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

News Digest: March 23, 2012 报摘： 2012年3月23日

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The following press releases and media reports about Chinese companies were carried on March 23. To view a full article or story, click on the link next to the headline.

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◙ China Mobile (HKEx: 941) Formally Announces Wang Jianzhou’s Retirement As Chairman (Chinese article)

◙ Dangdang (NYSE: DANG) Plans Strategic Pull-back (English article)

◙ China Unicom (HKEx: 762) Announces 2011 Annual Results (HKEx announcement)

◙ Agricultural Bank of China (HKEx: 1288) Announces 2011 Annual Results (HKEx announcement)

◙ China’s Geely (HKEx: 175) Hopes to Get Volvo JV Approval in H1 (English article)

◙ Latest calendar for Q4 earnings reports (Earnings calendar)

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

NetEase: Still a Gamer With WoW Renewal　　网易续签《魔兽世界》运营权

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Just a week after commending NetEase (Nasdaq: NTES) for being one of China’s few successful developers of popular online games, we’re seeing what investors really think of the company as they bid up its shares to new all-time highs after the company reaffirmed it will continue to offer its popular World of Warcraft title for at least the next 3 years. (company announcement; Chinese article) But avid gamers will quickly realize that far from being a self-developed title for NetEase, WoW is actually property of US game developer Activision Blizzard (Nasdaq: ATVI), which has just extended NetEase’s licensing deal for the wildly popular title by 3 years. The announcement sparked a rally for NetEase shares, which rose 3 percent to reach a new all-time high — a rarity for most US-listed Chinese firms whose shares all now trade well below such high points following a series of accounting scandals last year. While the renewal is certainly good news for NetEase, the Wall Street reaction highlights the fact that the company is perhaps still more dependent on games licensed from outside companies than I had  suggested in my previous posting. Investors realize that such dependence is ok when you have a hot title and a fresh licensing agreement, but can be quite dangerous when that same title fades in popularity or a licensing agreement expires. The9 (Nasdaq: NCTY) knows that lesson all too well, as it was a previous hiigh-flyer whose success was largely based on its own previous licensing agreement for World of Warcraft. Industry watchers will recall that the company lost its rights to the game to NetEase when its license expired 3 years ago, setting the company’s shares on a downward slide that have seen them lose about half their value since that major development. This new licensing deal means that NetEase looks safe as an online gaming bet, at least for the next 3 years. In the meantime, I do have to commend the company for continuing to develop its own games, even though such an approach is much riskier since it takes lots of time and money, and there’s no guarantee of success. At the same time, the company is also looking to diversify a bit beyond its dependence on games by taking steps to reinvigorate its well-known but neglected Internet portal business. (previous post) Clearly investors like the broader NetEase story, which indeed does seem to paint a picture of a company taking a small number of focused steps to keep its business growing. Now the key will be execution by continuing to develop popular new games and getting some new value out of its portal business. If it fails to do either of those well, shareholders could equally punish the company stock the same way they are rewarding it now.

Bottom line: NetEase’s new licensing deal for a popular game title will give it a 3-year cushion as it works to develop its own new game titles and relaunch its Internet portal business.

Related postings 相关文章:

◙ NetEase Name Change: Spin-Off Coming 网易更名：预示业务分拆

◙ Online Games: Where’s the Excitement? 中国网游企业增长有限

◙ SouFun, NetEase: Slowing Growth Stories 搜房网、网易：增长放缓

China Mobile Starts New Era as Wang Leaves 王建宙退休，中国移动开启新时代

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I have just one word in reaction to the news that Wang Jianzhou will formally step down from China Mobile (HKEx: 941; NYSE: CHL) from the helm of China’s dominant mobile carrier either today or tomorrow: Finally! I hate to sound so negative about Wang, as he has certainly done a lot of good things at China Mobile since taking over as chairman nearly 8 years ago. In fact, he did help the company consolidate its place as China’s dominant telco, at one point grabbing over 70 percent of the mobile market as it used its strong position to trample China Unicom (HKEx: 762; NYSE: CHU), its smaller unfocused rival. But like many chief executives, Wang was guilty of overstaying his welcome at the company he led, causing China Mobile to lose its own focus and become a stumbling giant that has recorded little or no profit growth in the last few years. According to media reports, Wang’s retirement will be formally announced either today or tomorrow, and he will be replaced by Xi Guohua, who last year was named vice chairman of China Mobile’s parent company. (Chinese article; previous post) Of course, now that Wang is finally leaving the tributes will start pouring in commending him for his fine work. One report points out that when he took over at the top of China Mobile, the company’s annual revenue was 192 billion yuan, and its net profit was 42 billion yuan. The revenue figure more than doubled to 528 billion last year, while profit nearly tripled to 125.9 billion yuan. Of course it didn’t hurt that China Mobile, as the nation’s former mobile phone monopoly, was already China’s clear leader when Wang took over, nor that the country’s market was still relatively untapped with just a quarter of the nation’s 1.3 billion people owning mobile phones at that time. Wang took advantage of those factors to aggressively consolidate China Mobile’s position during his first 5 years on the job. But as happens with many corporate leaders, he seemed to lose his focus in his last 3 years, fixating on a global expansion policy that resulted in a number of attempted overseas acquisitions that nearly all ultimately failed. As recently as earlier this month, Wang was still talking about such acquisitions — even though they have contributed nothing to the company during his tenure. (previous post) Furthermore, Wang has lost valuable ground to Unicom and smaller rival China Telecom (HKEx: 728; NYSE: CHA) by dragging his feet in developing China Mobile’s 3G service that will be critical to its future, after being ordered to build its network using an untested China-developed technology. As a result, it now only controls about 40 percent of the 3G market, far less than its two-thirds share for China’s overall mobile market. With Wang finally gone, look for Xi and Li Yue, the company’s other recently installed top leader, to start taking some interesting risks and getting more aggressive with 3G. We’ve already seen what the future could look like, following recent reports of an interesting tie-up between China Mobile and a national cable TV operator now being formed through consolidation of China’s various regional networks. Look for more of that in the year ahead, as these new leaders try and breathe some new life into China Mobile after Wang’s departure.

Bottom line: China Mobile will become a more dynamic, risk-taking company in the year ahead after the imminent departure of long-serving Chairman Wang Jianzhou.

Related postings 相关文章:

◙ Advice to China Mobile: Stay Home 建议中国移动呆在国内

◙ China Mobile Steps Up 4G Drive 中移动4G网络建设提速 年底或推商用试点

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

News Digest: March 22, 2012 报摘： 2012年3月22日

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The following press releases and media reports about Chinese companies were carried on March 22. To view a full article or story, click on the link next to the headline.

══════════════════════════════════════════════════════

◙ China Mobile (HKEx: 941) Chairman Wang Jianzhou to Retire Tomorrow (Chinese article)

◙ Blizzard (Nasdaq: ATVI), NetEase (Nasdaq: NTES) Renew World of Warcraft License in China (Businesswire)

◙ SMG’s BesTV, Bank of China (HKEx: 3988) Launch TV Banking Service (English article)

◙ Lenovo (HKEx: 992) to Shift Business PC Production to Japan – Report (English article)

◙ Jaguar Land Rover seals JV with China’s Chery (English article)

◙ Latest calendar for Q4 earnings reports (Earnings calendar)

Alibaba, Yahoo: The Never-Ending Story 阿里巴巴股份回购“马拉松”再现曙光

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It seemed like a long time since we last heard any updates on Alibaba’s never-ending quest to buy back the 40 percent stake of itself held by faded US search company Yahoo (Nasdaq: YHOO), and now we finally know why: apparently the talks broke down a month ago over a number of issues. But in a show of its determination to dump Yahoo once and for all, Alibaba’s CFO has reportedly flown to the US to meet with Yahoo’s CEO to see if a deal can still be worked out. (English article; Chinese article) Alibaba has been very vocal about its desire to buy back the Yahoo stake for the last 2-3 years, especially during the tenure of Yahoo CEO Carol Bartz, who had a stormy relationship with Alibaba founder Jack Ma before she was fired last year for unrelated reasons. Yahoo had indicated it was also willing to sell the stake as it hired a new CEO with a mandate to return the company’s core search business to health. So the talks were progressing with updates appearing in the media regularly until about a month ago when the issue disappeared. I attributed that disappearance to media fatigue, and assumed a deal would be announced whenever both sides finalized the agreement. But now it turns out the 2 sides couldn’t agree on a number of issues, including breakup fees and price. Another sticky issue reportedly was Yahoo’s insistence in structuring the deal in such a way that would allow it to avoid paying taxes on the huge gain in the value of its Alibaba stake, which it paid $1 billion for originally in 2005 but now is likely to be worth more than 10 times that amount. With so many sticking points, I’m not exactly sure how new talks between the 2 sides are likely to produce any real results unless both are willing to make some big compromises. The fact that they are indeed talking again does seem to indicate that perhaps we will see some such compromises, as this issue is one that both companies would clearly like to put behind them. From Yahoo’s perspective, the Alibaba issue remains a major distraction at a time when new CEO Scott Thompson wants to focus on fixing its core search and web portal businesses. For Alibaba, the company wants to find investors who will give its stock the respect it thinks it deserves and provide support and connections in the run-up to a potential IPO for the group that could come as soon as the next 2-3 years. At the end of the day, both companies want to see this issue settled once and for all so they can move on to more important matters. That said, look for each side to make some big compromises in the weeks ahead, with a 50 percent chance they may finally reach a deal by mid-year to bring this long and frustrating saga to an end.

Bottom line: The restarting of collapsed talks between Alibaba and Yahoo indicate both sides are ready to make major compromises in finally bringing an end to their equity relationship.

Related postings 相关文章:

◙ Alibaba Tests Waters for Group Listing 阿里巴巴试水集团整体上市

◙ Alibaba.com Privatization: Parent IPO Coming? 阿里巴巴网私有化：母公司或将上市？

◙ Alibaba: Let’s Get This Show Finished 阿里巴巴和雅虎赶紧“离婚”吧

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

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Watch out Chinese shoppers, a new big player is coming to town in the form of QVC, an American name synonymous with TV and online shopping. In a twist that looks interesting, the US shopping giant has chosen neither a TV operator or an e-commerce specialist as its Chinese partner, but rather a major radio station operator, China National Radio. (English article) The deal marks the latest in a string of new Sino-foreign tie-ups in the sensitive Chinese media market, which Beijing seems to finally be opening to foreign investment after years of keeping the sector largely closed to outsiders. It should also provide some interesting competition to existing players in both the TV and online shopping space, including shopping channels operated by the likes of Shanghai Media Group, the nation’s second largest media company, and Tianmao, the hugely successful online mall previously known as Taobao Mall, which is operated by Alibaba Group, China’s leading e-commerce company. Let’s have a quick look at the deal itself, which will see QVC take its show to China by teaming up with China National Radio to operate its CNR Mall TV channel, which also has an associated web site, in a joint venture called CNR Home Shopping Company. I’ll be the first to admit I’ve never heard of CNR’s shopping channels, and suspect they are tiny players in both the TV and online shopping markets. The entry of this well-known US partner into the equation could quickly change that, however, as QVC is hugely popular in the US, where it pioneered the home shopping concept and has exported the idea to places like Britain, Germany and Japan. Of course, the entry of a strong foreign partner is far from a guarantee for success, as other big media names like Viacom (NYSE: VIAb) have joined forces with major Chinese media groups in the past only to see those ventures fail, often due to lack of critical government support. The big difference this time is that China has shown a recent desire to finally open up the media space to foreign investment, and thus may be less likely to try to undermine such tie-ups like it did in the past through onerous regulations and other regulatory obstacles. The new openness to foreign investment has been on display over the last few months, with DreamWorks Animation (NYSE: DWA) announcing a landmark animation-producing joint venture in Shanghai (previous post), and the New York Times (NYSE: NYT) also launching a China-based science magazine (previous post), both in February. At the same time, a growing stream of Chinese media companies have also made or announced plans for IPOs, again indicating Beijing wants these companies to become more commercially oriented and competitive. Following this early string of deals, I would look for more Sino-foreign tie-ups to come in the media sector this year, potentially involving some major global names as they take a new look at the China market.

Bottom line: QVC’s new China joint venture marks the latest recent entry by a major foreign firm into China’s media market, with more likely this year as Beijing opens up the sector.

Related postings 相关文章:

◙ Facebook, NY Times Make New China Moves Facebook和纽约时报在华新动向

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

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

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

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After months of haggling and suspense, the US has finally made its decision in the contentious anti-dumping case against Chinese solar cell makers and found a middle ground in the form of a relatively light punishment accompanied by signals that Beijing needs to ease its unfair support for this industry. In the end, the Obama administration probably realized that it needed to take some kind of punitive action to satisfy critics of China’s strong support for its solar sector, especially in an election year. But at the same time, he also probably realized it’s in no one’s interest to deal a fresh blow to this already struggling sector developing sustainable energy alternatives to replace the world’s current dependence on fossil fuels. According to media reports, after a months-long investigation dating back to last summer, the Obama administration has finally decided to levy punitive tariffs of up to 4.7 percent — a relatively modest amount — on Chinese panels exported to the US. (English article) I suspect this relatively modest figure was probably the result of behind-the-scenes talks with Beijing, which has probably quietly agreed to scale back some of the indirect subsidies, such as cheap bank loans and tax rebates, that were the source of the complaint. Reaction from actual companies has been guarded so far, but looks cautiously optimistic that a crisis has been averted for now. Industry leader Suntech (NYSE: STP) indicated that the relatively benign tariff of 2.9 percent imposed on its products vindicated its assertion that it wasn’t receiving unfair government subsidies. (company announcement) It also pointed out that it has manufacturing facilities in the US, pointing to a trend that may see many of China’s solar panel makers set up production bases in the western markets that are their biggest customers to show they can also help to contribute to those local economies. Another solar company, Yingli (NYSE: YGE) was similarly cautious in its reaction, simply thanking its customers and reiterating that it is not unfairly subsidized and that punitive tariffs are bad for the entire industry. (company announcement) Investors were certainly cheered by the decision, with Suntech and Yingli shares both up around 13 percent on Tuesday. I should emphasize that this decision is just preliminary, but there’s no reason it shouldn’t become final if everyone finds it agreeable. That said, I would expect to see Beijing make some face-saving moves in the next couple of months to show it is quietly scaling back many of the practices that led to this complaint in the first place, which could include ending export tax rebates and pushing companies to seek new financing from true commercial banks rather than state-controlled Chinese lenders. If that happens, look for this conflict to quietly fade, letting the industry focus its sights on returning to profitability and improving its technology.

Bottom line: Preliminary US anti-dumping tariffs against Chinese solar panel makers look largely symbolic, and are likely to be followed by similar conciliatory moves by Beijing.

Related postings 相关文章:

◙ 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

◙ Yingli Results: Rescue En Route From China? 英利财报：来自中国政府的营救？

News Digest: March 21, 2012 报摘： 2012年3月21日

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The following press releases and media reports about Chinese companies were carried on March 21. To view a full article or story, click on the link next to the headline.

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◙ U.S. Sets Duties as High as 4.73% on China Solar Equipment (English article)

◙ Yahoo, Alibaba Restart High-Level Discussions – Source (Chinese article)

◙ China Telecom (HKEx: 728) Profit up 10.5 Pct on Mobile Growth (English article)

◙ Citigroup (NYSE: C) Sells Pudong Bank Stake, Generates $349 Million (English article)

◙ QVC Forming TV Retailing Joint Venture in China (English article)

◙ Latest calendar for Q4 earnings reports (Earnings calendar)