Bottom line: LeTV stock will rally briefly on relief after the reappearance of its CEO, but will come under pressure again after that on concerns about an ongoing crackdown on private video operators.
After a debilitating few weeks as rumors swirled about the disappearance of its charismatic young CEO Jia Yueting, video platform operator LeTV (Shenzhen: 300104) has come roaring back after Jia gave a series of company updates during an unusual investor meeting from his Beijing hospital room. The relief over Jia’s reappearance helped to turbocharge LeTV’s shares, which jumped by their daily 10 percent limit when they resumed trading on Monday after a suspension of more than a month. The rally continued on Tuesday, helping the stock to gain back all the losses it incurred after reports about Jia’s disappearance first emerged in October.
I’ve stopped trying to understand Chinese stocks because they are so volatile and prone to wild swings due to rapidly changing investor sentiment, and LeTV is certainly no different from the rest. What’s more, the entire China stock market embarked on a huge rally starting last month, and LeTV is just now making up for time lost while its shares were suspended during that surge. Accordingly, there’s still probably some upside left in LeTV shares, though they’re likely to quickly pull back as soon as the broader Chinese stock market loses steam.
Now that we’ve looked at prospects for LeTV’s shares, let’s look at Jia’s reappearance that has gotten investors so excited. This saga began in October when people began to notice that Jia left for a trip to the US during the summer and several months later still hadn’t returned to China. Speculation began to grow that perhaps he was avoiding arrest or questioning for potential wrongdoing, amid China’s broader national crackdown on corruption. (previous post)
But last week reports began to emerge saying Jia had returned to China and was being treated in a Beijing hospital for an undisclosed illness, which was presumably one of the reasons for his prolonged absence. The latest reports say Jia was recently in Hong Kong for an operation to remove a tumor that turned out to be benign, and his condition was improving enough that his doctors allowed him to return to a Beijing hospital to continue his treatment. (Chinese article)
Seeking to quash all rumors before the stock resumed trading on Monday, Jia held a bedside meeting in his hospital room with a number of the company’s major institutional investors. He said he hoped to return to work soon, and also gave a detailed discussion of LeTV’s recent performance, including a couple of new deals.
One of those saw LeTV announce it will buy its affiliated film production unit, Le Vision Pictures, for undisclosed terms. (English article) LeTV had originally intended for Le Vision to operate independently and eventually make its own IPO, but now has changed its mind. The development looks relatively neutral to me, since many video operators like LeTV are now scrambling to develop their own exclusive programming sources as regulators clamp down on imported products.
At the end of the day, I really don’t see too much changing in the long term prospects for LeTV. It’s certainly a positive that Jia has resurfaced and doesn’t appear to be in legal trouble. But his health will continue to be a question mark, since he’s obviously trying to give investors the most upbeat picture possible.
The equally big uncertainty will be the ongoing regulatory crackdown on private video operators like LeTV and Youku Tudou (NYSE: YOKU), which has forced them to rethink their development plans and has put downward pressure on their stocks. That crackdown is designed to make sure private video operators can’t compete directly with traditional state-run TV stations, which means LeTV’s stock will almost certainly come under pressure again once China’s stock market rally runs out of steam.