unicom's GSM business will merge with China Netcom and China Mobile (NYSE:CHL) will merge with China Tietong. Previous rumors did not mention China Satcom.

• China Mobile targets 80 million new users as profit rises to 87 billion yuan (US$12.3 billion). The company aims to sign up more than 80 million new customers this year to maintain its strong growth before an expected industry restructuring starts. The company said net profit for the year totaled 87 billion yuan (US$12.3 billion), up 31.9 percent from 2006, and operating revenue rose to 356.9 billion yuan (US$50.6 billion), 20.9 percent higher than the previous year. China Mobile will distribute a final dividend of HK$1.16 (US$0.15) per share and a special final dividend of HK$1.6 cents (US$0.20 cents), taking its dividend for last year to HK$2.098 per share (US$0.27). China Mobile would pay out only 43 percent of its net profit as dividends this year as it needed cash in case investment opportunities arose.

• China Mobile has budgeted 127 billion yuan (US$18 billion) for capital spending, up from 105.1 billion yuan (US$15 billion), with about 55 per cent of it going to expanding core networks in an effort to maintain fast subscriber growth. Along with the company’s target is to gain 80 million subscribers this year, it expects voice traffic to continue to grow about 45 percent this year. China Mobile added a record of more than seven million subscribers last month. The company vowed to maintain the pace of new customer growth, saying the penetration rate in rural areas was still low. China Mobile’s growth engines include new subscribers from rural villages, where mobile penetration is only 19 percent, compared with almost 40 percent in the cities.

• China Telecom and Sprint (NYSE:S) are collaborating to complement Sprint's Global MPLS capabilities for customers in China by interconnecting the IP VPN networks of the two companies. This strategy includes establishing multiple, redundant network-to-network interconnection [NNI] agreements between Sprint and China Telecom in the Asia-Pacific region so customers can experience the same congestion-free connectivity within China and the security, redundancy and quality of service they have come to expect on the Sprint Global MPLS network. This relationship allows Sprint to extend its existing capabilities and footprint in China by giving Sprint customers access to the full range of capabilities inherent in China Telecom's Next Convergence Network [CN2] with coverage in more than 200 cities and 600 routers across the country, at a time when more and more businesses look to expand operations to and within China.

Media, Entertainment and Gaming

• Focus Media Holding (NASDAQ:FMCN) has been accused of sending millions of junk messages to mobile users every day. China Central Television [CCTV] said that Focus Media held personal information on about half of the country's five million mobile-phone users. A computer connected to a messaging machine is able to send out about 600 short messages per hour. Focus Media, using several of those machines, is sending about 200 million short messages to mobile users each day, a CCTV report said. The report also said several mobile advertising firms collected mobile users' personal information, including gender, age and income, from banks illegally. The government would keep a close eye on the situation and forbid any illegal transfer of personal information and spreading of deceitful advertisements to mobile users.

• A Chinese music website was ordered to pay 150,000 yuan (US$21,117) to the Taiwan branch of the EMI Group Hongkong Ltd. for broadcasting 165 unauthorized songs, a local court ordered. Hangzhou Xuancai Culture and Art Design Co. Ltd, the owner of, was ordered to compensate and apologize to the website within 30 days for copyright and authorship violations. EMI alleged Xuancai had broadcasted the 165 songs without authorization. It had also misrepresented the authors of 29 songs on its website between September 2006 to February 2007. It filed suit later and asked the company to apologize on its website and to pay compensation of 500,000 yuan (US$70,422) and pay legal costs.

• NetDragon Websoft Inc. will postpone its plan of getting listed on the main board of the Stock Exchange of Hong Kong from the Growth Enterprise Market [GEM] due to turbulence in the capital market. The company is scheduled to release its financial report for the fourth quarter of 2007 on March 20, 2008, which is its first financial report since its debut on the GEM on November 2, 2007. The company intends to kick off the stock moving plan before unveiling the 2007 financial report. However, so far, NetDragon has not filed related application with the Stock Exchange of Hong Kong and its board of directors has no plans to discuss the matter in the coming meeting, added the sources.

Disclaimer: IRG is not responsible for the accuracy of the news compiled within this article, which is based on publicly available information.