Journalist China

Business news from China By Doug Young.
Doug Young, journalist, has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies.

He is based in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.
He contributes regularly to a wide range of publications in both China and the west, including Forbes, CNN, Seeking Alpha and Reuters, as well as Asia-based publications including the South China Morning Post, Global Times, Shanghai Daily and Shanghai Observer

LDK Cuts, Suntech Waits As Solar Winter Nears End 太阳能行业冬季将结束：赛维裁员，尚德等待

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Spring could be coming soon for embattled solar cell makers, according to the chief executive of industry leader Suntech (NYSE: STP), who said the sector could return to the profit column by the end of the year. Unfortunately, that could be too late for weaker players like LDK Solar (NYSE: LDK), which is reportedly making massive layoffs as it struggles just to survive through the current solar winter. The last year has been a tough one for solar cell makers, which have seen prices plunge amid a huge supply glut and the threat of anti-dumping tariffs by western markets like the US and Europe, which accuse Beijing of unfairly subsidizing its industry. But recent stabilization of prices and signs that US punitive tariffs won’t be as harsh as many feared (previous post) have brought some new optimism back to the space, leading Suntech Chairman Shi Zhengrong to forecast that his company and the entire industry should return to profitability by around the fourth quarter of this year. (English article) He added that shipments will begin to rise on a sequential basis starting in the second quarter of this year as manufacturers finish clearing out old inventory accumulated during the industry’s worst-ever downturn. From that point, margins should start to improve, helping companies to pare their losses and make it back to the black by the end of the year. Investors seem cautiously optimistic on the future, with Suntech shares rising sharply at the beginning of the year before giving back a lot of the gains in recent weeks. Still, at current levels they are about 20 percent above their all-time lows reached last year, and I would expect them to gradually rise through the year barring any unforeseen new developments. While Suntech and its healthier peers may have the resources to weather the next 8 or 9 months, the same might not be true for LDK, which is implementing mass layoffs in its struggle to survive through the current downturn, according to domestic media reports citing unnamed company sources. (Chinese article) LDK isn’t commenting, but it is struggling under a massive pile of debt, and has only survived due to a large issue of new bonds last year that many believe were purchased by Chinese government entities. Like Suntech, LDK shares also rallied sharply at the beginning of the year then gave back much of the gains, though they are also still up around 20 percent from all-time lows. Right now all solar shares are clearly moving in unison, but I would expect to see a divergence begin sometime around the middle of the year after companies starting giving their first quarter earnings reports and guidance for the rest of the year. At that point, look for healthier players like Suntech to show some strong growth potential, while weaker players like LDK could get stuck in the doldrums for a longer time — if they manage to survive the current downturn.

Bottom line: The solar power sector should see a gradual rebound for the rest of the year and could return to profits by year end, but that may be too late for some of its weaker players.

Related postings 相关文章:

◙ Solar Tariffs: US Takes Middle Road 太阳能关税：美国采取折中路线

◙ Price Trumps Tech For Solar 光伏投资者重技术但更重产品价格

◙ New Solar Storm Brews in Europe 欧盟或发起反倾销调查 中国光伏业再蒙阴影

 

China’s Resource Binge: Bubble Building 中国资源并购潮：酝酿泡沫

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Chinese resource firms have embarked on a global buying binge over the last year, paying big premiums for assets to produce commodities like oil and gold on the assumption that high prices will allow them to earn strong profits on their investments. But these billions of dollars in purchases could easily end up worthless if commodities prices return to earth in the next few years – a strong possibility for these highly cyclical industries that looks even more likely as China’s overheated economy heads for its own much-needed correction. Barely a month goes by these days without announcement of a major new purchase or other major initiative by a Chinese resource firm, with last week alone seeing three such deals. In the first, top Chinese aluminum producer Chalco (HKEx: 2600) announced it would offer nearly $1 billion to increase its stake in a Mongolian coal mining project, paying a 28 percent premium for new shares to Canada-listed Ivanhoe Resources (Toronoto: IVN). Just days later, the state-owned parent of PetroChina (HKEx: 857; Shanghai: 601857; NYSE: PTR) announced it was in talks with several major foreign oil companies, including Royal Dutch Shell, for a major project to develop shale oil in the Xinjiang region. (English article) That announcement was the latest in an ongoing series of similar domestic and off-shore deals by China’s largest oil producer as it heeds Beijing’s call to develop more expensive unconventional energy sources. And at the end of the week, Zijin Mining (Hong Kong: 2899; Shanghai: 601899), China’s largest gold miner, announced it would invest $235 million to take a controlling stake in Norton Gold Fields (Sydney: NGF), paying a 46 percent premium for shares of the Australian firm. (English article) All these companies are rushing to take advantage of high commodity prices, including oil that now sells for more than $100 per barrel and gold that continually reaches new highs. But other commodities like aluminum are already showing weakness – testimony to the highly cyclical nature of many of these commodities. The 3 deals announced last week all carry major risk for their buyers, each trying to take advantage of high global prices. Chaclo is not only paying a sizable premium for its Mongolia gamble, but the deal is also taking it into the coal and energy sector where it has little or no experience. Zijin Mining is also paying a big premium for its Australia purchase, again betting that global gold prices will remain high. PetroChina’s broader bid to develop shale oil and gas around the world carriers a high degree of risk as well, as its wide array of initiatives into this costlier energy area could end up uneconomical if oil prices ever fall back to more historical levels. (previous post) An interesting parallel to the current commodities frenzy might be the worldwide real estate bubble of the 1980s, when Japanese firms flush with cash and global aspirations embarked on a massive buying spree. That movement drove property prices to record levels in many markets, including the US, as Japanese buyers snapped up properties throughout the world under the assumption that values could only go higher. Of course, anyone who lived through that period knows the property bubble ultimately burst, bankrupting many Japanese firms and leaving the country’s major banks with huge volumes of bad loans. The current Chinese buying binge has many similar qualities, again involving major companies buying assets at big premiums and in risky areas that could easily become uneconomical if global commodity prices come down. There’s always the possibility that prices have entered a new phase and will remain at their current levels or even rise higher in the years ahead on growing demand from China and other developing markets. But if history is any indicator, the current bubble is likely to burst in the next two to three years, quite possibly leaving China’s resource firms with billions of dollars in worthless global assets.

Bottom line: China’s resource companies could end up with billions of dollars of worthless assets if commodities prices return to historical levels in the next 2-3 years.

Related postings 相关文章:

◙ China Oil Majors Step Into Troubled Waters 中海油卷入南中国海争端

◙ Int’l Miners Dig For China Dollars 外资希望搭载中国矿企全球并购的顺风车

◙ Alternate Fossil Fuels: China’s Newest White Elephant 过度追求替代性化石燃料或给中国留下大量沉重“鸡肋”

Beijing Help Undermines Huawei Image Drive 中国商务部替华为出面或适得其反

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At least it wasn’t the Public Security Bureau. That’s what the public relations people at Huawei Technologies are probably saying as they come back to work this morning, after China’s Commerce Ministry spoke out late last week in the company’s defense after Australia’s government forbid Huawei from bidding to help build a new high-speed network due to security concerns. (Chinese article) Huawei has repeatedly run into similar concerns over the past year, hitting another brick wall in the US in 2011 when it tried to bid for contracts to help upgrade that nation’s emergency communications networks. (previous post) The problem in both cases is largely related to image, as many western politicians see Huawei as a spying arm of Beijing and are thus reluctant to let it build sensitive communications networks in their countries. The background of Huawei’s media-shy founder Ren Zhengfei hasn’t helped the situation and is even the source of many of the image problems, since Ren himself was a former engineer in the People’s Liberation Army before founding Huawei more than 2 decades ago. Huawei has made repeated attempts to distance itself from Beijing, with Ren himself pointing out in a recent speech that he was rejected for Communist Party membership many years ago. After the latest Australian setback late last month (previous post), Huawei even volunteered to reveal its source code if it could re-enter the bidding, in a move to ease the security concerns. (Chinese article) But from a public relations perspective, this latest defense of the company by China’s Commerce Ministry was probably the last thing that Huawei wanted or needed to make its case to the Australian government of its independence from Beijing. From a purely perceptional point of view, having a major government agency speak out on your behalf will hardly help to convince people of your independence from government support or control. As I said at the beginning of this post, perhaps Huawei can take some consolation in the fact that the Commerce Ministry spoke out on their behalf and not the Public Security Bureau itself, which is responsible for policing China’s telecommunications networks. But if Huawei really wants to convince the world of its independence from Beijing, its public relations department might want to make a low-key call to the Commerce Ministry and other government departments and politely ask them not to speak out too much on its behalf when its bids for global contracts fail. The Commerce Ministry remarks aside, I actually think Huawei has handled the Australia setback relatively well, remaining quiet despite the rejection, unlike its outspoken reaction when it was rejected for the US contracts last year. It needs to keep up this low-key approach, including good-will measures like revealing its source code to skeptical governments, and continue the effort without Beijing’s assistance if wants to eventually break into these lucrative but difficult markets.

Bottom line: Huawei needs to conduct its campaign to break into western markets by itself without government help if it wants to prove its independence from Beijing.

Related postings 相关文章:

◙ ICBC, Huawei: It’s Cold Out There 工商银行、华为：国外市场冷清

◙ Huawei, ZTE Suffer More Setbacks 华为、中兴料将在西方市场遭遇更多挫折

◙ Huawei on PR, Spending Blitzes to Shore Up Global Prospects 华为砸钱大打公关战 打造国际形象

Lenovo Sister Firm Looks to Japan, Taobao Quits “围城”日本：弘毅想冲进去 淘宝想撤出来

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Japan’s foreign minister was in China yesterday on an official visit, so I thought I’d start the week with 2 items on Chinese companies in the notoriously difficult Japanese market, including an interesting move into the chip sector by a sister company of PC giant Lenovo (HKEx: 992) and a hasty retreat by e-commerce giant Alibaba. Let’s start with the more intriguing of the items, which is seeing Hony Capital, the high-profile technology investment arm of Lenovo parent Legend Group, pairing with US private equity giant TPG Capital to make a planned bid for bankrupt memory chipmaker Elpida (Tokyo: 6665), according to a Japanese media report. (English article) If they made a bid, the pair would join 2 other suitors, Korea’s Hynix Semiconductor (Seoul: 000660) and US-based Micron (NYSE: MU) in pursuing the Japanese company that controls 12 percent of the global DRAM market. Frankly speaking, Hynix and Micron look like much better suitors for Elpida, as both are competitors that could consolidate the Japanese company into their own operations for an industry that has been in desperate need of consolidation for the last 5 or 6 years. But the Hony-TPG pairing does include one interesting element, namely the Lenovo connection. Lenovo itself has been trying to break into Japan for years now, following its 2005 purchase of IBM’s PC assets that included sales and distribution networks in Japan. More recently Lenovo has taken over the PC assets of NEC (Tokyo: 6701), and has discussed setting up a manufacturing base in Japan. (previous post) A successful bid for Elpida could theoretically provide Lenovo with a strong DRAM supply for its Japan-based business. Still, I would be wary of such a purchase since Lenovo has little or no experience in running a DRAM operation, and it’s unclear what kind of savings it could achieve by combining its Japanese PC business with Elpida’s money-losing memory business. Moving on, the other Japanese news bit has seen Alibaba’s Taobao service officially shutter its Japanese shopping channel that was operating on a platform run by Yahoo Japan (Tokyo: 4689). (Chinese article) Alibaba made a relatively low-key move into Japan several years ago, seeking to take advantage of ties to one of its earliest investors, Japan’s Softbank (Japan: 9984), which is also the main investor in Yahoo Japan along with Yahoo (Nasdaq: YHOO) itself. Clearly the market hasn’t proven as easy to penetrate as Alibaba had hoped, and the media report even says that sales on the Taobao Japan channel were below the company’s targets. This withdrawal doesn’t surprise me at all, as Chinese firms of all types have had a difficult time in the Japanese market, which has become famous for its impenetrability by foreign firms. The other big Chinese web firm trying to crack the market is search leader Baidu (Nasdaq: BIDU), which has spent millions of dollars over the last 3 years on a Japanese search portal with little results to show for that investment. This Taobao withdrawal from the market was completely predictable, and I wouldn’t be surprised at all to see a similar retreat by Baidu within the next 12 months.

Bottom line: A bid by a Lenovo sister company for bankrupt Japanese chipmaker Elpida is likely to fail, while Baidu is likely to follow a recent Alibaba retreat from Japan in the next 12 months.

Related postings 相关文章:

◙ Lenovo Considers Japan Production 联想向日本转移制造业务为明智公关手段

◙ NEC China Cellphones: New Lenovo Tie-Up? NEC计划重回中国手机市场 或与联想联姻

◙ Baidu Dreams of Brazil 百度试水巴西

More Proview Empty Talk in iPad Dispute 唯冠寻求禁售新款iPad将是徒劳之举

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It’s been a week since I last wrote about Apple (Nasdaq: AAPL) and even longer since I wrote about its simmering trademark dispute with a failing Chinese electronics company, so I thought I would close out this Good Friday with some comments on the latest development in that story, which appears to be slowly turning in Apple’s favor. I should start off this post by repeating that I firmly support Apple in this dispute, not because I favor the big guy over the little guy, but rather because I think Apple is in the right and Beijing should send a clear signal that it won’t allow its legal system to become a playground for irresponsible companies to extort money. But let’s move beyond that and look at the latest news, which has the company, a nearly insolvent PC monitor maker named Proview (HKEx: 334), seeking to stop the import of Apple’s new iPad model to China pending resolution of the dispute over rights to the iPad name in China. (English article) Proview’s latest move comes just days after one of its creditors launched a failed bid to push the company into bankruptcy, with Chinese officials preferring to wait until the iPad trademark dispute is resolved. A Chinese court ruled in Proview’s favor in the case last year, after the company argued it had registered the trademark in China a decade ago, even though it stopped producing any products under the iPad name several years ago. Apple had purchased rights to the iPad name in a number of markets, including China, under a broader deal before the release of its popular line of tablet computers in 2010. But for reasons that have yet to be fully explained, at least not in the media, the trademark transfer was never officially consummated in China and thus Proview was still technically the holder of the iPad name for that market. Now, rather than admit it failed to complete its part of the iPad name sale, the financially struggling Proview is seeking to use its own failure to keep its word, Proview is attempting to earn some much-needed extra money by selling Apple a trademark that it technically already sold under the earlier deal. Apple, which has appealed the case to a higher court, won a victory in Shanghai earlier this year when a court in that city ruled that Proview couldn’t block the sale of iPads in Shanghai until the appeals court made its final ruling. (previous post) I suspect that any attempts to stop import of the new iPads by Proview under this latest move will also meet with similar failure, as Chinese customs officials probably don’t want to get involved in this dispute until they absolutely have to. Meantime, I also suspect that top leaders in Beijing may be getting involved in this case, following a meeting last week between Apple’s CEO Tim Cook and Chinese premier-in-waiting Li Keqiang (previous post), and I would say the chances for a final ruling in Apple’s favor are now better than 50 percent.

Bottom line: Proview’s latest move to block the new iPad from entering China is mostly talk, as the odds for victory in its trademark dispute with Apple sink below 50 percent.

Related postings 相关文章:

◙ Apple Wins iPad Round in Shanghai: New Justice? 苹果在iPad商标侵权案中扳回一局

◙ Apple Bytes: Labor, a State Visit and Baidu 库克中国行猜想：他在下一盘很大的棋

◙ iPads: An Endangered Species in China? 中国高级司法官员应介入iPad商标权纠纷

Ford, Volvo Step on the China Accelerator 福特与沃尔沃拟在中国大幅扩张

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China’s auto market is showing all the signs of a rapid slowdown after a massive boom that saw it overtake the US as the world’s largest auto market in 2010, but don’t tell that to Ford (NYSE: F) or Volvo, which are happily discussing their latest expansion plans with local and international media. In a way, I have to admire both of these companies and many of their foreign rivals for focusing on the longer-term future rather than the next 1-2 years, which are likely to see China’s auto market post low- to middle-range single digit percentage growth as Beijing slams the brakes on the nation’s overheated economy to try to steer it to a soft landing. But at the same time, Volvo’s plan in particular looks fraught with risk, as it aims to build up a massive new manufacturing base and roll out a new brand with its Chinese parent, Zhejiang Geely, despite little or no name recognition among most Chinese consumers. Let’s take a look at the Volvo news first, which has executives at the Swedish firm finally mimicking its Geely parent by saying it wants to become a Chinese luxury brand and plans to spend $11 billion over the next few years to reach that goal. (English article) Geely founder Li Shufu had always promoted this vision for Volvo since his company purchased the money-losing Swedish brand 2 years ago, but Swedish executives at the company had resisted that vision, preferring to maintain the more mainstream image that Volvo had in the rest of the world. In this latest report, a Volvo executive is also saying the Swedish company will shoulder most or all new investment for its drive into China’s luxury car market. Those remarks are interesting because they seem to indicate that Geely, itself burdened by huge debt from the original Volvo purchase, is trying to add some distance from the massive Volvo expansion plan by making the Swedish company assume all the new debt that such an expansion will require. I don’t want to be too cynical, but such a move seems to imply that if the Volvo plan ultimately fails, responsibility for all its debt will be assumed by Volvo itself, meaning Geely could simply close the unit or let it file for bankruptcy reorganization if its ambitious plan doesn’t succeed — a very distinct possibility. Moving on to Ford, foreign media are reporting the company will spend $600 million to expand capacity at one of its passenger car factories by 60 percent, as it aims to grab more share in the China market from more established players. (English article) This plan seems a bit more modest than Volvo’s, and is part of more gradual approach to China by Ford, which came to the market relatively late through a joint venture with Chang’an Auto and is now attempting to catch up by taking share from both domestic nameplates and global rivals like GM (NYSE: GM) and Volkswagen (Frankfurt: VOWG), which came much earlier. At the end of the day I do like the fact that both Volvo and Ford are investing for the future, though I also think the Volvo plan may be a bit too ambitious and could easily see the company filing for bankruptcy in the next 5 years.

Bottom line: New expansions by Ford and Volvo in China auto are aimed at longer-term development, though Volvo’s plan looks overly aggressive and could end in financial collapse.

Related postings 相关文章:

◙ Geely Eyes Risky New Luxury Route 吉利欲走有风险的豪华车路线

◙ Geely Leans on Struggling Volvo 吉利依靠处于困境中的沃尔沃

◙ China Car Sales Sputter Out of the Gate 中国汽车销售龙年遭考验

Unicom: A Bureaucratic Mess 中国联通：官僚混乱

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I don’t like to admit this, but I’m rapidly losing both confidence and interest in China Unicom (HKEx: 762; NYSE: CHU), China’s second biggest telco, which seems to be struggling with a never-ending series of management shuffles that are diverting its attention from its real business. To make matters worse, the company is facing a major challenge from China Telecom (HKEx: 728; NYSE: CHA), the smallest of China’s 3 major carriers, which has just announced some new figures suggesting it will get even more aggressive in its highly effective campaign to steal market share from both Unicom and industry leader China Mobile (HKEx: 941; NYSE: CHL). Let’s look at Unicom first, which has made steady headlines over the last year for all the wrong reasons, mostly involving misjudgement of China’s 3G market and an endless series of management reshuffles. The latest reports center on the latter type of news, with some reports saying the company is now undergoing a shift that will combine its sales and marketing departments, while others simply say adjustments are continuing. (English article; Chinese article) I hope readers will excuse me if I sound too cynical, but Unicom is showing all the signs of a company living in China’s socialist past, when state-controlled work units and their employees had little or no interest in running an efficient business and instead were more interested in the names of their positions and departments, and loved to hold endless meetings that produced no particular results. If this is the kind of company that Unicom wants to become, then perhaps there are some bureaucrats in Beijing who will welcome this return to a friendlier socialist past. But if it wants to be a competitive company, this fixation on bureaucracy needs to end soon. Otherwise the company risks becoming irrelevant and losing its spot as China’s second largest telco to China Telecom. On that front, China Telecom has just announced it is aiming to sell 80 million 3G handsets this year, some costing as little as 300 yuan, or less than $50 each. (Chinese article) I was surprised earlier this year when a company executive implied China Telecom was aiming to add 50 million 3G subscribers this year, which equated to 35 percent growth rate to its total subscriber base from the beginning of this year. (previous post) This new 80 million handset figure implies even more aggressive growth targets, and if the company really added that many new 3G users this year it would translate to more than a 60 percent growth rate over its total user base from the beginning of the year. If the current trends continue, which looks likely, I would fully expect to see China Telecom pass Unicom by the end of this year in 3G subscribers, and could even see it passing Unicom in terms of total subscribers sometime next year.

Bottom line: An increasingly focused and aggressive China Telecom is likely to pass an increasingly mismanaged Unicom by the end of this year in terms of 3G subscribers.

Related postings 相关文章:

◙ China Telecom Turns Up Volume in 3G Drive 中国电信计划一鼓作气 3G市场欲再下一城

◙ Unicom Spends, But Can It Earn? 联通拟增加开支加强3G业务 效果有待观察

◙ China Mobile: Improvement Ahead Under New Leaders 新领导有望助中国移动复苏

More Media IPOs From People’s Daily, Shopping Channel 电视购物，继人民日报后又一计划上市的媒体

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Liberalization of China’s media sector is marching forward, with a new IPO development from the Communist Party’s flagship People’s Daily, and another from a shopping channel named Haoxiang, as players both old and young rush to raise funds and become commercial. The news comes as global media giant Disney (NYSE: DIS) may also be exploring an animation joint venture in China (previous post), and as US home shopping giant QVC is seeking to set up its own joint venture with China’s biggest radio broadcaster, China National Radio (previous post), reflecting Beijing’s recent decision to relax its grip on this sensitive sector. Let’s look at the People’s Daily first, whose previously announced plans to make an IPO for its website, Renmin Wang, has formally been approved by the securities regulator and will now begin marketing to potential investors, according to Chinese media reports. (Chinese article) Recent months have seen plans disclosed for both the People’s Daily and Xinhua to make IPOs for their websites, in highly symbolic offerings for 2 of China’s media most closely associated with state control. With this latest development, it looks like the People’s Daily’s website will be first to market, but I would expect Xinhua’s offering for its Xinhuanet to come in the next few months also assuming there are no major obstacles. Meantime, domestic media are citing an executive from a home shopping channel called Haoxiang saying the company has undergone a recent structural reform in preparation for its own upcoming IPO. (Chinese article) I’ll be the first to admit that I don’t know anything about Haoxiang, and I expect it’s probably a regional player in the increasingly competitive e-commerce space that allows shoppers to purchase products from their home over traditional television and Internet channels. Without knowing more about the company it’s hard to say whether Haoxiang’s IPO would be attractive, but it is certainly coming on the heels of a growing number of public offerings for regional media firms. Last year saw a flurry of such listings, with regional names like Jishi Media (Shanghai: 601929), Jiangsu Phoenix Publishing (Shanghai: 601928) and China Central Land Media (Shenzhen: 000719) all going to market in their drive to raise money and become more commercial. (previous post) These kinds of companies could offer an interesting investment option, as I would expect many to become acquisition targets for a few more aggressive players that are likely to emerge as consolidators for the highly fragmented market. I seriously doubt that either Xinhua or People’s Daily will be major players driving the upcoming consolidation, as both still take their orders from Beijing and have a poor track record at commercial ventures. But major media groups in big cities like Shanghai and Guangzhou could easily play the consolidator role, making them potentially interesting bets to become China’s new media giants if and when they make their own IPOs, which could happen in the next year or 2 if Beijing’s liberalization of the sector continues at its current pace.

Bottom line: The People’s Daily website  and a regional shopping channel have become the latest media players to move ahead with IPOs as Beijing loosens its grip on the sector.

Related postings 相关文章:

◙ Xinhuanet IPO Sets Stage For Media Listings 新华网IPO或将开启媒体上市热潮

◙ Jishi the Latest in Low-Key Media Listing Parade 吉视传媒加入中国媒体低调上市大军

◙ QVC Opens Shop in China QVC与中央人民广播电台合作运营电视购物频道

Disney-Tencent Talks: China Looking Animated 迪士尼与腾讯沟通动漫合作

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China may finally be opening up its animation market to foreign investment, with the latest word that none other than Disney (NYSE: DIS), arguably the world’s most famous brand in the field, is in talks with Internet leader Tencent (HKEx: 700) for a tie-up in the lucrative but largely undeveloped space. The media reports are rather vague, saying only that Tencent, China’s largest Internet company, is “communicating” with Disney about a potential animation development tie-up. (Chinese article) But any such partnership would look extremely interesting, especially as Tencent is looking to build up its online video business (previous post) in a bid to compete with industry leaders Youku (NYSE: YOKU) and Tudou (Nasdaq: TUDO), which are in the process of merging. (previous post) From Disney’s perspective, any such deal would mark a major breakthrough, following its last big advance a couple of years ago when it finally reached an agreement to build its first mainland Chinese Disneyland in Shanghai. The Shanghai Disneyland agreement was a long and torturous process, marked by nearly a decade of on-again-off-again talks that finally resulted in the big deal. Disney has a number of other smaller China initiatives, including its Disney-branded English language schools and numerous merchandise licensing agreements. But the big piece missing from Disney’s China picture to date is filmed entertainment, with the company lacking any major presence on Chinese TV and in its movie theaters apart from products imported under a strict quota system. An animation tie-up with Tencent — or any other video channel — could quickly change that situation, allowing Disney to set up a China-based animation studio that could distribute programs through its own Disney-branded TV or Internet channel, or sell content to other channel operators. DreamWorks Animation (NYSE: DWA), creator of the popular “Shrek” animated franchise, scored a major breakthrough on the China animation front early this year when it formally signed a deal to create a Chinese animation joint venture with Shanghai Media Group (SMG), China’s second largest media company. (previous post) I said at the time that the DreamWorks deal, along with a number of other smaller signals from Beijing, indicated that China might be preparing to open up its animation market to western investment, after a previous attempt to open the market about 5 years ago failed. I have to assume that Disney would only enter into talks with Tencent or any other potential partner after receiving a nod from Beijing that any eventual new venture in the sensitive media space would receive government approval. Given the current climate of opening up the media space and the recent DreamWorks deal, I would have to believe that Disney is definitely looking around for an animation partner, and is probably talking to Tencent as well as others at this early stage. If that’s the case, look for Disney to sign its own China animation joint venture in the not-too-distant future, probably by the end of this year.

Bottom line: Reports that Disney is talking to Tencent for a Chinese animation joint venture could very well be true, with Disney likely to form such a venture by the end of this year.

Related postings 相关文章:

◙ Facebook, DreamWorks in Latest China Moves Facebook、梦工厂在华最新动向

◙ Disney Bets on China Thirst for Luxury 迪士尼押注中国名品市场

◙ Tencent Sends Out Mixed Video Signals 腾讯若持股优酷 有助进军视频业

 

Qihoo: The Next Accounting Victim? 奇虎360：下一个会计丑闻受害者？

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Just when the confidence crisis that has hit US-listed Chinese stocks for nearly a year looked like it was waning, a new accounting scandal could now be brewing, this time involving security software maker Qihoo 360 (NYSE: QIHU). Readers of this space will recall that Qihoo came under attack last year by a small brokerage named Citron, which questioned the company’s user figures and said Qihoo’s stock was probably worth around $5 per share rather than the $20 range where it was trading at that time. (previous post) Now Forbes magazine has come out with a much broader report questioning many of Qihoo’s operational figures, including its advertising revenues. (Chinese article) Qihoo responded by issuing a statement “strongly rejecting” the allegations, and also threatening legal action. (Qihoo statement) As a veteran reporter, I know it’s one thing when a small brokerage questions a company’s data, as many observers will suspect that brokerage is making such allegations to make some quick profits by short selling the company’s stock. But it’s quite another thing when a big publication like Forbes makes similar or even bigger allegations, as such publications understand the risks of printing material that might be considered defamatory and are much more careful about what they publish. Such publications also strictly forbid their reporters to trade in the stocks that they write about. In this case, I’ve had a look at the Forbes article and it does indeed appear that the author, Richard Pearson, has done quite a bit of research, including trying to contact the people who sell ads that are a main revenue source for Qihoo. Nothing in his research allows him to directly accuse Qihoo of falsifying data, but many of his arguments do seem convincing about why he believes the company may be engaged in questionable accounting. I’m quite confident that Deloitte, which is Qihoo’s accountant, will feel compelled to investigate some or all of the issues pointed out in the Forbes article, and wouldn’t be surprised at all to see it resign the Qihoo account if it doesn’t like what it finds. What surprises me quite a bit is how resilient Qihoo’s stock has been despite all this controversy. Its shares were trading around $20 when the initial Citron report came out last year and went down a bit afterwards. But they have rebounded sharply since then and were even above $25 before this latest Forbes story came out. And yet despite the strong arguments in the Forbes report, Qihoo shares have only fallen a relatively modest 11 percent since the article came out, indicating investors aren’t completely convinced that there are any problems. I previously said “let the buyer beware” when Qihoo made its initial public offering last year, as the company had a history of lawsuits being filed against it as a result of some of its dubious business practices. (previous post) I would take this opportunity to reiterate that message, and would be willing to bet this latest controversy involving Qihoo is far from over.

Bottom line: An attack on Qihoo 360 by Forbes magazine marks the beginning of a new controversy for the company, in the latest of a string of accounting scandals for US-listed Chinese firms.

Related postings 相关文章:

◙ Qihoo 360 At Center of New Scandal 奇虎360陷入新的丑闻

◙ Citron Keeps Up Qihoo Assault 香橼继续攻击奇虎

◙ Inflated Qihoo Bounces Back on Hot Air

 

Baidu’s Qunar: Going Places 百度投资的去哪儿网：前途无量

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We’re getting a bit more clarity on Qunar, the online travel site that made headlines last June when it received a major investment from search leader Baidu (Nasdaq: BIDU), following the release of some new financial data showing a company that looks quite intriguing and potentially positioned to soon challenge eLong (Nasdaq: LONG) for the place as the sector’s second largest player. I’ll be the first to admit I was a bit skeptical when Baidu forked out a hefty $300 million for an unspecified stake in Qunar last year, assuming the stake was probably a minority interest and also unconvinced about the wisdom of investing in an area so far removed from Baidu’s core search business. (previous post) But now Chinese media are reporting that according to a Baidu filing with the US securities regulator, it actually purchased 62 percent of Qunar in the transaction, making it the company’s major shareholder. (Chinese article) Some quick math will show that investment values Qunar at just under $500 million. A further look will show that eLong, which I’ve long considered an industry laggard, also has a market capitalization in the same range, at just over $500 million. eLong also made headlines last November when longtime minority investor Expedia (Nasdaq: EXPE), a top US online travel agent, paid a hefty premium to boost its stake to a majority share. (previous post) But after rallying on the news, eLong shares have since given back nearly all of their gains and now trade at about $15, far below the $23 per share that Expedia paid to boost its position. All this reflects the reality that despite its longtime presence in the industry and Expedia ties, eLong has failed to ever bridge the large gap between itself and market leader Ctrip (Nasdaq: CTRP), whose market capitalization of around $3 billion means investors think it is worth six times as much as eLong. Founded in 2005, Qunar had revenue of about $23 million and a profit of about $420,000 from the time of Baidu’s mid-year purchase of its controlling stake, according to the newly released data. That would translate to annual revenue of about $46 million and a profit approaching $1 million, versus eLong’s $93 million in revenue and $6.2 million in profits last year. So clearly eLong is more profitable and twice the size of Qunar in terms of revenue; but eLong was also founded in 1999, meaning it had a 6 year head start over Qunar. Based on Qunar’s valuation from the Baidu deal and eLong’s inability to become bigger and pose a more serious challenge to Ctrip, I would say that Qunar looks like a company to watch closely, especially following the Baidu tie-up which could see it use Baidu’s hugely popular search and other sites to boost its position. If things proceed smoothly, I wouldn’t be surprised at all to see Qunar pass eLong in terms of revenue in the next 2 years, with a potential IPO for the company also possible in that timeframe.

Bottom line: New financials for Baidu-invested online travel site Qunar show a company poised to make a potential IPO and challenge eLong for the sector’s number-two spot in the next 2 years.

Related postings 相关文章:

◙ Baidu’s Takes a $300 Mln Spin on Travel Market 百度斥资3亿美元进军旅游市场

◙ Expedia Boosts China Ties, Watch Out Ctrip Expedia增持艺龙股份携程要小心了

◙ 360Buy Losing Focus With Travel Plan 京东商城涉足在线旅行服务业 偏离核心业务