Sharks Continue to Circle China Stocks 在美上市中国企业将持续面临做空和法律诉讼压力

The year of the Rabbit may be one that many US-listed Chinese companies would rather forget, and now it’s looking like the Year of the Dragon may offer little relief, as short sellers and class action lawyers continue their assaults. In the latest news, Muddy Waters, whose name became synonymous with short selling attacks on US-listed Chinese firms last year, has renewed its recent attack on Focus Media (Nasdaq: FMCN), while a law firm is putting out a call for investors to join its pending class action lawsuit against information technology software maker Camelot Information Systems (NYSE: CIS). Let’s look at Focus Media first, which has always been a slightly controversial company for various reasons, making it an easier target for short sellers like Muddy Waters that try to raise doubts about such companies’ accounting and other strategic issues to pressure their share prices. Muddy Waters first raised doubts about one of Focus Media’s transactions that looked unrelated to its core outdoor advertising business last year (previous post), and now has issued a new report questioning the size of its LCD screen advertising business. (Chinese article) This kind of repeated attack looks similar to another assault on a similarly controversial company, Qihoo 360 (NYSE: QIHU) by another small short seller, a company called Citron, and I suspect in both cases each short seller has bet big against its target and could lose big money is the share prices don’t come down some more. In the end I wouldn’t be surprised to see both short sellers lose big money on these bets, though not before both Qihoo and Focus suffer damage to their reputations. Meantime, a law firm is putting out a final call for plaintiffs to join its planned class action lawsuit against Camelot over a big drop in its price last year, which the law firm blames on misleading information put out by the Chinese firm. (law firm announcement) We’ve already seen a few similar lawsuits filed against US-listed Chinese firms after many saw their stocks drop dramatically last year amid a series of accounting scandals that undermined the entire sector’s credibility. In the end, this kind of lawsuit will probably result in a settlement, costing Camelot millions or even tens of millions of dollars. But over the longer term these lawsuits are likely to be relatively insignificant for larger companies like Camelot, though some smaller firms that come under similar attacks could ultimately go bankrupt and be forced to de-list.

Bottom line: Short seller and class action lawsuit attacks against US-listed Chinese firms will continue into the first half of 2012, but should start to ease after that.

Related postings 相关文章:

Cleanup Resumes, Facebook Sniffs Out China Investors 在美上市的中国企业将继续面临“大清洗”

Citron Keeps Up Qihoo Assault 香橼继续攻击奇虎

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

News Digest: February 10, 2012 报摘: 2012年2月10日

The following press releases and media reports about Chinese companies were carried on February 10. To view a full article or story, click on the link next to the headline.

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◙ China Power Giants Flex Muscles Abroad (English article)

◙ The Dairy Queen System Opens 500th Location in China (Businesswire)

360Buy to Launch Hotel Reservation Service (English article)

Credit Suisse Predicts China Mobile (HKEx: 941) to Get 4G License By Year End (Chinese article)

Alibaba.com (HKEx: 1688) Shares Suspended Pending Clarification (Chinese article)

◙ Latest calendar for Q1 earnings reports (Earnings calendar)

Lenovo Results: Honeymoon Nearing an End? 联想并购後的蜜月期何时结束?

Lenovo (HKEx: 992), arguably China’s best known consumer brand, has just released its latest quarterly results that show strong growth but lack any real excitement, as new acquisitions contribute to its top line for the first time. (company announcement) My real concern in all this is that the company could well be in a honeymoon period at this point, enjoying the immediate gains of higher revenue and profits from 2 big acquisitions last year, even as those same 2 acquisitions in the difficult Japanese and German markets are sure to start causing problems soon. On the surface at least, the results look quite solid. Revenue for the latest fiscal quarter rose 44 percent to $8.37 billion, while profit rose an even stronger 54 percent to $153 million, as the company gained sales from its new joint venture with Japan’s NEC (Tokyo: 6701) and its acquisition of Germany’s Medion. Investors didn’t seem too excited by the results, bidding up Lenovo shares slightly in morning trade in Hong Kong after the figures came out. The lack of excitement owes to the fact that Lenovo hasn’t been particularly aggressive in smartphones or tablet PCs, 2 of the big growth areas it will need to develop if it wants to remain a relevant PC leader for the years ahead. It did take an interesting move on that front last month, when it announced it would be one of the first backers for a new smartphone chip being developed by Intel (Nasdaq: INTC), the global giant better known for its PC-based chips. (previous post) Still, new models using the chip are probably still at least several months away, and will undoubtedly have many minor problems before they become a major contributor, if ever. Meantime, Lenovo has quite a few potential clouds hanging over its head that could turn into real trouble for the company. One of the latest of those emerged over the past week, when rival Acer (Taipei: 2353) filed a suit against one of its former top executives, Gianfranco Lanci, who recently moved to Lenovo to head its European operations. (Chinese article) But more worrisome in my view are the potential for problems with both the NEC and Medion acquisitions. Lenovo said last year it was considering moving some production to Japan, in a move clearly aimed at placating NEC’s Japanese customers worried about receiving inferior product after the deal. Meantime, the company will also probably be forced to maintain some production in German after buying Medion. Both  of these labor markets are famously difficult even for the most experienced companies, and Lenovo could soon discover it has taken on a bigger challenge in both than it originally thought. On the whole, I would say to look for 1 and perhaps even 2 more quarters of positive results before the new reality starts to take effect and Lenovo enters its next period  of crisis, probably by the end of the year.

Bottom line: Lenovo’s latest results show the company is still enjoying a honeymoon period from 2 recent acquisitions, but those same purchases will lead to new troubles by the end of this year.

Related postings 相关文章:

Lenovo: Finally a Risk Taker In Intel Tie-Up 联想联手英特尔,终於肯冒险

Lenovo Starts Year With New Europe Chief, TV Tie-Up 联想新年新气象:聘用新高管并推互联网电视

Lenovo Considers Japan Production 联想向日本转移制造业务为明智公关手段

AsiaInfo, Xinhua in Latest Listings Shuffle 新华电视悄然上市 亚信联创或被摘牌

There’s a couple of interesting new developments on the listings and de-listings front, with a unit of Xinhua making what looks like a low-key but also significant offering in Hong Kong even as one of the oldest US-listed China firms, AsiaInfo (Nasdaq: ASIA) may be preparing to de-list. The Xinhua listing represents China’s easing of restrictions for such offerings in one of its most sensitive sectors, the media; while the AsiaInfo development marks the latest chapter in a clean-up of US-listed Chinese firms, which have been plagued for much of the last year by a serious of accounting scandals. Let’s look at Xinhua first, which has done a backdoor listing for its relatively obscure TV arm, China Xinhua News Network Corp. (English article) The company said the move is part of a global expansion plan that will see it move into about 100 countries as China tries to boost its influence. The low-key move, which did not see Xinhua raise any actual funds, comes just months after both Xinhua and the People’s Daily both launched similar plans to list their web assets on China stock exchanges (previous post), clearly reflecting the fact that Beijing has given the green light for its media to start listing. That said, I would advise investors to avoid these big state names like Xinhua and People’s Daily, and look for some of the country’s more dynamic media players like Shanghai Media Group and Southern Media Group, which no doubt will soon be listing some of their assets after the big Beijing-based giants go first. Moving on to AsiaInfo, the company has announced it has hired a financial adviser after receiving an unsolicited takeover offer from a fund connected to the CITIC conglomerate. (company announcement) AsiaInfo shares have rallied quite a bit since the beginning of the year, up around 50 percent, presumably as rumors began to spread about this potential buy-out. I can’t really comment on the company’s specific financial situation as I don’t follow them closely, but clearly this offer is based on the low stock prices for many Chinese companies following last year’s sell-off after a series of accounting scandals raised questions about the entire sector. A couple of other companies, Shanda Interactive (Nasdaq: SNDA) and Grentech (Nasdaq: GRFF), have already announced plans to privatize in reaction to the sell-off (previous post), and this takeover bid looks like another attempt by a buyer to take advantage of bargain prices. Shrewd investors with time to do some research could do well this year by identifying other potential bargains, as I suspect we will see a steady string of additional buyout and privatization offers for the next few months as bargain-hunters seek to take advantage of low prices.

Bottom line: Xinhua’s backdoor IPO in Hong Kong marks the first in a wave of new media listings this year, while AsiaInfo could mark the first of many buyouts by bargain-hunting investors.

Related postings 相关文章:

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

360Buy Heats Up E-Books, People’s Daily Goes to Market 京东商城高调进军电子书,人民网开启上市进程

Shanda Moves Ahead With Privatization 投资者对盛大私有化仍持保留态度

SMIC Puts Turmoil Behind It — Again 中芯国际又走出内讧

SMIC (HKEx: 981; NYSE: SMI), China’s largest semiconductor chip maker that seems to hop from one internal crisis to the next, seems to be telling the world with its latest earnings that the days of trouble will soon be behind it. (Earnings announcement) The only problem is, we’ve heard this story before after previous crises, only to see the company sink yet again when the latest crisis emerges. For the moment, at least, investors seem to be giving the company the benefit of the doubt, bidding up SMIC’s New York-listed shares by nearly 5 percent after the results were announced on New York time. The results from the latest report tell a relatively straightforward story: the fourth quarter of 2011 was one that SMIC would probably rather forget, with both profit and margins falling squarely into the negative column, as revenue also fell both on a quarter-to-quarter and year-over-year basis. Clearly things weren’t moving in the right direction during the quarter, which was one of the first after SMIC named a new CEO after a bruising power struggle during the summer that saw first its previous capable CEO ousted, followed by the departure of the man who was angling to take his spot. (previous post) The turmoil took a toll on SMIC’s performance and stock, but the company did indeed look relatively well positioned to return to focusing on its turnaround after a new CEO was named. Of course, SMIC wants people to focus on its first quarter guidance for now rather than its poor fourth-quarter results, and investors seem to be doing that. It forecast its gross margins will return to positive territory in the current quarter, while revenue is expected to return to a growth track as well. Equally important, the company’s report shows several trends that look promising for its future. In one, its customer base is becoming increasingly China-based, with China now accounting for 34 percent of its sales versus just 31 percent the previous quarter. This shift is something that SMIC should have been doing all along, as its China base is obviously a strong point, unlike the competitive US and European markets where it has to compete with much stronger rivals in TSMC (Taipei: 2330; NYSE: TSM) and UMC (Taipei: 2303; NYSE: UMC). The other trend that looks good is the growth of business from fabless chip makers, which are usuallly the most profitable customers. All of this looks good, and I have to admit I’m cautiously optimistic that SMIC has finally learned its lesson from all its internal issues and may finally be able to focus on becoming a profitable company again. Then again, the company has shown positive signs in the past, only to sink back into the red due to internal turmoil. Let’s hope this time it can finally escape that cycle.

Bottom line: SMIC’s latest earnings show encouraging first-quarter guidance, but the company will need to avoid more internal strife to complete its turnaround.

Related postings 相关文章:

Chip Merger Near, More Consolidation Ahead? 华虹NEC和宏力半导体合并预示未来或有更多整合

SMIC: Under Fire From All Directions 中芯国际亏损显示其内外交困

SMIC Makes the Right Move With New CEO 中芯国际终於明智换帅

News Digest: February 9, 2012 报摘: 2012年2月9日

The following press releases and media reports about Chinese companies were carried on February 9. To view a full article or story, click on the link next to the headline.

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Lenovo (HKEx: 992) Announces Results for Fiscal 3rd Quarter (HKEx filing)

SMIC (HKEx: 981) Reports Results For 3 Months Ended Dec 31 (HKEx filing)

Qihoo 360‘s (NYSE: QIHU) Mobile Apps Back on Apple’s iTunes App Store (PRNewswire)

NYSE Euronext (NYSE: NYX) Signs 1st Contract to Manage 3 China Securities Indices (Businesswire)

Xioami Aims to Become Smartphone Maker With Scale of 10 Mln Unit Sales (Chinese article)

◙ Latest calendar for Q1 earnings reports (Earnings calendar)

Apple vs Proview: China Legal System Still Broken 苹果与唯冠iPad商标权之争或损及中国版权保护形象

The ongoing legal tiff between Apple (Nasdaq: AAPL) and a relatively obscure Taiwanese company over the rights to the iPad name in China has mesmerized the Chinese media and Apple fans in general, but what it really shows is how badly broken the Chinese legal system is when it comes to copyright and intellectual property (IP) protection. Instead of protecting companies like Apple, which are the innovators that drive technology, this series of Chinese lawsuits is doing just the opposite, with the Taiwanese company using China’s inept legal system to try and extort money from this global giant. What’s scarier, the Taiwanese company, an affiliate of Proview Technology, could very well win the case, forcing Apple to either pay an extortionate fee for the use of the iPad name in China, or potentially to abandon the name altogether in this important market. Surely this is not what trademark protection law was meant to do. Let’s quickly review the facts in this case to show why it’s become a bit of a farce, albeit a closely watched one. Apparently the Proview affiliate registered the iPad name back in 2001 when the Taiwan parent was developing a product that clearly had no relationship to Apple’s highly popular product of the same name launched in 2010. That Proview product was no doubt a dud, and the company later sold the global rights to the name to a British firm, which ended up selling the rights to Apple. So now it seems the Proview affiliate has discovered the transfer of the iPad name was never properly executed in China. But rather than admit its fault in the matter and complete the name transfer, it is actually suing Apple in China, saying it still owns the iPad name and Apple is violating its copyright. And rather than force the Proview affiliate to correct the situation, which is what would probably happen in any Western courtroom, the Chinese courts seem to be interpreting the law quite literally and saying that Proview still owns the iPad trademark, and that Apple therefore must either license the name again or stop using it. The case isn’t over yet, with hearings taking place in several Chinese courtrooms. But if China is smart, some senior judicial officials should quickly step in and talk with the judges involved and quickly end the case in Apple’s favor or with a reasonable settlement. Otherwise they risk tarnishing the image of a Chinese copyright protection system that, while headed in a positive direction, is still rife with problems.

Bottom line: Senior Chinese judicial officials need to step in and end a trivial lawsuit against Apple over the use of the iPad name, or risk further tarnishing the country’s image for copyright protection.

Related postings 相关文章:

China Takes a Bite From Apple 中国作者咬苹果一口

Apple Suffers Setback in China Lawsuit Loss 苹果在华商标侵权案初尝苦果

Apple Prepares to Take on China Pirates 苹果开始接受人民币付款购买应用软件

China Car Sales Sputter Out of the Gate 中国汽车销售龙年遭考验

China has just published its first monthly auto sales for 2012 and they aren’t pretty, boding poorly for the sputtering market in the Year of the Dragon. Of course, the figures for the month of January come with several major footnotes, most importantly the fact that sales were weak in 2012 as the Lunar New Year holiday fell during the month this year, whereas it fell in February for 2011. Still, the 16.5 percent decline in sales for the month marked the biggest decline in more than a decade, a sharp reversal for a market that was used to gains in the healthy double-digit percentage range for most of 2009 and 2010, and was still seeing healthy growth for most of 2011. (English article) Such a big decline means that just about everyone saw their numbers drop, with industry leader GM’s (NYSE: GM) sales down 8 percent for the month, about half the broader market decline. SAIC (Shanghai: 600104), GM’s main China partner and China’s biggest automaker, saw sales fall by a similar amount. The head of the association that compiles the results was quick to point out the Lunar New Year factor, and added that sales should increase by an even bigger 30 percent in Februrary, more than offsetting the January decline. He further added the China Association of Automobile Manufacturers predicts overall vehicle sales in China will grow about 8 percent this year, about double the growth rate of last year. The organization is usually quite conservative in its forecasts, and will argue that this year should see a return to more normal growth patterns after last year’s dramatic drop following the end of a wide range of government incentives designed to boost consumption during the height of the global downturn in 2009. But considering all the recent warning signs about rapidly slowing growth in Chinese consumption, I think the 8 percent forecast looks quite ambitious and would expect to see the figure revised downward several times, ending the year perhaps in the slight-growth range of 1-3 percent. As I’ve said before, the biggest victims in the slowdown will be domestic automakers without deep-pocketed foreign partners, with names like BYD (HKEx: 1211; Shenzhen: 002594), Geely (HKEx: 175) and Chery the most vulnerable. (previous post) I wouldn’t be surprised to see all 3 of these names slip into the red this year, nor to see one or 2 mid-sized players either become insolvent or simply get out of the business, in what will be a tough year ahead.

Bottom line: Weak auto sales for January, while influenced by timing of the Lunar New Year, foretell a difficult year ahead for the industry, with some top domestic names likely to slip into the red.

Related postings 相关文章:

◙  Cars: US, Germany Clobber Japan, Domestic Rivals 美德汽车在华完胜日本和中国车商

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

Geely Choking on Volvo Debt, Weak Sales 吉利债台高筑

Qihoo 360 At Center of New Scandal 奇虎360陷入新的丑闻

Qihoo 360 (NYSE: QIHU) seems to pride itself in its ability to make headlines, usually by touting user numbers that some believe are highly inflated, and the latest events that have propelled this company onto the front page just underscore its highly controversial nature. Qihoo, better known for launching assaults on others, both in the courtroom and in the business arena, saw its applications abruptly removed from Apple’s (Nasdaq: AAPL) China app store, amid allegations of manipulation of the ratings information posted by buyers of its apps. (English article; Chinese article) The reports are full of innuendo and of course Apple itself is refusing to comment, but the implication seems to be that Qihoo itself may have tried to manipulate the user ratings to make its apps look better than the ratings were otherwise saying. This would totally come as no surprise, as this kind of manipulation is relatively easy to do and can have a huge impact on sales. What’s more, Qihoo has shown little or no reluctance to use this kind of tactic in the past, and in fact this looks relatively benign compared to some of the other things it has been accused of over the years. Other reports have Qihoo implying that the manipulation that resulted in the ouster of its apps may have been engineered by one of its many enemies, with Internet leader Tencent’s (HKEx: 700) name frequently mentioned after the companies got in a major spat less than 2 years ago that also made national headlines. Of course, as all this is happening, Qihoo is also coming under attack from a small US research house, Citron, which has mounted a campaign for several months now accusing the company of vastly overstating its user numbers. (previous post) Qihoo’s shares took a slight hit overnight, dropping 4 percent to around $17 in US trading on Tuesday after reports of the latest spat came out. Qihoo has vowed to have its apps back in Apple’s China app store in the next 24-48 hours, though I suspect the company will get a severe lecturing from Apple if the manipulation allegations are the source of the removal, and it could be a week or longer before the apps return. At the end of the day, this particular development isn’t all that significant by itself, but is just the latest piece in a stream of news that reveals the true nature of Qihoo, which will ultimately serve to undermine confidence in the company and its stock.

Bottom line: The latest brouhaha over the removal of Qihoo apps from Apple’s China store underscores the company’s credibility issues, which will ultimately hurt both its reputation and stock.

Related postings 相关文章:

Citron Keeps Up Qihoo Assault 香橼继续攻击奇虎

Web Security: Qihoo Sputters, NetQin Surges

Report Takes Wind Out of Inflated Qihoo 奇虎遭遇Citron釜底抽薪

News Digest: February 8, 2012 报摘: 2012年2月8日

The following press releases and media reports about Chinese companies were carried on February 8. To view a full article or story, click on the link next to the headline.

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

Apple (Nasdaq: AAPL) Removes Qihoo 360 (Nasdaq: QIHU) Apps From App Store (Chinese article)

CIC, Sinopec (HKEx: 386) Among Investors in Oil Sands IPO: Source (English article)

Yahoo (Nasdaq: YHOO) Chairman Exits, Review Drags On (English article)

Sinopec (HKEx: 386), PetroChina (HKEx: 857) See First Fuel Price Increase in 10 Months (English article)

◙ Beijing Real Name Registration System to Be Fully Implemented by March 16 (Chinese article)

◙ Latest calendar for Q1 earnings reports (Earnings calendar)

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

Let’s get this story finished and move on! I don’t mean to sound impatient, but that’s my first reaction on reading the latest reports about Alibaba’s endless saga in its quest to buy out the 40 percent stake in itself held by Yahoo (Nasdaq: YHOO). I realize this deal involves a big amount of money, possibly as much as $10 billion, but that said, it’s also quite straightforward since the 2 companies have essentially no shared assets and thus literally all that’s needed is agreement on a price and then for Alibaba to find the financing. According to the latest reports, Alibaba and Yahoo have finally entered into serious discussions, following Yahoo’s naming of a new CEO last month, and the 2 sides fully expect to reach an agreement by mid March. (Chinese article) I personally can’t wait until they  announce a deal, as it will finally mark the end of a major corporate marriage that started with lots of promise, only to see things sour and end with a divorce that has taken way too long to reach. I’m probably being a little unfair here, as a final deal was unlikely to happen until Yahoo finally named a new CEO to replace Carol Bartz, who was a major source of friction between the 2 companies and whose firing last year finally set in process that will finally see Alibaba get its long-sought divorce. From Alibaba’s perspective, the sooner the settlement comes the better, as the divorce has become way too big a distraction as the company hopped from one crisis to the next at many of its core businesses last year, including its oldest B2B Alibaba.com (HKEx: 1688) site and its promising Taobao Mall, both of which were rocked by scandals that they are still recovering from. For its part, Yahoo also needs to put this story behind it and get to work trying to resuscitate its struggling search business, once a pioneer in the sector but which later lost its way as global giant Google (Nasdaq: GOOG) stole most of its business. A final settlement will not only end the hostilities, but will also leave Yahoo with a nice pile of cash to use to rebuild its business. It will also leave Alibaba with a pile of shares it can sell to more passive investors who are interested in its strong growth potential without wanting a strong say in its bigger management decisions. All that said, my final word to both sides, at least for now is: Let’s really try to end this saga by the mid-March deadline. Believe me, you won’t be the only ones celebrating!

Bottom line: The world will celebrate with Alibaba and Yahoo when they finally finish their divorce, ending an unhappy chapter for both companies that dragged on way too long.

Related postings 相关文章:

Yahoo, Alibaba Dance Nears Finale  雅虎应与阿里巴巴撇清干系

New Loan Brings Alibaba Value Into Focus

Alibaba Scrambles to Prove High Valuation 阿里巴巴高估值或将作茧自缚