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

Geely Joins Chery on the Export Road 吉利加入奇瑞的出口车行列

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Faced with a slowing home market and stiff competition from foreign-backed rivals, China’s big domestic auto brands are increasingly looking to developing markets to revive their flagging sales, with Geely (HKEx: 175) the latest to jump on the export bandwagon. A company executive says Geely, which made headlines a couple of years ago with its purchase of Volvo, aims to overtake domestic rival Chery in the next 2 years to become China’s leading car exporter. (English article) Geely is joining Chery in the drive to overseas markets as growth in China’s domestic auto market, the world’s largest, has slowed dramatically over the last year after Beijing retired many buying incentives designed to boost domestic consumption during the global financial crisis. As the market has slowed, China’s “big 3” domestic nameplates, Geely, Chery and BYD (HKEx: 1211), all of which specialize in lower end cars, have lost steady share to other domestic rivals with big-name foreign joint venture partners. Those rivals are turning up the heat even more with a recent series of new initiatives to enter the lower end of the market, which traditionally was dominated by the domestic brands. (previous post) Under its aggressive export expansion plan, Geely will open factories this year in Belarus and Uruguay, adjacent to 2 of the world’s 5 BRICS countries, namely Russia and Brazil. Chery, which has opened one plant in Venezuela and is building another in Brazil, was China’s export leader last year with some 160,000 cars shipped abroad, and has seen strong overseas sales in the first 2 months of this year as well. From my perspective, this overseas strategy looks like a smart move as China is arguably one of the world’s most advanced countries in terms of designing and building reasonably high-quality cars costing less than $10,000 each — a combination preferred by many developing market white collar urbanites who often can’t afford the pricier models offered by big-name foreign companies like GM (NYSE: GM) and Volkswagen (Frankfurt: VOWG). GM has recently discovered the lower end of the market can be quite lucrative, developing its Chevy Sail specifically for China 2 years ago. Since its release, the Sail has become one of the nation’s best selling models, providing further headaches for the domestic nameplates. If they are smart, which appears to be the case, Chery, Geely, BYD and other export-minded domestic automakers will accelerate their overseas plans, as they should have a 2-3 year head start over the big foreign names. If they hesitate, they could easily run into the same foreign competitors in overseas markets that are already rapidly eroding their profits at home.

Bottom line: Geely’s acceleration of its export drive looks like a smart move, allowing it to leverage its expertise in low-end cars to quickly grow in other developing markets.

Related postings 相关文章:

◙ Nissan, VW Jump on China Brand Bandwagon 日产和大众进军中国低端车市场

◙ Jaguar-Chery: Veto Ahead 奇瑞联手捷豹路虎建合资厂料难获批

◙ Car Sales: Domestics Down, But Not Out 汽车销量：国产车下降，接近拐点

Investors to AsiaInfo: Let’s See Some Numbers 投资者对亚信创联并购案减失耐心

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There are several interesting items out there today on US-listed Chinese firms, led by a resounding investor yawn at news that telecoms software maker and acquisition target AsiaInfo-Linkage (Nasdaq: ASIA) is seeking more offers after a major Chinese investor made a surprise bid for the company last month. In separate but other noteworthy news, we’re getting some more financials that don’t look pretty from car rental specialist China Auto, which has filed to make a New York IPO, and are hearing about an ambitious global expansion plan from e-commerce giant 360Buy, which hopes to someday make a New York IPO to raise more than $1 billion. Let’s start with AsiaInfo-Linkage, which put out a statement on Monday saying it was seeking additional buyers after receiving an offer in February from an investment arm of China’s giant CITIC Group. (company announcement) AsiaInfo’s shares rallied after it announced the initial CITIC bid, and rose again after media reported that private equity firms including KKR and TPG had expressed interest in making competing offers. (previous post) But this latest announcement failed to excite anyone, with AsiaInfo’s shares actually dropping slightly in Monday trade even as the broader Nasdaq rallied nearly 2 percent, indicating investors may be growing impatient with all the talk and want to see some actual numbers. CITIC’s original offer price was never officially disclosed, so it’s not at all clear how much it bid and all we really know is that some media reports have said new bids could value the company at $1 billion or more, which is where the company’s current market capitalization now stands. Look for the stock to come under some pressure if no new concrete details come out soon. Moving on to other matters,  media are citing an executive from 360Buy, which also goes by the name Jingdong Mall, saying the company will set up several international sites this year to let overseas buyers purchase items on its site. This latest development, combined with similar recent announcements of major new hiring, reflect the fact that 360Buy has too much cash, after receiving over $1 billion last year in a record-high capital raising round for a privately held Internet company. The company is clearly coming under pressure from its new investors to use some of that cash to create an exciting story for a planned New York IPO, which could come this year or next. But its rapid growth is a bit worrisome, as such quick expansions frequently run into managerial and technical problems and end up creating more losses than new growth. Lastly there’s China Auto, which filed for a New York IPO early this year but has gone silent since then. Now Chinese media are reporting the company has made another IPO filing, in which it disclosed it has lost money over the last 3 years amid a rapid expansion and needs the money from an IPO to repay debt. (Chinese article) This is the first time we’ve gotten such detailed financials, and the money-losing element doesn’t bode well for the offering, following the disastrous launch last week of China’s first New York IPO this year for Vipshop (NYSE: VIPS). (previous post)

Bottom line: Investors are growing impatient with takeover target AsiaInfo-Linkage, and will put the stock under pressure until it reveals more details about potential buyout offers.

Related postings 相关文章:

◙ China Auto Wins 2012 Race For 1st US IPO 神州租车抢先成首个赴美IPO的中国企业

◙ China IPO Winter Goes On as Vipshop Flops 唯品会大跌，中国IPO冬季持续

◙ Debut Offshore IPO Looks Weak, But Not So Bad 阳光油砂上市首日表现差强人意

China Eastern’s Budget Play: Turbulence Ahead 东方航空成立廉价航空公司：将面临动荡

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I don’t usually write about China’s airlines as I don’t think the industry is very exciting as a growth story; but as a Shanghai resident I just had to comment on the big new announcement by my hometown carrier China Eastern (HKEx: 670; Shanghai: 600115; NYSE: CEA), which is forming a budget airline joint venture with Australia’s Quantas (Sydney: QAN). To put it bluntly, I would warn investors that this new venture is destined for major turbulence, if it ever even gets off the ground. Under the tie-up, the 2 sides will form a new airline under Quantas’ JetStar low-cost brand to be based in Hong Kong. (English article) The venture will start off small, with just 3 airplanes, and plans to expand that to 18 over the next 3 years. I don’t like to say bad things about my hometown airline, but frankly speaking China Eastern is the worst managed of China’s major 3 airlines, with frequent unexplained delays and so-so service, and most people I know will take any other carrier whenever they can. The airlines tried to improve its situation in 2008 when it tried to sell 24 percent of itself to Singapore Airlines (Singapore: SIA), one of Asia’s best-run airlines. But that investment was ultimatelyl blocked by Air China (HKEx: 753; Shanghai: 601111), one of China’s other big three airlines which was also a major stakeholder in China Eastern. Frankly speaking, I think that Air China deliberately sabotaged the deal to make sure China Eastern remained a weak player in the industry. I also think the system of cross-stakeholding that allowed Air China to veto the deal will be a major obstacle to China Eastern’s future development, and could easily see Air China trying to meddle in this new Quantas joint venture if it is even slightly successful — a prospect that seems highly unlikely. China Eastern executives said one of the reasons for forming a low-cost carrier was that they noticed that the company’s business- and first-class cabins often had many empty seats, which they interpreted to mean that passengers were more interested in saving money than paying for premium service. But if the airline had bothered to survey passengers who frequently fly in business and first class, it probably would have quickly learned that such travelers avoid flying on China Eastern because they don’t want to pay more only to receive its poor service and frequent delays. Strong management is key to running any successful airlines, and even more important at a budget carrier where efficient cost controls are the only way a company can earn money. Given China Eastern’s already poor management record, I would seriously doubt its ability to effectively run an efficient budget airlines, and would expect even the most cost-sensitive consumers to ultimately become fed up with its new low-cost airline and look for other options.

Bottom line: A new budget carrier from China Eastern and Quantas is destined for major operational problems, and is more than 50 percent likely to fail within its first 5 years.

Related postings 相关文章:

◙ Hainan Airlines Hits Free Market Turbulence 海南航空：自由市场是福还是祸？

◙ HNA: China’s Next Big Global Investor? 海航集团：中国下一个大型全球投资者？

◙ Hilton, Starwood Roll Out Welcome Mat for Chinese 喜达屋、希尔顿迎合中国消费者

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

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China’s export superstars Huawei and ZTE (HKEx: 763; Shenzhen: 000063) continue to face new obstacles in their quest for global legitimacy, with the former receiving a major setback in Australia as the latter comes under fire for dealings in the problematic Iranian market. Those developments reflect the uphill battle that both companies face in the eyes of western leaders, many of whom believe the these 2 telecoms equipment giants are little more than spying arms of Beijing. In the latest of a steady stream of setbacks for Huawei, Australia has officially disqualified the company from bidding for contracts to build a new $38 billion high-speed broadband network over security concerns. (English article) A frustrated Huawei disclosed the rejection, but top-level Australian officials, when questioned on the matter, were quite direct about their security concerns surrounding construction of a new National Broadband Network that aims to connect more than 90 percent of the country’s homes and offices with fiber optic cable by 2020. Australia’s Attorney-General Nicola Roxon said outright that the decision was consistent with the country’s national security policy, and Prime Minister Julia Gillard, when questioned by reporters at an unrelated event, called the decision a “prudent” one. This latest rejection comes just five months after Huawei was disqualified from another bid to help upgrade emergency telecoms networks in the US. (previous post) In that case no reason was given, but the clear implication was that security concerns were a major factor. If I were advising Huawei, I would tell it to steer clear of bids for this kind of government-backed network construction in sensitive western markets like Australia and the US, as conservative politicians will inevitably politicize the issue, scaring away even open-minded leaders who might otherwise be willing to offer Huawei and ZTE some contracts. Instead, I would advise them to focus on bids to help build networks for private telcos, as the government has much less control over such initiatives that tend to be less sensitive and more commercial. Of course, even private sector bids can be difficult, as ZTE learned about a year ago when its bid was rejected to help build new 4G wireless networks for Sprint (NYSE: S), the third-biggest US wireless carrier. (previous post) In a separate but similar new development for ZTE, that company has come under new fire after western media reported it sold a powerful surveillance system to Iran, which has been subject to numerous sanctions from the US and Europe where leaders suspect its atomic energy program is really designed to create nuclear weapons. (English article) Huawei was subject to similar criticism last year, prompting it to say it would curtail its activities in Iran, and now ZTE has responded to this latest report with similar comments. Both companies need to seriously consider hiring more public relations and strategy specialists to avoid these kinds of issues, as such consultants probably would have advised them to avoid both the US and Australian network-building bids, and also to suspend their Iranian activities and put out statements on the matter on their own initiative before being “caught” and forced to sound defensive. Huawei has made moves in that direction by hiring well connected former government and corporate officials to speak on its behalf in markets like the US, Australia and Britain. In fact, one such official, Australia’s former foreign minster Alexander Downer, who now serves on the board of Huawei’s Australia unit, spoke out after the latest rejection, calling his country’s security concerns “absurd.” Persistence and more sophisticated PR may ultimately work for both companies over the longer term. But in the meantime look for both Huawei and ZTE to face repeated rebuffs in their attempts to sell telecoms equipment in the US, Australia and even Europe — where they have posted a few successes — over at least the next couple of years.

Bottom line: The latest setbacks for Huawei and ZTE reflect high skepticism towards the pair in many western markets, with the distrust likely to halt any major new deals for the next 2 years.

Related postings 相关文章:

◙ Huawei Undermines US Push With Foolish Request 华为讨要说法很不明智唯有阻碍进军美国市场

◙ Huawei, ZTE Ratchet Up Western PR Offensives 华为和中兴加紧西方公关战

◙ ZTE Runs Out of Wind in Bid for Sprint Contract — Uh, did anyone NOT see this coming?

 

Spring Returns to Camelot 柯莱特将卷土重来

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China’s banking sector may be heading into winter (previous post), but software outsourcing specialist Camelot Information Systems (NYSE: CIS) seems to think a spending downturn by the sector that hammered its stock last year may be in the past — an assessment I only half believe. Regardless of the real situation, investors clearly liked the message from Camelot in its latest earnings report, bidding up its shares as much as 24 percent after it posted its results on Friday, though the stock finally closed up a more modest 8 percent. (company announcement) They were also encouraged by the company’s announcement that it will set up a special unit just to develop software systems for financial services clients, which are clearly emerging as one of its main customer groups. (company announcement) I’ve had a look at the results announcement, and the numbers from the fourth quarter certainly aren’t very exciting, with the company slipping into the red in terms of net profit as its revenue fell slightly for the period. But investors were clearly much more excited about the company’s 2012 guidance, which included a return to revenue growth in the first quarter and a shrinking of the company’s losses. Perhaps even more surprising, though, Camelot also gave full-year guidance predicting revenue and adjusted net income, which was always positive, would grow by a healthy 17 percent this year. The fact that the company is setting up a separate unit for its financial services business and also giving full-year guidance indicate to me that Camelot has recently signed some major long-term contracts with some of its clients, giving it the confidence that this part of the business will be stable and even post some nice growth in the year ahead. That contrasts sharply with last year, when sputtering business from its financial clients caused Camelot’s performance to sputter as well, taking a toll on its shares. (previous post) Even with the Friday rally, Camelot shares, which closed on Friday at $3.32, are still at a tiny fraction of the $20 range where they traded just a year ago, reflecting the tough road ahead for this company. The company is particularly exposed  to the China market, which accounts for much of its business, compared with rivals like HiSoft (Nasdaq: HSFT) and VanceInfo (NYSE: VIT), which get a big portion of their business from overseas markets. That diversity has helped HiSoft shares weather volatility in China more effectively over the last year, and VanceInfo has fared better than Camelot as well. So the question becomes: Is Camelot now poised for a comeback with this latest upbeat report? I would say the chances might be fair, perhaps 50-50, as clearly the company has some long-term contracts in its pocket and its revenues are small enough that its main financial clients may be reluctant to break those contracts even if their industry goes through a big downturn. But if the downturn is worse than expected — a strong possibility — I wouldn’t be surprised to see some downward revisions to Camelot’s 2012 guidance as the year goes on. On the whole, I would guess it’s chances of meeting its 2012 guidance are perhaps around 50 percent.

Bottom line: Camelot Information’s upbeat outlook for 2012 could offer an interesting buying opportunity for investors, but downward revisions to its guidance remain a strong possibility.

Related postings 相关文章:

◙ AgBank Results: First Look at Banking Winter 中国农业银行财报：银行业的冬天

◙ Bank Woes Breed Trouble in Camelot

◙ Investors in New Love Affair With IT Outsourcers 中国IT外包公司营收增长令投资者振奋

Nissan, VW Jump on China Brand Bandwagon 日产和大众进军中国低端车市场

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A growing number of big foreign car makers are developing new low-end brands and models just for the China market, with Nissan (Tokyo: 7201) and Volkswagen (Frankfurt: VOWG) the latest to make moves in that direction. These new initiatives come as the foreign giants look to keep their growth alive in China’s slowing auto market, posing a major new challenge to domestic nameplates like Geely (HKEx: 175) and Chery, which have been rapidly losing share to their better funded, more experienced foreign rivals. These moves also follow on the phenomenal success of General Motors’ (NYSE: GM) 2010 launch of the Chevy Sail, its first low-end model developed just for China which has posted growth rates in the 50 percent range for much of the last year and is now one of the nation’s best-selling models. Let’s look at the latest news first, starting with Nissan, which last week formally began production of its Venucia line of cars developed just for the China market in its partnership with Dongfeng Motors (HKEx: 489). (English article) Nissan first announced Venucia just over a year ago, so the brand itself isn’t exactly news. But all eyes will be watching to see how quickly sales grow for the first model, the D50, which will be priced starting at around 70,000 yuan, or about $11,000, which is roughly comparable to the Sail’s starting price of about 60,000 yuan. Meantime, German media are quoting a Volkswagen executive saying the company is planning to launch its own new brand to make low-priced, high quality cars for developing markets, starting at an even lower 5,000 euros per car, or about $6,600. (English article) The reports indicate that China, already one of VW’s top global markets, would be one of the primary markets for this new initiative, and I would expect the German car maker could launch the initiative with its main Chinese partner, SAIC (Shanghai: 600104). These new initiatives follow similar ones by Honda (Tokyo: 7267), which last year launched a new brand called Everus with Chinese partner Guangzhou Auto; and GM’s launching of its own made-in-China brand, Baojun, with its China partners also last year. All of these big foreign names are hoping to capitalize on China’s auto market, now the world’s largest, to develop these new brands that will combine good quality with low prices, and then export those models and technology to other developing markets like Brazil and Russia. I would expect to see the handful of other major global automakers who haven’t joined the trend yet, including Ford (NYSE: F) and Toyoto (Tokyo: 7203), hop on this new bandwagon soon, turning up the pressure on what looks like an important new growth area for everyone. Of course that will mean a potentially difficult road ahead for Geely, Chery and other domestic names like BYD (HKEx: 1211), that have largely dominated the lower end of China’s car market to date while the foreign names focused on the higher end. Look for that competition to get hotter as these new brands start rolling out more new models, potentially sending many of the Chinese brands into the red.

Bottom line: Nissan and Volkswagen’s new forays into the low-end car space are part of a broader move by foreign automakers, putting growing pressure on domestic nameplates.

Related postings 相关文章:

◙ Jaguar-Chery: Veto Ahead 奇瑞联手捷豹路虎建合资厂料难获批

◙ Honda, Guangzhou Auto Chase GM-SAIC 本田广汽“理念”将上市

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

China IPO Winter Goes On as Vipshop Flops 唯品会大跌，中国IPO冬季持续

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My earlier forecast that spring may soon arrive for US-listed China stocks may have been premature, as the year’s first IPO by Vipshop (NYSE: VIPS), a money-losing online discount retailer, has been a resounding flop just about any way you look at it. Some might say the fact that Vipshop completed the IPO at all is an accomplishment, and perhaps that’s true since its offering is the first major one by a Chinese company in New York for more than half a year. But the results of the offering and its share trading debut are both dismal from any perspective. The company initially hoped to raise up to $117 million when it first filed for its IPO, and later set a price range of $8.50 to $10.50 per American Depositary Share. But in a relatively rare development, it couldn’t even price the offering within that previously stated range, and ended up having to offer shares at $6.50 each — 24 percent lower than the bottom of the range. (English article; Chinese article) That meant the company only raised $71 million in the process, again nearly 40 percent less than the top end of its original target. Clearly investors weren’t very interested in this money-losing web firm, as overall sentiment towards US-listed Chinese companies remained weak due to a series of accounting scandals last year. If the early signals weren’t loud enough, investors voiced their lack of interest in Vipshop one last time on its Friday trading debut, bidding the shares down 15 percent to end the day at $5.50, giving it a market capitalization of $268 million. The offering marked a decidedly worse performance than the last major US offering by a Chinese company, video sharing site Tudou (Nasdaq: TUDO), whose miserable debut last August prompted other IPO candidates to indefinitely postpone their listings until the market improved. Tudou, which was also losing money, priced its offering in the middle of its range, and then saw its shares tumble 12 percent on their first trading day. So if Tudou was a failure, then it’s probably fair to call Vipshop a disaster. Vipshop is a relatively small player in China’s e-commerce space whereas Tudou is the second largest online video site, so it may not be completely fair to compare the 2. Still, the message from this latest offering is loud and clear: investors aren’t interested in Internet companies that are losing money, and even profitable companies would need to be leaders in their categories to attract much attention. That poses an interesting challenge for the handful of other companies that are moving ahead with listings. China Auto, the earliest company to file for an IPO this year, could still do ok as it’s not an Internet company and is a leader in the auto rental space. Shanda Cloudary and LaShou could be more problematic, as they’re leaders in the online literature and group buying spaces, respectively, but both are still losing lots of money. I expect all 3 of these companies to move forward with their offerings despite this chill from the Vipshop debut, but would look for all to see similar weak pricing and drops on their trading debuts.

Bottom line: Vipshop’s dismal IPO and trading debut indicate overseas investors still have little appetite for money-losing companies in China’s crowded Internet space.

Related postings 相关文章:

◙ Vipshop Takes Lead in IPO Race 维品会或成为今年首家赴美上市中国企业

◙ Outlook Cloudy As Shanda Refiles for Literature IPO 盛大文学重启赴美IPO计划

◙ China Auto Wins 2012 Race For 1st US IPO 神州租车抢先成首个赴美IPO的中国企业

Dangdang Cuts Back in Latest Internet Distress Sign 当当网战略收缩

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I’ll close out the week with the latest trouble signs for China’s overheated Internet sector, where Dangdang (NYSE: DANG), the country’s lone major listed e-commerce company, is starting scale back some of its operations to save money. Media are reporting on the cutbacks as separate newly released data is showing just how badly bloated the sector became last year, when a flood of new money gushed in from investors buying into the hype of China’s Internet growth story. Let’s look at Dangdang first, as the company is showing all the signs of becoming the latest victim to feel the pinch of super-heated competition in the e-commerce space, where it competes with big names like 360Buy, also known as Jingdong Mall, as well as online retail sites invested and operated by other global giants like Wal-Mart (NYSE: WMT) and Amazon (Nasdaq: AMZN). The latest media reports quote Dangdang CEO Li Guoqing saying his company is initiating a “strategic pullback” in its geographic coverage, in a bid to lower its transport costs. (English article) Li added his company will put more focus in the future on its VIP customers, who obviously offer better returns than the mom-and-pop buyers in smaller cities that are far more expensive to serve. His comments come after Dangdang swung squarely into the red in its latest reporting quarter, posting a net loss of nearly $21 million after earning a $2 million profit in the year-ago period. (previous post) Hyper competition in the e-commerce space is partly the result of a massive influx of money last year that saw both domestic and foreign investors pump tens of billions of dollars into start-ups and larger companies like 360Buy, which made headlines last spring when it received more than $1 billion in new funds. New data just released by venture capital tracking firm Zero2IPO shows venture capital and private equity firms, who tend to focus on start-ups with smaller investments of $1-$10 million, pumped a record $5.8 billion into young Chinese firms last year, with Internet companies emerging as the clear favorites as 276 such companies received $3.3 billion in new funds — a 3.6-fold rise over the previous year. (English article) Those figures only reflect the smaller investments that Zero2IPO tracks, but other firms like group buying sites Dianping and 55tuan received much larger sums in the hundreds of millions of dollars, truly bloating the sector. One executive at Groupon.cn, another group buying site unrelated to US giant Groupon (Nasdaq: GRPN) summarized the current situation nicely in a recent interview, saying the investors who once fawned on all these Chinese Internet companies have suddenly lost their appetite to provide new funds due to concerns of a bubble, causing companies like his to make mass layoffs just to survive. Dangdang seems big enough to survive this bubble in the long term, but look for more short-term pain at Dangdang and just about everyone else in the e-commerce and group buying spaces for the rest of this year and possibly into 2013 until the bubble finally finishes bursting.

Bottom line: Dangdang’s business scaleback and new investment data from 2011 are the latest reflections of last year’s China Internet bubble, whose bursting is starting to accelerate.

Related postings 相关文章:

◙ China IPO Train Hits Bump With Vancl Resignation 中国上市事件撞上凡客诚品CFO辞职

◙  Mid-Sized Firms Suffer First In Internet Bubble Burst 中国互联网泡沫破裂

◙ Internet Investors Seek Refuge in Big Names 互联网投资者选择性支持中国市场领头羊

 

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

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Everyone is looking closely at the latest results from China Unicom (HKEx: 762; NYSE: CHU) for signs that China’s second largest mobile carrier has finally put its house in order and can start to generate some excitement, after a dismal 2011 that saw it plagued by mismanagement issues. The results from last year reflect that turmoil, which saw the company fail to gain market share and post weak growth despite being given a big opportunity by the Chinese government to boost its position against its much bigger rival China Mobile (HKEx: 941; NYSE: CHL). Unicom reported its profit rose 14 percent for the year, while revenue was up 22 percent, both below market consensus, especially the profit figure. (English article; results announcement) In fact, the company should be posting much stronger growth as its numbers are coming off a relatively small base, and its 3G network is far superior to China Mobile’s for technological reasons. But the company has failed to capitalize on that technological advantage, with the result that its market share in 3G remained relatively steady in 2011, even as China Mobile’s share declined due to steady gains by the market’s smallest player, China Telecom (HKEx: 728; NYSE: CHA), which embarked on an aggressive marketing campaign for its own 3G network. Based on all the media reports last year, Unicom seemed to suffer from management turmoil throughout many of its major markets, as it tried to fill top positions and consistently underestimated handset demand for certain 3G models, resulting in shortages and lost sales opportunities. Among all the figures and discussion in the latest results, the most interesting seems to be Unicom’s disclosure that its margins will come under continued pressure this year due to high marketing costs, as it tries to improve its 3G network and sign up more subscribers through aggressive promotions including big handset subsidies. It said it expects its 3G business to become profitable during the year, with handset subsidies rising to about 18 percent of 3G revenue. (Chinese article) I’m not opposed to rising marketing costs, as these are largely a one-time spending item that can produce long-term revenue if Unicom can attract more new subscribers and convince them to use its service for years to come. But big spending doesn’t necessarily translate to big revenue gains, and I’m certainly not convinced that Unicom can improve its market position simply by spending more. The company’s past year of poor management is the current standard that the market expects from this company, and it desperately needs to show it can change that to make its new spending binge produce results. Otherwise, 2012 could become just another lost year for Unicom, with expenses rising but little or no growth on the top and bottom lines.

Bottom line: Unicom’s spending boost to build its 3G business in 2012 has less than a 50 percent chance unless the company can clear up its management problems.

Related postings 相关文章:

◙ New Developments, Including iPhone Deal, Heat Up 3G, 4G 中国电信iPhone销售和日益升温的3G、4G最新进展

◙ 2011: China Unicom’s Lost Year 中国联通失落的一年

◙ Sputtering Unicom’s Latest Excuse: Lack of Leadership

AgBank Results: First Look at Banking Winter 中国农业银行财报：银行业的冬天

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We’re getting a first look at what could be a long-predicted chill set to take hold in China’s bloated banking sector, with Agricultural Bank of China’s (HKEx: 1288; Shanghai: 601288) annual results showing its quarterly profit fell for the first time since it went public on slower lending and a massive provision against future bad loans. Now the big question that remains is: How long will the winter last, and how cold will it get? AgBank gave the markets a preview of what’s ahead as it became the first of China’s big four lenders to announce its annual results (earnings calendar), which revealed a 14 percent drop in its fourth-quarter profit. (English article) China Construction Bank (HKEx: 939; Shanghai: 601939), the nation’s second largest lender, is set to report later today, while ICBC (HKEx: 1398; Shanghai: 601398) and Bank of China (HKEx: 3988; Shanghai: 601988) will report next week. AgBank is considered the weakest of China’s top 4 lenders, so it’s important not to take its results as too reflective of the broader industry. Still, the numbers look less than exciting, providing a hint of things to come. (results announcement) Perhaps the most telling figure — and also a bit alarming — is the 22.8 billion yuan in provisions the bank took in 2011 against future bad loans, more than double the amount from the previous year. The increase should come as a surprise to no one, as many are predicting a jump in non-performing loans after China’s banks embarked on a lending binge in 2009 and 2010 as part of Beijing’s economic stimulus program at the height of the global financial crisis. Many of the loans made during that period were of questionable quality, especially ones for infrastructure projects to local governments that may now be in danger of defaulting. Beijing has taken a number of moves to ease the situation, including allowing banks to restructure some of those loans to delay repayment (previous post) and also letting banks raise billions of dollars in fresh new capital just 2 years after a previous money-raising wave that saw them collectively tap financial markets for more than $100 billion. Bank of Communications (HKEx: 3328; Shanghai: 601328)  became the latest lender to raise fresh capital earlier this month, collecting $8.9 billion through a private placement to mostly government entities. (previous post) AgBank itself said it has no plans to raise fresh capital, thanks in part to 50 billion yuan, or nearly $8 billion, in debt that it issued last year. Issuers of such debt seldom say who the buyers are, but I suspect the Chinese government and government-backed institutional investors were also some of the major purchasers, as Beijing has shown an increasing willingness to rescue the banks since much of their troubles are the direct result of its lending directive during the financial crisis. China bank stocks have rallied at the start of the year following a dismal 2011, but look for that rally to quickly lose momentum in the months ahead when more similar financial results start to come out.

Bottom line: AgBank’s results, including a rare drop in quarterly profit, are setting the stage for a long-awaited banking downturn, which will kill a nascent rally in China banking stocks.

Related postings 相关文章:

◙ Bocom Recapitalizes, Govt Pays the Bill 交行再融资或掀起新一轮银行再融资热潮

◙ More Banking Bad News From Minsheng 民生银行融资揭示银行业困境

◙ Beijing’s Latest Mixed Signal Bodes Poorly for Banks 中央政府最新政策预示对银行不利

Jaguar-Chery: Veto Ahead 奇瑞联手捷豹路虎建合资厂料难获批

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I hate to be overly pessimistic, but I have serious doubts about the future of a newly announced joint venture between fading domestic auto giant Chery and luxury car maker Jaguar Land Rover. More specifically, I am quite skeptical that this new tie-up will ever get the necessary approvals from Chinese regulators, which must approve all such major new investments. (English article) Let’s take a quick look at this deal, which was rumored for months before Chery and Jaguar Land Rover, owned by India’s Tata Motors (Mumbai: TTMT), made a formal announcement after finalizing details. The partnership will see the 2 sides invest up to $3 billion to build a manufacturing base in China and develop a specific brand for the market, according to media reports. Previous reports and Jaguar’s own background, coupled with a fondness for high-end cars among China’s new wealthy, all indicate the new venture will produce luxury cars, a sharp break with Chery’s own brand which is distinctly lower market though is also known for reasonably good quality. Chery desperately needs some good news in terms of new domestic initiatives, as the company’s sales have plunged in recent months as foreign joint ventures have stolen market share from domestic rivals amid a broader slowdown in China’s auto market. One of Chery’s few bright spots has been its exports, which have grown sharply in recent months to partly offset the slowdown in domestic sales. Still, the company is at a distinctive disadvantage to many of China’s other major automakers due to its lack of a strong foreign partner. So, the question becomes: is Jaguar Land Rover the partner Chery needs to revive its fortunes? There are a number of good points and bad points to such a tie-up, but in the end I’m betting the NDRC, China’s state planner which must approve the deal, will decide the bad points outweighthe good ones and veto the joint venture. The NDRC will certainly like the idea of developing a new luxury brand for the China market, and it also probably realizes that Chery really needs a foreign partner to compete with many of its rivals. But in terms of choice of partner, Jaguar Land Rover looks like a poor pick due to its small size and highly focused niche market selling very high-end cars with much more limited demand than more mainstream luxury brands like Audi (Frankfurt: VOWG), BMW (Frankfurt: BMW) and Mercedes Benz (Frankfurt: DAI). I do like the idea that Chery is trying hard to improve its outlook and bring in some new ideas from outside to boost its longer term prospects both in China and abroad. But if it’s smart, it will keep talking to other potential partners while it awaits for the final NDRC decision on this deal, which is more than 75 percent likely to be a veto.

Bottom line: China’s state planner is likely to veto a new joint venture between automakers Chery and Jaguar due to limited benefits from Jaguar due to its small size.

Related postings 相关文章:

◙ Chery Finds Foreign Partner in Jaguar 奇瑞与捷豹路虎联姻前景堪忧

◙ China Slams the Brakes on Automakers 中国为汽车行业踩刹车

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