Journalist China

Storm clouds are brewing on two separate fronts for China’s telecoms sector, with a power struggle shaping up between 2 major government agencies over an anti-monopoly investigation, while leading wireless carrier China Mobile (HKEx: 941; NYSE: CHL) rushes hastily ahead with new trials for its homegrown 4G technology. First the looming power struggle, which will pit China’s powerful state planner, the National Development and Reform Commission (NDRC), against the telecoms regulator, the MIIT, over an investigation into monopolistic practices in China’s broadband market by the nation’s second and third largest carriers, China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA). Chinese media are reporting the telecoms regulator, the Ministry of Industry and Information Technology (MIIT) is preparing its own investigation into monopolistic practices in the broadband space by China Telecom and Unicom, following the NDRC’s high profile announcement last week that it was conducting its own probe. (Chinese article) This kind of turf war is quite common in China, although one seldom sees it at such a high level as this involving such major state-run companies. Look for major friction as the NDRC aggressively pursues its anti-monopoly case, while the  MIIT, many of whose former officials now work at China Telecom and Unicom, is likely to defend current industry practices. Meantime on a second unrelated front, China Mobile executives have come out and said in very high profile manner that they are launching second-phase large scale trials for their homegrown 4G standard, TD-LTE, with an aim to wrapping those trials up by next June. (English article) It made the announcement even as the initial phase of trials ran into major problems when two of the vendors fell way behind schedule, meaning the trials couldn’t be properly completed. (previous post) China Mobile is clearly rushing ahead with these trials as it wants to commercialize its 4G standard as soon as possible, allowing it to quietly retire its problem-plagued 3G network based on another homegrown technology called TD-SCDMA. But this kind of rushing ahead while earlier work remains incomplete hardly seems like the right way to proceed, and I see major problems popping up in the future for TD-LTE that could delay the technology for months or even years if China Mobile isn’t careful.

Bottom line: Storm clouds are looming for China’s telecoms sector in the form of a government power struggle over industry regulation, and a rush to develop a homegrown 4G standard.

Related postings 相关文章:

◙ Telecoms Investigation Signals Profit Erosion 电信联通遭反垄断调查或侵蚀利润

◙ China Mobile’s TD 3G Fading Fast 中国移动3G网络前景黯淡

◙ China Mobile: Poor 3G Approach Yields Weak Results 中移动3G策略不当 拖累公司三季度业绩

Forget about profits, and just show us some good top-line growth. That seems to be the message from investors for China IT outsourcing firms, following the latest results announcements from VanceInfo (NYSE: VIT) and HiSoft (NYSE: HSFT) that show solid revenue growth even as profits sank in their latest reporting quarters. VanceInfo shares shot up nearly 17 percent after its third-quarter results announcement (company announcement), while HiSoft shares also rose a more modest but still healthy 5 percent. (company announcement) In VanceInfo’s case, investors appear to be excited about accelerating revenue growth, which the company said will rise sharply to 41 percent in the fourth quarter from 26 percent growth in the third. By comparison, HiSoft said its revenue growth will be about the same in the fourth quarter as it was in the first 9 months of the year at about 45 percent. The strong revenue growth for  both companies contrasts sharply with their other US-listed peer, Camelot Information Systems (NYSE: CIS), whose results took a hit last quarter due to its reliance on business from Chinese banks, which are reining in spending under orders from Beijing. (previous post) By comparison, VanceInfo gets the bulk of its business from the telecoms sector, which is spending heavily to build new 3G networks, while HiSoft gets about three-quarters of its business from the US, Europe and Japan, which are obviously not subject to Beijing’s whimsy. Despite the rosy revenue pictures, both VanceInfo and HiSoft saw their third quarter profits drop, with the former’s net profit down by half while the latter’s fell 12 percent. Clearly this drop isn’t of concern to investors, who probably are willing to tolerate higher costs if it means the company is investing for bigger profits further down the road. I personally do like the IT outsourcing space for its big growth potential, though, like any other industry it will also be subject to cyclical tech spending. All that said, the outlook does seem to look good, especially for VanceInfo, for the next 6-12 months.

Bottom line: China’s IT outsourcing sector looks like a strong bet for the next 6-12 months, especially for companies with exposure to tech and Western markets.

Related postings 相关文章:

◙ HiSoft Looking Softer in 2011 After Strong Q1 海辉软件亮丽一季度後 今年余下时间不看好

◙  VanceInfo Underwhelms With Latest Results, Guidance 文思创新业绩平淡

◙ Bank Woes Breed Trouble in Camelot

Just a month after a frustrated Chen Tianqiao announced a plan to privatize his underappreciated Shanda Interactive (Nasdaq: SNDA), another smaller US-listed China tech firm, China Grentech (Nasdq: GRFF), has announced a similar plan. (English announcement; Chinese article) Grentech’s plan shouldn’t be too difficult in theory, as the company has a modest market cap of just $62 million, compared to Shanda’s much larger $2.2 billion. Yet rather than sparking a rally for Grentech shares, the offer to privatize the company for $3.10 per ADS actually unleashed a sell-off that saw its shares sink 4 percent to $2.76, meaning they now trade at an 11 percent discount to the offer price. Shanda’s shares have done a little better since Chen’s mid-October announcement of a potential offer to buy out his company for $41.35 per share. They climbed as high as $40 after the announcement. (previous post) and now trade at $39.50, or about a 4.5 percent discount to the offer price. Clearly in Grentech’s case there’s a high degree of skepticism about the privatization offer, which would be led by its CEO supported by fund-raising from one of China’s major brokerages, Guotai Junan. In both the Grentech and Shanda cases, the offers are the result of months of frustration that have seen US-listed China company shares plummet due to investor concerns about their accounting. Whether or not either Shanda’s Chen or Grentech’s CEO Gao Yingjie are really serious about their offers is another matter. I suspect Chen’s offer, which he previously said is non-binding, is more of a ploy to raise his company’s share price, and that the price will sink again when investors realize he has no intention of executing the plan. Grentech’s plan looks likely to fail too, but most likely because the company will be unable to secure the necessary funding. Either way, this kind of privatization scheme seems more like a desperate attempt to revive sagging company shares, and we may yet see one or two more such plans until the current confidence crisis subsides.

Bottom line: The latest privatization ploy by a US-listed China firm, Grentech, is likely to fail due to lack of financing, and reflects frustration at the ongoing confidence crisis toward such stocks.

Related postings 相关文章:

◙ CDC Kicks Off China Bankruptcy Parade 中华网打开赴美上市公司破产魔盒

◙ Shanda’s Private Ploy: For Real or Market Manipulation? 盛大拟退市：是动真格还是虚晃一枪？

◙ Accounting Scandal Claims AutoChina As Second Big Victim

I wanted to end today’s postings on a lighter note, looking at some of the latest silly reports coming out on the group buying industry that show just how unruly this sector has become and how it is badly in need of a clean up. In one of the latest reports, domestic media are saying McDonalds (NYSE: MCD) is denying it entered any tie-up to sell its meals at group-buying discounts through Gaopeng, the struggling group buying joint venture between newly listed Groupon (Nasdaq: GRPN) and leading Chinese Internet firm Tencent (HKEx: 700). (English article) It’s not at all clear what happened in this case, as the reports say that Gaopeng was offering just such deals to Beijing residents, so either the reports are wrong or McDonalds or Gaopeng are lying. Either way, this news once again underscores the chaos in the sector, whose credibility is near zero in the eyes of many consumers. In another report which looks almost like a joke, a consumer is complaining because he purchased a group-buying restaurant coupon on popular site 55tuan, and then asked for a refund when he failed to use the coupon by the expiry date, only to be told by 55tuan it didn’t provide refunds in such instances. (Chinese article) If 55tuan wanted to improve its image, it might actually consider a refund for this stupid consumer, who obviously doesn’t realize that a big piece of the profits for companies that offer group discounts probably comes from purchases of coupons that later are never used. Still, the fact that 55tuan, and probably none of its competitors, would offer refunds in this kind of case also reflects that the entire industry is losing big money due to overheated competition, and is badly in need of a clean up. The turbulent state of things was evident last week when industry leader LaShou was forced to temporarily halt its rocky New York IPO, reportedly to answer questions from the US securities regulator about its accounting. (previous post) I predicted that LaShou’s IPO application will probably now be quietly withdrawn and perhaps resubmitted next year. Of course that assumes that LaShou will still be in business next year, as I do sense that the group buying sector’s long awaited “correction” is likely to begin by the end of this year, leaving many casualties when it finally comes.

Bottom line: The latest reports of controversy in the group buying sector reflecting a state of near chaos in the space, with a correction likely as soon as the end of this year.

Related postings 相关文章:

◙ LaShou Shifts Focus in IPO March 拉手网在上市准备中有意转变战略方向

◙ China Regulors Threaten E-Commerce, Group Buying 官方监管威胁到电子商务与团购业务

◙ 55tuan: A Company in Denial 窝窝团拒不接受现实

In an otherwise low-key earnings season, beaten-up video sharing site Tudou (Nasdaq: TUDO) has perhaps provided one of the biggest surprises so far by reporting a surprise profit — the first since its troubled IPO in August. The company’s announcement that it earned a net profit of 53 million yuan in the third quarter, or about $8.2 million, marked its first-ever profit, following a 79 million yuan loss in the second quarter and a small loss in the third quarter of 2010. (English announcement; Chinese article) Tudou announced the results after New York markets closed, and I suspect the stock will get a nice bounce on Tuesday. The profitable results came on the back of a healthy 52 percent rise in net revenues, with growth expected to accelerate to 55-60 percent in the fourth quarter. Mobile service revenue nearly doubled as well, providing a valuable alternative to traditional advertising revenue. In addition, the company also joined rivals Youku (NYSE: YOKU) and Sohu (Nasdaq: SOHU) in announcing a new content licensing deal with a major Hollywood studio, in this case with Disney (NYSE: DIS) for its popular animated films from its Pixar unit. These kinds of deals are being strongly encouraged by Beijing, as it tries to wean companies off pirated material, and are critical to the long-term viability of companies like Tudou, Youku and even Baidu (Nasdaq: BIDU) The report seems to contain nothing but good news, as Tudou, after losing a race to market with Youku that cost it a valuable first-to-market premium, now appears to have finally beat its rival in the race to become profitable. The market expects Youku to report a small loss when it announces its own results on November 16 in New York, though obviously the company could also surprise by reporting a profit. (earrnings preview) Tudou’s shares now trade at less than half their $29 IPO price, closing at just over $14 on Monday, after the company made its debut into a stormy market after months of delays. Look for its shares to get a nice lift from this upbeat report, and for new rumors to circulate that Tudou, already about 10 percent owned by leading web portal Sina (Nasdaq: SINA) could become a takeover target.

Bottom line: Tudou’s surprise move into the profit column bodes well for China’s video sharing market, with similar upside news possible from rival Youku when it reports later this week.

Related postings 相关文章:

◙ Sohu’s Blowout Earnings: IPO In Store for Video? 搜狐发喜报视频业务或上市

◙ Sina Taps On Back Door Into Tudou 新浪可能收购土豆

◙ PPLive, Phoenix Video Initiatives Offer News Alternative 凤凰新媒体与PPLive的新尝试

China’s attempts in early fall to revive its struggling markets with a wave of IPOs for premier name companies had decidedly mixed results, but that hasn’t stopped a second group of major firms from announcing another wave of offerings set to raise more than $10 billion. (English article) Unlike the earlier wave of September and October offerings that saw a number of industry leaders make IPOs without much success, this new wave is composed mostly of names that are big but decidedly more middle-tier, leading me to suspect that many will be met with even less success. The latest wave of offerings has seen Sinochem announce plans to raise $5.5 billion in a Shanghai IPO (English article); New China Life seeking $2.5 billion in a dual Shanghai-Hong Kong IPO (English article); and China Railway Materials and Jiangsu Phoenix Media also seek to raise big amounts in Shanghai IPOs. Sinochem is a big name in its field, but all of the others are much less well-known. By comparison, the earlier wave of IPOs saw names like premier brokerage CITIC Securities (Shanghai: 600030; HKEx: 6030), industrial equipment giant Sany Heavy Industry (Shanghai: 600031) and Sinohydro Group (Shanghai: 601669), operator of the 3 Gorges Dam, all announce multibillion-dollar offerings in Hong Kong and Shanghai, in what looked like an orchestrated campaign by Beijing to try to add some excitement to its struggling stock markets. (previous post). CITIC Securities newly listed Hong Kong shares have done relatively well since their scaled-backed IPO in early October, but Sinohydro’s shares have slumped and Sany appears to have shelved its Hong Kong listing for now. Some are saying this latest round of IPO announcements is more a result of timing than any orchestrated effort by Beijing, as many of these companies have been waiting for a while now to list and may want to finally move ahead before the end of the year or risk having to wait until after Chinese New Year. Whatever the reason, these new IPOs are likely to fall flat if they move forward at all, and could even hurt the already-struggling broader markets by pulling investment dollars into their offerings.

Bottom line: A new wave of multibillion-dollar IPOs are likely to fall flat if they proceed, and could even hurt the broader slumping markets by drawing away investment dollars.

Related postings 相关文章:

◙ Beijing IPO Campaign to Boost Markets Falls Flat 大宗IPO提振中国股市或成泡影

◙ China Offers Up Premier IPOs to Revive Markets 大企业沪港上市 政府借机重燃沪港生机

◙

Baidu (Nasdaq: BIDU) may be China’s undisputed search leader, but others are certainly eying the market and its big profit potential, as evidenced by a major new campaign planned for next year by top Internet company Tencent (HKEx: 700) to promote its Soso search engine. (English article) This campaign looks interesting, especially for its big price tag, and underscores the fact that Tencent and others like Sohu (Nasdaq: SOHU) and Alibaba won’t just automatically yield this lucrative market to Baidu. Whether or not any of them will succeed is a different matter. According to domestic media reports, Tencent will spend a hefty 1 billion yuan, or about $150 million, to promote Soso next year, a large sum considering that Tencent has only invested slightly more, around 1.2 billion yuan, in Soso over the last 5 years combined. After years of failing to gain traction with its Sogou service, Sohu in its latest results pegged search as one area where it is finally gaining some traction, with its search revenue soaring more than 200 percent as it finally gained enough market share — around 2.2 percent — to register on industry radar screens. (previous post) Baidu is still the clear leader in the space with nearly 80 percent of the market, followed by Google (Nasdaq: GOOG) at a distant second. Soso still has yet to gain anything close to significant market share, despite its 5 years in business. But that said, Tencent has a number of factors in its favor that could help it succeed, especially if it really carries through with its massive promotional campaign next year. The company was a relative latecomer to the online game business, yet went on to draw on millions of users for its popular QQ instant messaging service to overtake giants like Shanda (Nasdaq: SNDA) and NetEase (Nasdaq: NTES) to become the top player. Its recent tie-up with Kaixin, China’s second biggest social networking site (previous post), could give it millions more potential users for its search service. This kind of access to potential users is important to grow a search business, but in my view the really critical factor is innovation. In order to really succeed and challenge Baidu, Sogou, Soso or anyone else will have to offer something new and better that Baidu doesn’t offer. Tencent has shown a good record at such innovation in the past, and will need to use that skill again in order to make its Soso succeed.

Bottom line: Tencent’s new 1 billion yuan spending campaign on its Soso search engine could have a good chance of success if it can support its promotional dollars with strong innovation.

Related postings 相关文章:

◙ New Lawsuit Has Potential to Bite Baidu 百度或因新侵权诉讼案“受伤

◙ Sohu’s Blowout Earnings: IPO In Store for Video? 搜狐发喜报视频业务或上市

◙ Baidu, ZTE Earnings: More of the Same 百度和中兴财报：看上去没变化

It seems I may have been a bit premature last week in forecasting a prolonged slowdown for China’s hotel industry, as new results released from industry leader Home Inns (Nasdaq: HMIN) and number 3 player China Lodging Group (Nasdaq: HTHT) look a bit better than the weaker results from 7 Days (NYSE: SVN) that prompted my initial forecast. (previous post) Unlike 7 Days, which forecast a slowdown in revenue growth from the third to fourth quarters (previous post), both Home Inns and China Lodging, operator of the Hanting brand, forecast their revenue growth will accelerate over that period. (Home Inns announcement; China Lodging announcement). Home Inns forecast 26 percent revenue growth in the fourth quarter, or nearly double its rate in the third, while China Lodging forecast 40-45 percent fourth-quarter growth, again nearly double its third-quarter rate. All 3 companies cited a lingering “Expo hangover” for a difficult third quarter, since the Shanghai Expo helped to strongly boost their performance in 2010’s third quarter but was absent this year. An important part of the growth equation for both Home Inns and China Lodging, which 7 Days lacks, is the franchised business, which offers higher profit margins and makes opening of new hotels faster, facilitating quicker growth than the traditional self-managed hotels business. Both Home Inns and China Lodging reported their franchised hotel business few by more than 40 percent in the third quarter, far faster than their overall hotel business. Home Inns also consolidated its place as the clear industry leader by closing its purchase of Motel 168, which will immediately boost its revenue by a third and raise its hotel count to around 1,300 — clearly ahead of 7 Days, the second biggest operator with 838 hotels. Meantime, leading online travel services firm Ctrip (Nasdaq: CTRP) released third-quarter results over the weekend that showed a less robust picture, with revenue growth expected to slow to 15-20 percent in the fourth quarter from 20 percent in the third. (company announcement) Among its various segments, hotel bookings was the weakest with just 17 percent growth, most likely reflecting the Expo effect and perhaps a broader cooling economy. That means the broader hotel segment may still be looking at moderating growth in the year ahead.

Bottom line: New results from Home Inns and China Lodging show a resumption in accelerating growth for the hotel sector, with franchised hotels playing an increasingly important role.

Related postings 相关文章:

◙ Hotels: Expo Hangover Set to Linger into 2012

◙ China Hotels: Is the Holiday Over?

◙ Hotel Consolidation Moves Ahead With 7 Days Deal 七天连锁酒店收购表明酒店业整合继续

I read with interest today that beverage giant Anheuser Busch InBev (NYSE: BEV), maker of Budweiser beer, is looking to take advantage of China’s taste for luxury goods with the launch of its Stella Artois brand as a high-end beer for the market. (English article) In my view this looks like a brilliant move to literally tap a young group of newly affluent urban Chinese who don’t mind paying a little extra for a product with a premium name. According to the report in the China Daily, InBev plans to sell Stella in China for a relatively pricey 40 yuan per bottle, or about $6.30, compared with a much lower 10 yuan per bottle for most mainstream beers. I’m no beer afficianado, and I’ll be the first to admit that from a taste perspective I’m just as happy drinking a Budweiser or Tsingtao as I am drinking a Stella. But from an image perspective, if I’m out at a bar or restaurant trying to give a good impression to business clients or friends, I’d be much more likely to order a premium brand like a Stella rather than Budweiser, which has a much more ordinary image. In this case, many Chinese are likely to feel similarly, giving this Stella campaign a good chance of success in image-conscious China. In addition, the “premium” in this case is relatively minor — just 30 yuan per bottle, which is certainly much more affordable to the average Chinese when compared with the thousands or even tens of thousands of yuan that many young urbanites spend today on super-expensive luxury items from names like Gucci, Louis Vuitton and Burberry. Last but certainly not least, InBev will be able to draw on its strong distribution and marketing infrastructure in China via its Budweiser brand, which already enjoys a slightly premium image due to the fact that it’s China’s only major mainstream brand that’s foreign. All things considered, I would give Stella a good chance of making fast inroads to China, and wouldn’t be surprised to see one or two more domestic or global premium beer brands make similar moves in the next few years.

Bottom line: InBev’s new launch of its Stella Artois beer as a premium brand looks like a smart move drawing on China’s thirst for luxury brands.

Related postings 相关文章:

◙ Coke’s China Formula: A Pulpy and a Smile 可口可乐入乡随俗显成效

◙ Diageo’s China Baijiu Bid: Aiming for the Middle 帝亚吉欧瞄准中国中档白酒市场

◙ Pepsi’s New China Shot Ignores Bigger Issues 百事联手康师傅抢占中国市场