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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
Western markets may be tanking on worries about Japan’s ongoing nuclear crisis, but you’d never know it from the number of Chinese firms lining up to make new US IPOs. We’ve already reported here on upcoming offerings from the likes of net security firm Qihoo 360, video sharing site Xunlei, online group buying site Lashou and social networking site Ren Ren. Now Chinese media are reporting that a mobile security provider called Netqin and social networking firm Kaixin001 and another net company called 21ViaNet are all moving towards their own U.S. offerings. The sudden scramble is probably due in part to the end of the Western and Chinese year-end holidays, during which most activity grinds to a halt. So this would be the spring for offerings to begin anew, so to speak. I’d be surprised if more than half of these do make it to market this year. But even if just 5 or 6 of the big names do get there, look for investor fatigue to start to set in by autumn toward these China net firms.
Bottom line: The sudden surge in IPO activity by China tech start-ups could leave investors feeling tapped out, with later-to-market firms offering potential good buys.
I previously wrote about Internet security company Qihoo 360’s pending IPO (previous post) as one to be wary of, and now that call looks worth repeating as the company moves one step closer to giving investors a taste of what it has to offer. Now it seems that Qihoo, led by the controversial Zhou Hongwei, has filed to list on the New York Stock Exchange in an offering to raise $200 million (English article; Chinese article) On paper, at least, the company looks worthy of consideration. It turned profitable last year, and saw its revenue grow nearly 80 percent from 2009. But it’s anyone’s guess what’s behind the growth, especially if underhanded schemes like Qihoo’s hijacking of Tencent’s (HKEx: 700) popular QQ browser last year are among Zhou’s bag of tricks. Given his reputation as a lighting rod for lawsuits, I’d still say investors — especially ones averse to litigation — would be better served leaving their money out of this one.
Bottom line: A history of contentious litigation make Qihoo 360 an investor hot potato as it takes its first steps towards a $200 million New York IPO.
At one point, Ping An Insurance (HKEx: 2318; Shanghai: 601318), the country’s No. 2 insurer, was the talk of the town, with ambitious plans to become a diversified financial services company similar to Citigroup (NYSE: C). Now it looks like that vision may be closer to the truth than many realized. With cup in hand, Ping An has gone to the market for cash and come back with $2.5 billion from a Hong Kong investor, who now becomes a 3.5 percent owner of the company. (English article) Investors didn’t like the sale at all, which came at a discount, and dumped Ping An shares big time after the announcement. Granted, Ping An now has a big bank under its belt and thus may feel compelled to follow China’s other big banks in raising more money to cushion its balance sheet against a potential downturn in the real estate market. Given Ping An’s location and domination in Guangdong and particularly the boomtown of Shenzhen across the Hong Kong border, I see rough times ahead for the company when the downturn comes, which could hit Shenzhen especially hard.
Bottom line: Ping An’s recent cash call is a worrisome sign, as it braces for rough times ahead due to its big exposure in the real estate market of southern boomtown Shenzhen
So, who exactly is this company called Xunlei, which I wrote about a couple of weeks ago as it looked like it was moving toward an IPO later this year? (previous post) Now we hear that the video sharing site whose investors include both Google (Nasdaq: GOOG) AND its Chinese archrival Baidu (Nasdaq: BIDU) is forming forming a tie-up with the latter for an unspecified consumer-oriented downloading service. (Chinese article) It sounds like Xunlei will make its videos somehow available through the Baidu’s dominant search portal, in what sounds like a potent combination. With names like Baidu and Google behind it, Xunlei is starting to look like a very good prospect to take on some of the more established players in video sharing like money-losing Youku (NYSE: YOKU) and Tudou. I’d previously mentioned that Google might try to take out Xunlei prior to an IPO, but with both Google and Baidu vying for influence that could be more problematic. Either way, Xunlei is certainly a company to watch going forward.
Bottom line: Xunlei is a strong-looking up-and-comer, backed by Baidu and Google, that could pose some strong challenges to other video sharing sites like Youku and Tudou.
First it was the Japanese, and now it seems the Chinese are showing an interest in Hollywood. Given Japan’s failure in running two of Tinseltown’s top studios, it’s unclear to me why Hainan Airlines (Shanghai: 600221) of all companies is now interested in buying the perennially struggling MGM studios. But that’s exactly what the China Daily is reporting, following an unsuccessful bid for the studio last year. Never mind that the airline has no experience running a studio. It’s decided to bring in a partner, Enlight Pictures, a Beijing movie studio no one has ever heard of, to handle that part of the equation. I suspect that Hainan Airlines backer George Soros may be at least in part behind this bizarre bid, perhaps seeing value where no one else does. If that’s the case, I would give this deal at least a dark horse chance at success. Stranger things have happened.
Bottom line: Hainan Airlines’ strange bid for problem-plagued MGM studios could stand a small chance of success, giving China a minute foothold in Hollywood
Linked In, the social networking site for yuppies, is warning that it could potentially follow in the footsteps of its hipper younger Facebook brother and be blocked out of China by Beijing’s Great Firewall. (English article) The question to me is: Should anyone, including those considering buying into Linked In’s upcoming IPO, really care? The answer is a resounding “no”. Whereas Facebook’s lockout has allowed a bumper crop of social networking knock-offs to blossom in China, the same can’t be said for Linked In, which is still available but virtually unknown in this country. I’m sure there are plenty of guesses as to why, but the fact that the median age of a Chinese Internet user is somewhere in the teens is probably one of the main reasons. So those considering buying into Linked In should relax: this company’s future isn’t tied at all to China, nor is it likely to be anytime soon.
Bottom line: A China lock-out for Linked in would pose little or no threat to the company’s bottom line or near-term growth prospects
Word from Chinese firms with Japan operations is slowly trickling back after the devastating earthquake, with tech firms showing the most vulnerability. In the universe of companies we follow, two IT services firms, HiSoft (Nasdaq: HSFT) and Camelot Information Systems (NYSE: CIS) have both issued statements saying they expect no serious impact to operations from the quake. (HiSoft release; Camelot release). We have yet to hear from other big tech names like Alibaba (HKEx: 1688), Baidu (Nasdaq: BIDU) and Lenovo (HKEx: 992), all of which have relatively small but still sizable operations in the country. While all these companies could suffer some small negative effects in the short run, some could actually benefit in the longer term as Japan Inc seeks their goods and services to rebuild following the disaster.
Bottom line: Look for small disruptions in the near-term for names like HiSoft, Camelot and Alibaba in Japan, but a nice business bump could come when rebuilding gets underway.
Time for my latest comment on China’s homegrown automakers, and how they’re not quite ready for global prime time despite making noises in that direction. The latest to make such rumblings is indy superstar Chery, which has entered the Australia market with plans to sell — gasp — a whopping 5,000 cars there this year! (English article). Granted that Rome wasn’t built in a day, but 5,000 is hardly going to give these guys a jump start in Oz anytime soon. If we were going to handicap this race to export to the West, I’d have to give Beijing Automotive Industry Corp (BAIC) and perhaps Geely (HKEx: 175) pole position, perhaps followed by a weaker SAIC (Shanghai: 600104) and maybe BYD (HKEx: 1211), all of which have some kind of foreign connection. Chery may see the global market as ripe for its picking, but sophisticated Western buyers might find this offering, with a cheap price tag but little else in its favor, still a bit green.
Bottom line: Chery’s foray into Australia won’t go anywhere fast, with BAIC and Geely standing the best shot at being first to penetrate Western markets.
Time to turn our attention to Disney (NYSE: DIS), which was has been the subject of a slew of recent media reports on its plans to build a park in Shanghai. (English article) Most of those quote Shanghai Mayor Han Zheng as saying the park’s initial phase will cost just under $4 billion, though none says how much of those funds will come from Mickey and how much will come from Shanghai. But given Shanghai’s near fanatical zeal to land this project and one-up rival Beijing, I wouldn’t be surprised to see the next Disneyland’s host city forking out the lion’s share of money for this project, similar to what an overly zealous Hong Kong did about a decade ago. This is brilliant strategy by Disney, which gets something like 40 percent of its profit from its theme parks, in taking advantage of the huge popularity of its characters in China. I see major contributions from this park to the company’s bottom line once it opens, as hordes of Mickey fans from throughout China make the pilgrimage to Shanghai to see their favorite mouse in person.
Bottom line: The hype surrounding China’s first Disneyland in Shanghai is just getting started, with handsome rewards in store for Disney down the road.
It’s a relatively quiet news day here in China this Monday, but one of the few stories making headlines is the abrupt departure of CEO and founder Li Shanyou, also known as Kevin Li, from his video sharing site Ku6 Media (Nasdaq: KUTV) as the result of differing views with its major shareholder Shanda Interactive (Nasdaq: SNDA) chief Chen Tianqiao. (English press release; Chinese report) Now I’ll be the first to admit I know very little about KU6 and Li, beyond the fact that it’s a small company that used too be called Hurray Holdings. But I do know a bit about Chen and what a difficult and headstrong person he can be to work for or with. His past victims have included Tang Jun, another self-confident wonk in China’s tech world, and I have no doubt there have been many others. What this means for Ku6 is unclear, though I doubt it can be good. What it does reflect, however, is that Shanda’s Chen remains a difficult person with a big vision he is happy to articulate but doesn’t seem able to execute. Look for more waves for Shanda down the road as long as Chen is in charge, which seems likely to be a long while to come.
Bottom line: Ku6’s Li Shanyou is another victim in Chen Tianqiao’s hubris-filled wake, boding poorly for Chen’s Shanda flagship as he tries to build it into a diversified media powerhouse.
Anyone who doubts that China’s property slowdown is real need look no further than the latest quarterly results from real estate services firm E-House (NYSE: EJ) (results announcement). Revenue was up by 7 percent due to strength from non-brokerage services, but brokerage revenue actually fell 9 percent and operating profit tumbled by more than 30 percent. Interestingly, the company guided to first-quarter revenue growth of about 15 percent, without providing any reason for the pickup amid all the sector uncertainty. Given that admittedly small bright spot in an otherwise gloomy landscape, coupled with a recent share sell-off that has left its valuation well below that of more service-oriented rivals Soufun (NYSE: SFUN) and E-House subsidiary China Real Estate Investment Corp (Nasdaq: CRIC), E-House itself could look like a nice buy at the moment while the market waits for more clarity on the future of Chinese real estate.
VERDICT: E-House looks like a nice short-term buy vs rivals based on valuation, guardedly positive outlook, and recent sell-off
Western markets may be tanking on worries about Japan’s ongoing nuclear crisis, but you’d never know it from the number of Chinese firms lining up to make new US IPOs. We’ve already reported here on upcoming offerings from the likes of net security firm Qihoo 360, video sharing site Xunlei, online group buying site Lashou and social networking site Ren Ren. Now Chinese media are reporting that a mobile security provider called Netqin and social networking firm Kaixin001 and another net company called 21ViaNet are all moving towards their own U.S. offerings. The sudden scramble is probably due in part to the end of the Western and Chinese year-end holidays, during which most activity grinds to a halt. So this would be the spring for offerings to begin anew, so to speak. I’d be surprised if more than half of these do make it to market this year. But even if just 5 or 6 of the big names do get there, look for investor fatigue to start to set in by autumn toward these China net firms.
It turned profitable last year, and saw its revenue grow nearly 80 percent from 2009. But it’s anyone’s guess what’s behind the growth, especially if underhanded schemes like Qihoo’s hijacking of Tencent’s (HKEx: 700) popular QQ browser last year are among Zhou’s bag of tricks. Given his reputation as a lighting rod for lawsuits, I’d still say investors — especially ones averse to litigation — would be better served leaving their money out of this one.
Investors didn’t like the sale at all, which came at a discount, and dumped Ping An shares big time after the announcement. Granted, Ping An now has a big bank under its belt and thus may feel compelled to follow China’s other big banks in raising more money to cushion its balance sheet against a potential downturn in the real estate market. Given Ping An’s location and domination in Guangdong and particularly the boomtown of Shenzhen across the Hong Kong border, I see rough times ahead for the company when the downturn comes, which could hit Shenzhen especially hard.
So, who exactly is this company called Xunlei, which I wrote about a couple of weeks ago as it looked like it was moving toward an IPO later this year? (
why Hainan Airlines (Shanghai: 600221) of all companies is now interested in buying the perennially struggling MGM studios. But that’s exactly what the China Daily is reporting, following an unsuccessful bid for the studio last year. Never mind that the airline has no experience running a studio. It’s decided to
bring in a partner, Enlight Pictures, a Beijing movie studio no one has ever heard of, to handle that part of the equation. I suspect that Hainan Airlines backer George Soros may be at least in part behind this bizarre bid, perhaps seeing value where no one else does. If that’s the case, I would give this deal at least a dark horse chance at success. Stranger things have happened.
Linked In, the social networking site for yuppies, is warning that it could potentially follow in the footsteps of its hipper younger Facebook brother and be blocked out of China by Beijing’s Great Firewall. (
hardly going to give these guys a jump start in Oz anytime soon. If we were going to handicap this race to export to the West, I’d have to give Beijing Automotive Industry Corp (BAIC) and perhaps Geely (HKEx: 175) pole position, perhaps followed by a weaker SAIC (Shanghai: 600104) and maybe BYD (HKEx: 1211), all of which have some kind of foreign connection. Chery may see the global market as ripe for its picking, but sophisticated Western buyers might find this offering, with a cheap price tag but little else in its favor, still a bit green.
It’s a relatively quiet news day here in China this Monday, but one of the few stories making headlines is the abrupt departure of CEO and founder Li Shanyou, also known as Kevin Li, from his video sharing site Ku6 Media (Nasdaq: KUTV) as the result of differing views with its major shareholder Shanda Interactive (Nasdaq: SNDA) chief Chen Tianqiao. (
admittedly small bright spot in an otherwise gloomy landscape, coupled with a recent share sell-off that has left its valuation well below that of more service-oriented rivals Soufun (NYSE: SFUN) and E-House subsidiary China Real Estate Investment Corp (Nasdaq: CRIC), E-House itself could look like a nice buy at the moment while the market waits for more clarity on the future of Chinese real estate.
