Bottom line: Yum’s new leadership change marks the start of a new period of sustained same-store sales growth for KFC in China, which could include a spin-off of the company’s China business over the next 2 years.
Yum names new China head
Market wisdom often says that China is too big to ignore for most multinationals, despite the market’s complexities and many restrictions. Now a new trend is emerging that says China is too big and complex to be run as part of a company’s bigger global operations, and needs to be split off into a separate unit for major global firms.
That’s the interpretation some are making following Yum Brands’ (NYSE: YUM) naming of a new China chief, and growing speculation that the parent of the KFC and Pizza Hut chains will spin off its China business into a separate company. In this case, Yum’s naming of Micky Pant as CEO of Yum Brands China comes as KFC is in the midst of a major overhaul for its largest market outside the US. Read Full Post…
Bottom line: China Mobile’s return to profit growth is slightly encouraging but may be short-lived, while the MIIT isn’t likely to make any major new moves when it meets with China’s big 3 telcos on Friday.
Growth returns to China Mobile’s profit
After seeing its profits contract for the last few quarters, leading mobile carrier China Mobile (HKEx: 941; NYSE: CHL) finally wowed investors with an unexpected return to profit growth in its latest reporting quarter. But the euphoria was short-lived for China Mobile’s stock, which rose sharply after the report came out, only to give back all the gains by the end of the trading day. That would seem to show that investors are more worried about China Mobile’s top line revenue, which contracted during the quarter despite the profit growth.
At the same time, change could be coming soon for China Mobile and its 2 big state-run peers, China Telecom (HKEx: 728; NYSE: CHA) and China Unicom (HKEx: 762; NYSE: CHU), which have all been called to a meeting with the telecoms regulator on Friday. There are plenty of things the Ministry of Industry of Information Technology (MIIT) may want to discuss with these 3 slow-moving and bureaucratic telcos, but at least one media is speculating the trio could be getting set for some top management changes. Read Full Post…
Bottom line: Airbnb should have a strong chance for success in China, thanks to its good choice of local partners, strong experience in its field and relatively little competition from homegrown rivals.
Airbnb hangs out China shingle
Not too many foreign Internet companies are coming into China these days, mostly due to the poor track record for previous big names. But that lackluster record of isn’t deterring online travel site Airbnb, which has been quite high-profile with a formal announcement of its entry to China.
The road into China is littered with cases of failure, with big names like Google (Nasdaq: GOOG), eBay (Nasdaq: EBAY), Yahoo (Nasdaq: YHOO) and Groupon (Nasdaq: GRPN) all entering the market at various times, only to withdraw later. In most cases companies failed to anticipate stiff competition, which was ready to use many tactics the big international names considered unacceptable. Failure to adapt to local tastes was also a factor, as many of these big names tried to use identical business models for China that they did in the west. Read Full Post…
Bottom line: China is likely to see 1-2 of its weakest major solar panel makers close over the next year in a campaign led by Beijing, with Yingli as the most likely candidate to make the first exit.
Yingli’s star grows dimmer
A couple of new reports from the Chinese solar sector are shining a spotlight on consolidation that’s still needed before the industry can return to health. One report cites the Ministry of Industry and Information Technology (MIIT), the sector regulator, saying more such consolidation is necessary and the pace should accelerate. The second is a technical announcement from Yingli (NYSE: YGE), the weakest among China’s major panel makers, saying it has fallen out of compliance with US listing requirements due to its low stock price.
The appearance of these 2 news items on the same day is purely coincidence, even though both are related to the same phenomenon. That phenomenon saw global solar panel production explode over the last decade, as scores of new plants opened in China in response to policy directives and other incentives from Beijing. Read Full Post…
Bottom line: China’s smartphone market will contract through the middle of next year in terms of unit sales, but will grow by sales value as consumers upgrade to higher-end models for their second and third purchases.
Smartphone sales drop in Q2
The newest quarterly data for China’s smartphone market reveal a divergence taking place, with the actual number of phones sold down sharply even as total sales value posted healthy growth. That divergence reflects the fact that after buying their first smartphones over the last 2 years, often at very low prices, many Chineseconsumers are becoming more selective for their newer purchases.
When they buy their second and third phones, many are no longer only looking at price, and instead are considering other factors like a phone’s attractiveness, reliability and functionality. That bodes well for names like Apple (Nasdaq: AAPL), Samsung (Seoul: 005930) and Huawei, which excel at higher-end models that are both attractive and well designed. But it looks more ominous for names like Lenovo (HKEx: 992) and the many smaller homegrown brands that are churning out cheap, more generic models. Read Full Post…
Bottom line: Huayi Bros could be moving towards an eventual goal of becoming China’s first major Hollywood-style studio through its massive new 30 billion yuan partnership with Ping An Bank.
HUayi goes to the movies with Ping An
It’s become quite common in China these days to see non-entertainment companies pour millions of dollars into entertainment-related ventures, most notably film-production deals. Everyone’s goal is to repeat the success of recent box office hits like “Monster Hunt”, which are earning big money by drawing on a fast-growing Chinese box office that could pass the US to become the world’s largest in the next decade.
But even I was surprised to see the size of the latest mega tie-up, which will see Ping An Bank pair with the highly successful independent movie producer Huayi Bros (Shenzhen: 300027) in a massive partnership with 30 billion yuan ($4.7 billion) in investment. That’s quite a large sum of money for the entertainment space, and is roughly comparable to how much e-commerce leader Alibaba (NYSE: BABA) said it would pay last week for 20 percent of retailing giant Suning (Shenzhen: 002024). Read Full Post…
Bottom line: Baofeng Technology’s meteoric rise and current crash reflect the irrational trading mentality in China’s stock markets, where price manipulation is rampant and shares are still likely to face an additional correction of up to 30 percent.
Aggressive buying, selling power Baofeng stock
I wrote about online video player maker Baofeng Technology (Shenzhen: 300431) in June when it was breaking numerous records during China’s stock market boom, so now it’s only fair that I follow up with what’s happened since the market began to correct last month. Not surprisingly, Baofeng’s stock has been leading the correction, having fallen by the daily 10 percent limit in the last 5 sessions.
Analysts are crediting a weak earnings report released last week for the sell-off of Baofeng stock, after the company said its profits tumbled 70 percent in the second quarter. But it’s probably more accurate to blame the ridiculous valuation for Baofeng shares, which even after the 50 percent drop over the last week are still trading at a meteoric price-to-earnings (PE) ratio of 250. Read Full Post…
Bottom line: Macy’s slow move into China reflect the company’s extremely conservative approach to overseas expansion, and is more designed as a PR exercise to deflect attention from its flagging performance at home.
Macy’s
Macy’s forms China joint venture
US retail giant Macy’s (NYSE: M) is looking to China as tonic for its sputtering sales at home, with the company trumpeting a major new e-commerce venture in partnership with 2 major local players. I had a slight sense of deja vu when I saw this latest series of announcements, since I could have sworn I’d seen Macy’s name appear in some China-related headlines before.
A quick check revealed the company did make a timid move into China e-commerce back in 2012, when it invested $15 million in a company called VIPStore, which was set to offer some of Macy’s private label products in its Omei.com site. (previous post) Reports a year later said Macy’s was once again looking to go into China, saying it was eying an online presence rather than build traditional brick-and-mortar stores. (previous post) Read Full Post…
Bottom line: Qihoo could drop its privatization plan and launch a buyout offer for Coolpad, in a bid to protect its joint venture with Coolpad and stop a rival offer for the company from LeTV.
Bidding war shaping up for Coolpad?
A new media report is detailing an intriguing behind-the-scenes clash taking place between security software specialist Qihoo 360 (NYSE: QIHU) and online video company LeTV (Shenzhen: 300104), with big stakes involved for both sides. If the report is true, Qihoo is quickly finding itself in a difficult position that could end with collapses for its recent privatization bid or its joint venture partnership formed late last year with smartphone maker Coolpad (HKEx: 2369).
The clash is pitting 2 of China’s highest-profile Internet executives against each other, with Qihoo’s outspoken CEO Zhou Hongyi coming under a surprise attack from younger rival LeTV CEO Jia Yueting. In this case it appears Zhou may soon have to choose between going forward with his plans to privatize Qihoo, or abandon that plan and instead mount a counter-offensive to prevent LeTV from making a bid to take control of Coolpad. Read Full Post…
Bottom line: Lenovo should write-off its Motorola investment as a failure, and focus its smartphone efforts on building up its own brand rather than relying on more acquired foreign names.
Lenovo in need of Motorola write-off
PC giant Lenovo (HKEx: 992) repeated a frequent pattern last year when it purchased a former global leader, Motorola, with plans to resuscitate the struggling brand to boost its own smartphone business. It repeated yet another pattern last week when it said that early efforts to revive Motorola were failing, undermining its own profits and sparking one of the worst sell-offs for its shares in recent memory.
Having learned once more the difficulties of reviving broken western brands, Lenovo should now take the bold step of considering a complete write-off of its $2.9 billion Motorola purchase, or at least relegating the brand to niche status. The setback also shows more broadly why Lenovo and other globally-minded Chinese companies need to abandon the strategy of buying struggling global brands at bargain prices, and instead should focus on developing their own names. Read Full Post…
Bottom line: Pepsi’s launch of a new oat-based dairy drink in China using an online promotion looks like a smart and savvy marketing move to tap growing consumer demand for healthier beverages.
Pepsi rolls out China oat drink
PepsiCo (NYSE: PEP) is taking aim at increasingly health-conscious Chinese consumers with its introduction of a new oat-based dairy drink to the market. This particular new drink, which is called Quaker High Fiber Oats Dairy Drink, is also tapping Chinese fondness for online purchasing through a tie-up that will see it sold exclusively at first through a partnership with e-commerce giant JD.com (Nasdaq: JD).
This launch seems quite gimmicky, aimed as much at gaining publicity as it is at introducing a product that consumers will really want. But that said, Chinese consumers do seem to love a good gimmick, especially when it involves hip and trendy online activity. That fact has been reflected in the huge success of Single’s Day, an online shopping extravaganza created by Alibaba (NYSE: BABA), and the phenomenal success of smartphone maker Xiaomi, which for its first few years sold all of its products online only. Read Full Post…
