New Year Brings New Starts for China Lodging, Grace-Hua Hong Merger 汉庭换将,华虹NEC和宏力半导体合并

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It’s the new year, and that means a time of new beginnings for 2 big names, one in the hotel space where China Lodging Group (Nasdaq: HTHT) is starting 2012 with a new CEO, and the other in semiconductors where the long-awaited merger of Hua Hong NEC and Grace Semiconductor may finally happen. Let’s start with the China Lodging, whose CEO will leave after just 2 years on the job and be replaced by executive Chairman Ji Qi. (company announcement) Based on the announcement, Ji will take on the additional CEO role as China Lodging, owner of the Huating brand, embarks on an interesting multi-brand strategy targeting travelers with different quality levels of hotel, similar to what most of the major western brands already do. This strategy may work well for the western brands, but I’m a doubtful that young Chinese operators like China Lodging, 7 Days (NYSE: SVN) and Home Inns (Nasdaq: HMIN), which have all been quite successful with budget hotels, have the necessary expertise to operate at the higher-end of the market, where they will have to compete with the big international chains like Marriott (NYSE: MAR). In the chip space, Hua Hong NEC and Grace Semiconductor, which have talked about a merger for years, have announced that they have finally reached such a merger agreement. (English article) Reports say the new company will have about $600 million in annual revenue, not small but still a fraction of leading Chinese chipmaker SMIC (HKEx: 981; NYSE: SMI), whose annual figure stands at about $1.6 billion. The report says the merged company is quite profitable, with $100 million in annual profit, which I find difficult to believe considering the industry’s current downcycle. I suspect that if the figure is really true, the 2 companies are using accounting tricks to hide their real situation. I see problems ahead for the company as it struggles to integrate after the merger, and if and when it ever goes public, which is probably the ultimate goal, I wouldn’t be surprised to learn that Hua Hong NEC-Grace isn’t quite as profitable as it wants people to believe.

Bottom line: China Lodging Group will have trouble executing its new multi-brand strategy, while Hua Hong NEC and Grace Semi will also face a rough time in their new merger.

Related postings 相关文章:

◙ China Lodging: Rebound Ahead 中国经济型酒店业绩回升在望

◙ Hotels: Expo Hangover Set to Linger into 2012

◙ 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

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

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On this final workday of 2011, I’ll start with a look at one of China’s longest-running retirements, namely the departure of long-serving Chairman Wang Jianzhou from the helm of China Mobile (HKEx: 941; NYSE: CHL), which finally may have happened, in what can only be described as a happy ending to a yet another uninspired year from the nation’s top mobile carrier. I say “may have happened”, as Wang’s final departure isn’t entirely clear just yet. Media are saying the latest copy of a recent document now lists Li Yue, president of Hong Kong-listed China Mobile, as chairman of the company’s state-run parent, a position formerly held by Wang. (Chinese article) Wang’s departure has been rumored for more than a year now, dating back as early as 2010 after Li was first named as president of the Hong Kong-listed China Mobile. Since then, Li and another executive, Xi Guohua, have taken a growing number of top titles at the listed company and its state-run parent, leaving just the chairmanship at both for Wang. (previous post) I suspect we may even see an official announcement from the Hong Kong stock exchange very soon saying Wang has finally been replaced as chairman of the publicly listed China Mobile as well. China Mobile has been a slow-moving disaster in 2011, as the company lost steady market share to rivals China Unicom (HKEx: 762; NYSE: CHU) and especially an aggressive China Telecom (HKEx: 728; NYSE: CHA) in the important 3G space. Wang’s uninspired leadership was at least partly to blame for the company’s anemic profit growth and loss of market share, and I’ve said numerous times that he should step down to make way for a new generation of more aggressive leaders with new ideas. Now that Wang’s departure has finally come, look for China Mobile to step up its 3G campaign significantly next year, which it has already shown early signs of doing by working more closely with handset makers to develop models for its network using a homegrown technology called TD-SCDMA. It’s obviously too early to say if Wang’s departure will breathe major new life into China Mobile in the year ahead; but it’s really hard to imagine how things can get any worse, and I’m cautiously optimistic that 2012 will see some exciting fresh initiatives from this sleeping giant.

Bottom line: 2012 will be an exciting year for China Mobile following the long-awaited retirement of its long-serving chairman, with younger new leadership making a reinvigorated drive in 3G.

Related postings 相关文章:

◙ China Mobile 3G: Where Are the Subscribers? 中国移动3G：订户在哪里？

◙ 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

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

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A slightly ominous memo from the National Development Reform Commission (NDRC), China’s state planner, indicates Beijing plans to slam the brakes on approvals for major new auto-making investments, a much needed development for the overheated industry that could end up driving many smaller players out of business. The memo, detailed in a media report (English article), says China will strive for “healthy development” of the auto industry, with a focus on nurturing new industries — words that point to a sharp slowdown in approvals for major new projects except perhaps in the new energy arena. That should come as welcome news for an industry that has seen billions of dollars in new investment announced over the last 2 years, mostly by joint ventures between big foreign automakers and their Chinese partners. (previous post) After seeing turbo-charged growth in 2009 and 2010 due largely to economic incentives from Beijing, China auto sales have slowed to almost a halt this year as most of those incentives expired and the government turned its focus from stimulating the economy to cooling it down instead. Chinese vehicle grew just 2.6 percent in the first 11 months of this year, a major slowdown from the 32 percent growth rate last year and even higher growth in 2009, as China overtook the US to become the world’s biggest car market. Major new investment plans announced by the likes of Volkswagen’s (Frankfurt: VOWG) Audi, Ford (NYSE: F) and BMW (Frankfurt: BMW) for their China joint ventures were all undoubtedly planned during the boom times of 2009 and 2010, and the market is likely to become seriously oversupplied as they start to produce over the next 2 years, putting pressure on everyone, especially small- to mid-sized domestic manufacturers without major overseas partners. Such domestic companies, like BYD (HKEx: 1211; Shenzhen: 002594), Geely (HKEx: 165) and Chery, are already showing signs of stress with sales growth well behind that of their better-connected rivals, and that trend could accelerate as the new capacity comes on stream. In terms of new investment, look for a trickle of new energy auto initiatives to be announced and approved in 2012, most of them largely insignificant. In the meantime, watch for growth of the mainstream auto market to stay in the low single digits next year, with many smaller players slipping into the red — perhaps permanently.

Bottom line: Smaller automakers without big foreign partners are likely to slip into the red next year as growth slows, with Beijing unlikely to approve any major new investments.

Related postings 相关文章:

◙ China Autos Set for Long Slowdown

◙ Chery, Luxury Cars Hit New Speed Bumps

◙ Foreign Spending Spree Augers Woes for China Car Makers 外国车企大举投资中国 本土车企倍感压力

China Flexes Anti-Monopoly Muscle in Hard Disks

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New comments from China’s anti-monopoly regulator show it is preparing to play an increasingly active role on the global M&A stage, reflecting the nation’s growing importance as not only a major global manufacturer but increasingly also a consumer of many products. The comments from a top Commerce Ministry official, in this case regarding the pending acquisition of Hitachi’s (Tokyo: 6501) memory storage business by Western Digital (NYSE: WDC), look quite intelligent to me, showing that China is taking its new role quite seriously and that it could soon become a major gatekeeper for big global M&A deals, a job now mostly performed by the US and European Union. (English article; Chinese article) In this particular case, the head of the ministry’s anti-monopoly bureau, Shang Ming, made suitably cautious comments at a year end event in Beijing by saying his department is concerned the deal could harm competition in the global market for hard disc drives “to a certain extent”. With this kind of comment, Shang is indicating his department is likely to approve the deal, but only after Western Digital and Hitachi take steps to ensure the global market for disc drives remains competitive, most likely by selling off some assets to another rival. Such conditions are relatively common in global M&A, and are frequently imposed by the US and European regulators before they approve many major global deals. In fact, China has previously imposed such conditions on other major global M&A in its brief history of regulating such deals, though in the few such cases to date conditions have been relatively mild. These latest comments indicate that could change in the future as China looks to play a bigger role in global markets. All this looks good if the Commerce Ministry continues to develop itself as a fair judge dedicated to free trade. It showed movement in that direction last month, when it approved the purchase of leading hot pot chain Little Sheep by Yum Brands (NYSE: YUM), operator of the KFC chain, casting aside concerns by some that the deal might be vetoed for more nationalistic reasons. Global companies will undoubtedly be watching carefully for the final decision in this Western Digital deal; but final conditions that are reasonable and fair will give more credibility to China as it seeks to establish itself as a serious player in regulating the flow of major global M&A.

Bottom line: China’s careful approach to Western Digital’s pending purchase of Hitachi’s hard disc drive business reflects its growing maturity as an arbiter of major global M&A.

Related postings 相关文章:

◙ Little Sheep Gets Swallowed: Good for Yum, Good for China M&A 小肥羊被收购对百胜和中国是双赢

◙ China OKs Nestle Buy, Opens Door for Big Brand M&A

◙ Troublesome Timing As China Approves NSN-Motorola 中国监管部门批准诺基亚西门子购买摩托罗拉网络业务时机不佳

2012: Capitial Raising II Year For China Banks 2012：中国银行业的又一个融资年

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I don’t usually like to congratulate myself for making correct predictions, but in this case it does seem my mid-year forecast of a major new round of fund-raising by Chinese banks may soon occur in the new year as many look to repair their stressed-out balance sheets. I made my prediction back in July when China Merchants Bank (HKEx: 3968; Shanghai: 600036), one of the nation’s top regional players, announced plans to raise up to $5.4 billion — its second major capital raising after it and most of the country’s top banks raised hundreds of billions of dollars in 2009. (previous post) Now one of China’s top financial newspapers, citing analysts, is reporting that many of the nation’s other major banks, including big names like Agricultural Bank of China (HKEx: 1288; Shanghai: 601288) and Bank of Communications (HKEx: 3328; Shanghai: 601328) may also have to raise more cash next year to shore up their balance sheets that are coming under pressure after a lending binge in 2009 and 2010 under Beijing’s massive stimulus spending plan to support the economy during the global financial crisis. (English article) The China Securities Journal, considered the most authoritative of China’s major financial dailies, says banks may need to raise more than 100 billion yuan, or nearly $16 billion, collectively next year, and I wouldn’t be surprised if the final number is significantly higher, perhaps 4 or 5 times that amount, as Beijing tries to prepare its major lenders for a coming boom in bad loans resulting from an anemic stock market and a major looming downturn in real estate. In a sign of things to come, Ping An (HKEx: 2318; Shanghai: 601318), China’s second largest insurer and one of its most aggressive financial services companies, earlier this month announced a plan to raise more than $4 billion, after it raised another $2.5 billion earlier this year through a private placement. (previous post) It seems natural that the most aggressive companies like Ping An will have to go to market first for new funds when this kind of downturn happens, but look for lots of similar announcements in the year ahead by both banks and insurers.

Bottom line: 2012 will be a year of major capital raising for Chinese banks and insurers, whose bad debt could balloon as a result of prolonged downturns in the stock and real estate markets.

Related postings 相关文章:

◙ Ping An Returns to Market With Second Big Fund Request 中国平安拟发大规模可转债

◙ China Readies Market for More Bank Begging 中资银行准备再筹资

◙ China Merchants Bank Kicks Off “Capital Raising II” 招商银行掀起第二轮融资热潮

CITIC Securities, Koreans Challenge Western Giants 中信证券和韩国电视台挑战西方企业

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Two separate news bits out today show that Asian firms, in this case leading brokerage CITIC Securities (HKEx: 6030; Shanghai: 600030) and 3 Korean TV program makers, may pose an interesting challenge to Western names in lucrative developing new business areas in now taking shape in China. In the first of those bits, CITIC Securities announced it has just received regulatory approval to become a renminbi qualified foreign institutional investor (RQFII), a new program that allows financial services firms to raise Chinese yuan outside the country for re-investment in China stocks and other financial products. (company announcement) RQFII specifically targets a growing number of foreigners who want to invest in the yuan offshore as China moves to internationalize its currency, also known as the renminbi. To date, this offshore yuan business, mostly centered in Hong Kong, has been dominated by big foreign names like HSBC (HKEx: 5; London: HSBA), so it’s interesting to see a big Chinese name like CITIC Securities getting involved so quickly in the new RQFII scheme. Of course CITIC Securities will now have to convince foreign investors that it can get them better returns for their yuan than big foreign names that are also applying for RQFII status. But given its market-leading position in China and strong knowledge of Chinese markets, I would expect to see CITIC Securities become a top-tier player in this new and potentially lucrative area in the next 1-2 years. In the second news bit, PPLive, an IPO candidate and one of China’s top video sharing websites, has signed an exclusive deal to license all TV dramas from 3 Korean TV networks for the next 3 years. (English article) No financial details were given and I’ll admit I don’t know anything about the 3 Korean networks in this deal; but the amount of programming does look massive, involving 12,000 episodes of various TV series with 13,500 hours of programming. This deal is interesting in the light of a recent series of high-profile licensing deals between other video sharing sites like Youku (NYSE: YOKU) and Tudou (Nasdaq: TUDO) with major Hollywood studios, and shows that other Asian program makers, whose shows are popular among many Chinese, will also be competing to cash in on demand from these content-hungry Chinese video sites. Look for more such blockbuster deals from other Asian markets like Japan, Taiwan and Hong Kong in the months ahead.

Bottom line: New deals involving CITIC Securities in the offshore yuan business and Koreans in video licensing show Asian firms will win growing business in areas traditionally dominated by Westerners.

Related postings 相关文章:

◙ Video Makers On Cusp of Renaissance 视频制作商或迎来美好时代

◙ ICBC Discovers China’s Latest Low-Cost Export: Currency 工行将从非洲人民币结算业务中获益

◙ Foreign Banks in China: A Love Affair Ends 外资银行撤资与中国同行说再见

 

News Digest: December 28, 2011

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The following press releases and media reports about Chinese companies were carried on December 28. To view a full article or story, click on the link next to the headline.

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◙ Chinese Banks Under Pressure To Raise Cash Next Year: Source (English article)

◙ Regulator To Promote Broadband With Higher Speeds, Lower Prices in 2012 (Chinese article)

◙ CITIC Securities (HKEx: 6030) Receives Approval For RQFII Qualification (company announcement)

◙ Tencent (HKEx: 700), CNTV Partner on Multi-product Platform (English article)

◙ China Says Western Digital (NYSE: WDC) Buying Hitachi Unit Hurts Mkt Competition (English article)

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

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There’s an interesting report in the media space that the Xinhua News Agency plans to publicly list its news web site — a development with hugely symbolic overtones that could foreshadow a long-awaited liberalization in this highly sensitive sector and portend a major new round of IPOs for big media firms. Foreign media are citing unnamed sources saying that Xinhua is planning a domestic listing for its news portal, Xinhuanet, in a deal that would see it raise around 1 billion yuan, or more than $150 million. (English article) The size of the offering is really of little or no significance since Xinhua, as the Communist Party’s main mouthpiece, already receives most of its funding from the government and is unlikely to need such funds. What’s much more important is that Xinhua is making this IPO at all, as ownership of the media, which has the power to influence public opinion, has been a highly sensitive matter in the past, even as most other sectors were allowed to make public offerings paving the way for private ownership. This move by Xinhua, if it really happens, would send an important signal to China’s other major media groups, including CCTV, Shanghai Media Group and other major players, that it’s ok for them to list some of their major assets, paving the way for an interesting new round of possibilities for investors with huge growth potential. Such a development would, in fact, extend a recent trend that has seen a growing number of movie and TV show makers, many of them owned by regional media companies, make a string of low-key public offerings as they hope to tap emerging demand from not only traditional TV stations, but also an fast-rising group of content-hungry video sharing websites like Youku (NYSE: YOKU), Tudou (Nasdaq: TUDO), Sohu (Nasdaq: SOHU) and PPLive. (previous post) Xinhua, as one of China’s oldest media, already sets the tone for the rest of the nation’s TV stations, newspapers and websites in terms of news coverage, and this latest move would indicate that public ownership of the media is ok, at least on domestic stock markets. The timing of a Xinhuanet listing is still unclear, meaning it could still be months or years away. But if and when such a listing occurs, look for many more to follow as a wide range of regional and local media groups clamor to raise funds to expand their national reach.

Bottom line: A pendiing IPO for Xinhua’s web portal could auger a flood of new domestic listings for big Chinese media firms, providing an interesting investment option with strong growth potential.

Related postings 相关文章:

◙ Jishi the Latest in Low-Key Media Listing Parade 吉视传媒加入中国媒体低调上市大军

◙ 2011: A Breakthrough Year in Copyright Protection 2011年：中国版权保护取得突破的一年

◙ Video Makers On Cusp of Renaissance 视频制作商或迎来美好时代

Weibo Gets Confidence Vote From Digital Sky DST投资消息或提振新浪短期前景

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Sina (Nasdaq: SINA), China’s leading web portal whose shares have been battered lately, has received a rare piece of good news in the form of a potential major new investment for its controversial Twitter-like Weibo service from heavy-hitter Digital Sky Technologies (DST). (English article; Chinese article) There’s so much to say on this subject that I’m not sure where to start, so perhaps the best place would be with the actual news. Media are reporting that DST, an early investor in Facebook and which has taken a recent liking to the Chinese Internet, is in talks to pump around $200 million into Weibo via a convertible bond exercisable at $65 per Sina share. That price would have been a bargain just 7 months ago, when Sina shares were trading  as high as $140. But anyone who follows this company knows its stock has plummeted in recent months and now trades at around $55, following a string of big write-offs for its e-commerce and real estate services investments (previous post), and amid a broader confidence crisis towards US-listed China stocks after a recent series of accounting scandals. Further clouding the picture was Beijing’s announcement this month that all users of microblogging services would have to register using their real names, a move with strongly negative implications for Sina’s wildly popular Weibo service that boasts more than 250 million users and was one of the company’s few bright spots. (previous post) Clearly this new investment by DST will come as a vote of confidence in Weibo, in Sina’s sputtering campaign to monetize the recently spun-off service for a potential future IPO. But company watchers should also note that DST is hedging its bets by buying a convertible bond rather than making a direct investment. Furthermore, DST is hardly the best barometer for good China Internet investments, as it has made a wide range of such investments this year, often at overinflated valuations. DST’s recent string of China purchases include stakes in e-commerce firm 360Buy, also known as Jingdong Mall, and a recent purchase of a stake in Alibaba, China’s e-commerce leader. The company was also interested in previously buying a stake in Kaixin, one of China’s leading social networking services, and itself is part owned by leading Chinese Internet company Tencent (HKEx: 700) All that said, this latest investment may help to boost Sina and Weibo’s prospects in the very short term, but the longer-term picture for both still looks quite cloudy.

Bottom line: A potential $200 million investment in Sina’s Weibo microblogging service by DST should help to boost the company in the short term as it tries to shore up its battered image.

Related postings 相关文章:

◙ New Rule Hits Sina, Instant Messaging to Benefit? 微博实名重创新浪 即时信息服务有望受益

◙ Sina Results: Not So Diversified After All 新浪仍依赖广告,突围遇阻

◙ Digital Sky Looking for Piece of the China Pie 俄罗斯DST或与Facebook联手进军中国市场

Solar Matures With Foxconn Entry

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You know your industry is starting to mature when a big player like Hon Hai (Taipei: 2317), the massive Taiwanese electronics maker of everything from PCs to iPhones, steps in to the picture, a move that should come as both a relief but also a worrisome development for the troubled solar cell sector. Foreign media are reporting that Hon Hai unit Foxconn Technology (Taipei: 2354) is building a massive new solar cell plant in China’s Jiangsu province, adding a major player to a sector already struggling with large overcapacity that has caused prices to tumble by more than 60 percent this year alone and driven nearly every company into the red as their stocks hover near all-time lows. (English article) This development is significant for 2 reasons, both of which should ultimately benefit the sector but will also cause some short term pain in the form of sorely needed consolidation. From a technological point of view, Hon Hai’s entry into the picture shows this sector has long term potential, as major companies like Hon Hai rarely make such investments without careful consideration of their profitability. But big players like Hon Hai are also famous for entering mature industries where margins are traditionally quite low and huge volume is necessary to make big profits, meaning the company believes that solar technology is starting to mature and profit margins will stabilize at low levels. This second factor is key, as it means that only companies with massive scale will be able to survive in the future, and that mid-sized and  smaller players will either have to merge or risk going out of business in this bold new solar world. Companies that now have the scale to drive this much needed consolidation include industry leaders like Suntech (NYSE: STP), Yingli (NYSE: YGE) and Trina (NYSE: TSL), while companies that would be well advised to start looking for partners include names like JA Solar (Nasdaq: JASO) and Renesola (NYSE: SOL). No matter how you look at it, this move by Hon Hai looks like a positive development, providing not only a vote of confidence in the struggling sector, but also sending an important message that anyone who wants to play at this game in the future will need massive scale to do so.

Bottom line: Hon Hai’s entry into solar module making shows the industry has long term potential at low profit margins, and should help to drive much-needed consolidation.

Related postings 相关文章:

◙ Beijing Boosts Solar In Latest Mixed Signal　中国扩张太阳能行业发展 解决与美争端立场混乱

◙ China Rescues LDK With New Financing 中国拯救赛维LDK举动与未提供不公补贴说法相左

◙ Buffett Brightens Solar Prospects 巴菲特进军太阳能 行业美好前景可期

News Digest: December 24-27, 2011

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The following press releases and media reports about Chinese companies were carried on December 24-27. To view a full article or story, click on the link next to the headline.

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◙ Sina (Nasdaq: SINA) Weibo Accepts US$200 Mln Digital Sky Investment – Source (English article)

◙ Xinhua Website Planning $158 Million IPO: Sources (English article)

◙ Foxconn (Taipei: 2354) Solar-Module Entry May Cut Margins for Chinese Makers (English article)

◙ Sinopec (HKEx: 386) Completes Purchase of Canada’s Daylight Energy (Toronto: DAY) (English article)

◙ Xunlei to Sue Youku (NYSE: YOKU) for IPR Infringement (English article)