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China Tech Stocks: Dividend Plays? 中国科技股：发放股利

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Since everyone else is focusing on the rapidly slowing growth in the latest quarterly results from leading Internet company Tencent (HKEx: 700), I thought I’d take a look at a less explored part of the company’s newly issued report, namely a dividend that it quietly boosted 36 percent. The sharp increase, at least on a percentage basis, reflects a broader effort among overseas-listed China tech and Internet firms to try to rekindle investor interest in their shares, as many start to see a rapid slowdown in growth with the maturation of their markets. Let’s look at Tencent first, which saw its fourth-quarter profit rise a modest 15 percent, not exactly impressive for a company whose annual profit rose 56 percent in 2010 and which saw triple-digit gains in many previous years. (results announcement; English article) Meantime, the company announced it was raising its annual dividend to HK$0.75 per share from HK$0.55 the previous year, a 36 percent increase. In terms of actual yield, investors will still get a modest 0.4 percent return from the dividend based on Tencent’s latest closing price. But still, any return at all would be a plus for holders of Tencent shares last year, which fell 10 percent amid a broader cooling in sentiment towards overseas-listed China tech stocks after a meteoric rise in previous years. Tencent’s boosting of its dividend comes as a growing number of US-listed Chinese tech and Internet firms have rolled out first-ever dividends, with a diverse range of names including chip designer Spreadtrum (NYSE: SPRD), online game operator Giant Interactive (NYSE: GA) and real estate service specialists Soufun (NYSE: SFUN) and E-House (NYSE: EJ) all announcing dividends starting last year in a bid to support their sagging share prices. Most of these companies are relatively cash-rich and the awarding of dividends is partly acknowledgement that they don’t need the money for operations, since most are already profitable, and most don’t plan to make any major acquisitions in the near future. Furthermore, none have indicated whether these dividends will become a regular occurrence, and I suspect many will quietly retire the policy if and when their share prices start to rebound. Still, Tencent’s latest moves do reflect a new reality setting in for an increasing number of tech firms, namely that growth could slow significantly in the next few years, causing investors to look elsewhere for excitement in a market full of other high-growth stories. As that happens, look for some of the biggest names, especially cash-rich ones like Tencent, to quietly boost their dividends, providing a stable if not very exciting source of returns for investors who don’t mind the slower growth.

Bottom line: A growing number of overseas-listed Chinese tech and Internet firms will offer dividends to attract investors as their profit growth slows.

Related postings 相关文章:

◙ Real Estate Down, But E-House Jumps 房地产股票下跌，但易居上涨

◙ Soufun Looks For More Support With New Dividend 搜房网借新派息计划寻求支撑股价

◙ Shanda Plays Games With Big Dividend 盛大游戏寄望高额分红计划提振股价

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

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A press release from ChinaJoy, China’s oldest online gaming show now celebrating its 10th anniversary, reminded me of how little I write about this once-exciting industry anymore, which has become mostly a bumper crop of companies with poor track records at innovation despite their huge home market. ChinaJoy announced its big anniversary with fanfare, unveiling a new logo and announcing a slate of its latest shows centered on the online game industry. (official announcement) But from where I sit, there’s very little to celebrate. The industry posted revenue of 32.4 billion yuan in 2010, about $5 billion, rising a respectable 26 percent from the year before but still sharply slower than growth rates 5 or 6 years ago when the hype was loudest. Perhaps the company that best illustrates the disappointment surrounding this sector is Shanda Interactive, which became the sector’s first player to go public with its Nasdaq IPO in 2004. The company then spun off its gaming unit into a separate company, Shanda Games (Nasdaq: GAME), and then finally itself went private earlier this year due in part to lackluster investor interest. (previous post) Since its listing, Shanda Games has failed to attract much investor interest and the stock now trades at about one-third of its IPO price in 2009. Other hopefuls from the sector included The9 (Nasdaq: NCTY), Perfect World (Nasdaq: PWRD) and Giant Interactive (NYSE: GA), which have all seen similar lackluster performance. One notable exception to this uninspired group has been NetEase (Nasdaq: NTES), one of China’s earliest Internet companies, which has actually done quite well in the space due to its strong ability to self-develop games that have found strong fan bases among domestic Chinese gamers. By comparison, Shanda and the others, despite their best efforts, have largely failed to create popular titles and instead rely on licensing games developed by foreign companies for most of their revenue. That model is not only less profitable, as profit margins are much smaller, but also dangerous as companies can quickly lose much of their revenue when a license expires if they fail to renew it. That case was illustrated 2 years ago when The9 saw its business disappear almost overnight when it lost its most popular game, World of Warcraft, after failing to renew a licensing deal with the game’s owner, US firm Activision Blizzard (Nasdaq: ATVI). The9 got a recent lift when it announced a new self-developed title and a global licensing deal, providing a boost to its stagnant shares. (previous post) But somewhat ironically, the title was developed by a US-based game developer purchased by The9, rather than the company’s own China-based design house. For all of these reasons, NetEase may remain the only interesting company in this once-promising space for the near future, though The9 could potentially also rise if its US-based design house can produce more successful titles.

Bottom line: China’s online game operators will see little or no growth in the next few years except for the handful that can develop their own successful titles rather than rely on licensing deals.

Related postings 相关文章:

◙ The9 WoWs Wall Street With New Deal

◙ Shanda Delists: Thanks for the Profits 盛大网络退市：获利可喜

◙ Shanda Plays Games With Big Dividend 盛大游戏寄望高额分红计划提振股价

 

Real Name Registration: Burden or Not for Weibo? 实名制会否成为新浪微博的负担？

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Just a day before an initial deadline requiring all microblog users to register with their real names, domestic media are reporting that leading operator Weibo, a unit of Sina (Nasdaq: SINA) has registered some 60 percent of users with their real names. (Chinese article) So the real question becomes: Will this new requirement become a major impediment to growth of this space, or were earlier fears overblown? The answer probably lies somewhere in between, following implementation of this controversial policy by Chinese regulators in an effort to curtail rumor mongoring by microbloggers who could previously say whatever they wanted online and hide behind a veil of anonymity. (previous post) The 60 percent conversion rate actually looks not bad to me, as it proves that at least 60 percent of Sina’s estimate 250 million registered users are active enough to want to keep posting their latest thoughts and other materials on Weibo. That translates to 150 million active users, which should still be an attractive audience for advertisers and others looking to leverage Weibo as Sina seeks out ways to commercialize the service. The 40 percent of users who haven’t registered with their real names translates to a sizable 100 million people, many of whom could soon lose their rights to post messages on their accounts once the deadline passes. Of this figure, a sizable number — perhaps one-third to one-half — might still remain active Weibo users, since many people simply like to read other people’s postings on Sina and rarely post items themselves. This group of readers in theory should be allowed to continue to use Weibo even if they don’t register their real names, since the real-name requirement is designed to discourage people from spreading rumors and thus shouldn’t apply to people who use Weibo in read-only mode. So if even a third of the users who haven’t registered their real names continue as “read only” users, that would give Weibo around another 30 million users, meaning that altogether it could retain up to 70 percent of its original user base before the original requirement was imposed. That’s  certainly not a bad number, and the new requirement could perhaps even attract more users as it will effectively “clean up” the quality of postings, since many people may now be more reluctant to post obscene, viscous or other offensive material for fear of being tracked down by authorities. Of course, the big risk is the potential for online uprisings and massive defections if a Weibo user gets detained or questioned by police due to something they wrote on their Weibo. But for the moment at least, the real-name system looks like its impact on Weibo could be relatively limited, and perhaps even beneficial in the long term, as Sina tries to make the unit profitable in the run-up to a like spin off and IPO as soon as the second half of next year.

Bottom line: Implementation of a real-name system is having limited impact on Weibo and other microblogs, and could even attract more users by improving the quality of postings.

Related postings 相关文章:

◙ Sina Gets Serious on Weibo 新浪开始严肃对待微博

◙ Sina Tests Weibo Demand With Paid Offering 新浪试水微博增值收费服务

◙ 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

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

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Two news tidbits out today on China Mobile (HKEx: 941; NYSE: CHL) nicely illustrate why investors are suddenly getting excited about this company after years of shunning its stock, highlighting big potential at its home market under an incoming generation of new top executives. The news also underscores the company’s largely failed global expansion policy, and why long-serving Chairman Wang Jianzhou needs to step down and let a younger generation of new leaders take over. The first news tidbit is some simple data from a government telecoms official saying China now has just 6 million households getting their Internet service over cable TV lines (English article) — a tiny figure compared with the 130 million households that get broadband over phone lines through service offered by China Mobile’s 2 rivals, China Telecom (HKEx: 728; NYSE: CHA) and China Unicom (HKEx: 762; NYSE: CHU). That number is significant because China Mobile is currently in talks to form a partnership with a new national cable TV operator being created through consolidation of China’s hundreds of regional cable TV companies — providing a serious new wire-based broadband competitor for Unicom and China Telecom. (previous post). That initiative, combined with recent strong signals that China Mobile will boost its 3G and 4G development, have excited investors who had largely lost interest in the company and its slow-growth story, sparking a rally that has pushed the stock to levels not seen since 2009. Meantime, the second news bit comes from Chairman Wang, whose exit has been long anticipated but never seems to come, speaking on the tired subject of global expansion. Under Wang’s leadership China Mobile has made several attempts at global expansion, failing in every instance except for one that saw it take over a small Pakistani carrier on the brink of bankruptcy. Now Wang has revealed that China Mobile is bidding for a 3G license for the Pakistani unit, and will also seek other global expansion opportunities with a focus on emerging markets. (English article) Does this strategy sound familiar to anyone? If it does, then that’s because Wang has been discussing such a strategy for the last 5 years even though he has no results to show for all his talk, except for the Pakistani unit that contributes little or nothing to China Mobile’s top or bottom lines. The bottom line for China Mobile in all of this is that the company should stay focused on opportunities in its domestic market for now, where it can achieve real returns for its investors, and stop thinking about overseas opportunities that offer much less potential and are harder to execute. Put differently, Wang needs to finally step down and hand over management of the company to the new leaders waiting to take over.

Bottom line: China Mobile could reap huge returns from domestic opportunities like cable TV consolidation and 4G, and shouldn’t waste its attention on overseas opportunities.

Related postings 相关文章:

◙ China Mobile Eyes New Nat’l Cable Network 中国移动有望携手中国广播电视网络公司

◙ Telecoms Infrastructure Prepares to Open 中国电信基建市场或更开放

◙ China Mobile Tries 4G Back Door in Shenzhen 中国移动试图绕过监管机构于深圳秘密规划4G网络

Price Trumps Tech For Solar 光伏投资者重技术但更重产品价格

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The days when a solar company could boost its share price by announcing its latest technological breakthrough seem firmly in the past, with the focus now squarely on sagging prices that have fallen by half or more over the last year due to huge oversupply. Industry leader Suntech (NYSE: STP) nicely illustrates this new reality with a new announcement that its latest technology has set a record for efficiency in the conversion of sunlight to electricity. Such advances are key to the long-term survival of the sector, as they will someday allow power plant operators to produce electricity more cheaply than other common methods, such as use of nuclear or fossil fuels, without the help of the government subsidies that are now required to make solar energy profitable. In a different time, perhaps a year or 2 earlier, Suntech’s announcement of its new record would have probably given the company’s stock a nice lift on Wall Street. (company announcement) According to the announcement, Suntech’s new technology, co-developed with an Australian university, can convert sunlight to electricity with a 20 percent efficiency ratio. That probably means a real conversion closer to 17-18 percent, but is still well ahead of current industry ratios of around 12-13 percent. So, how did Suntech’s shares react to the news? Investors greeted the announcement by selling Suntech shares, which sagged 4.2 percent in Monday trade on Wall Street, in step with a sector-wide downward trajectory that could soon see solar stocks revisit all-time lows reached last fall. Instead of focusing on this positive news, investors seemed to be paying more attention to comments from an executive of German solar panel maker Conergy, who warned the entire sector could see prices dropping further still as panel makers fight for the business that is still out there. (English article) Shares of all solar panel makers fell on that news, with Chinese companies the hardest hit as they not only face weak demand but also the potential loss of 2 of their largest markets — the US and European Union — which could both impose anti-dumping punitive sanctions later this year. (previous post) I’m hearing that some small consolidation deals are finally starting to take shape on the solar stage in China, which could eliminate some of the oversupply, and predict that we could finally see one or 2 sizable ones by the end of this year, especially if the current price pressure continues and either the US or Europe imposes anti-dumping tariffs. Meantime, I honestly do think the market could be overestimating the importance of these technological advances, which should are pushing the sector towards its golden moment of economic independence from government subsidies. When that happens, which could be in the next year or 2, look for the survivors of the current downturn to see a surge in business as serious construction of solar power plants begins around the world.

Bottom line: Solar cell investors are more focused on prices than technology, creating a buying opportunity for those who like the industry’s move toward freedom from government subsidies.

Related postings 相关文章:

◙ 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？

◙ Solar: New Tie-Ups as US Ruling Looms 光伏产品倾销裁决临近 中国企业忙于外联公关

Tudou Plus Youku: Two Small Potatoes

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Note to readers: This article was written and published on Tuesday, March 13, in Hong Kong’s Economic Journal, but I’m just posting it today (Thursday) on  my blog as part of my agreement with them.

It’s not often that mergers happen among publicly traded companies in China’s crowded Internet space, so I’m not even sure where to begin in discussing the just-announced deal that will see leading online video site Youku (NYSE: YOKU) buy rival Tudou (Nasdaq: TUDO) to form an undisputed domestic leader in online video. (company announcement) On paper and in theory the deal sounds quite attractive, combining China’s biggest and second biggest video sharing sites in an interesting marriage between Youku’s more corporate style and Tudou, which has a much more entrepreneurial background under the leadership of outspoken founder Gary Wang. But the reality is much less interesting, with this newly merged company still a relatively small entity likely to face numerous challenges going forward. For Tudou shareholders at least, the deal looks quite sweet. After seeing Tudou shares sink steadily to lose about half of their value following the company’s initial public offering last August, investors who had enough patience to hold on will get a rare premium of 38 percent to the company’s original IPO price, and an even juicier 160 percent to its last closing price before the deal was announced. Investors bid Tudou shares up by nearly that amount in Monday trade after the deal was announced, in a jump that should surprise no one. But perhaps more telling, Youku shares also rose 27 percent, a jump partly due to excitement about this new industry leader but also, in my view, because many believe the new company could itself soon become an acquisition target. At the end of the day, the deal itself is relatively tiny, valuing Tudou at just over $1 billion even after the big premium. That, combined with Youku’s own market value of $2.85 billion, means the entire merged company will be worth just under $4 billion — hardly a figure to get anyone too excited, and still trailing most other big Chinese Internet names like Sina (Nasdaq: SINA), NetEase (NTES) and well behind Internet search leaders Baidu (Nasdaq: BIDU) and Tencent (HKEx: 700). Youku now controls about 22 percent of China’s online video market and Tudou another 14 percent, meaning the combined company will still control less than half of this highly fragmented space. Both Youku and Tudou are also currently losing money, though this deal could help them move to profitability more quickly than each might have done as an individual company. Still, both companies’ latest quarterly results are hardly reassuring. Youku saw its loss actually widen 32 percent in the fourth quarter from a year earlier, not the best sign for a company aiming for profitability. Tudou, meantime, also saw its fourth-quarter loss balloon ten-fold from a year ago, after it notched an unexpected profit in the third quarter. The situation doesn’t look set to improve anytime soon, with a looming advertising slowdown for the broader Internet market also likely to hurt video sites in general, since advertisers looking for the most effective channel for their money are likely to skip those sites in favor of more effective platforms like Sina’s popular web portal and Baidu’s sector-leading search page. From the perspective of someone who has watched China’s Internet space for years, I have to say that I like this deal from a historical perspective as it represents one of the largest friendly mergers to date of two companies that strongly complement each other. But from the perspective of an investor, I honestly can’t get too excited about this deal, since both Youku and Tudou are ultimately just little players in China’s huge Internet realm that will quickly find that one small potato plus another small potato still equals a small potato. Furthermore, both companies have a number of factors working against them, including bottom lines moving in the wrong direction, potential integration issues of 2 very different corporate cultures, and a looming slowdown in advertising, their key revenue source. If I were a gambling man, I would bet that this new merged company will face a number of issues in the next year, but could ultimately still reward investors if it gets acquired by an even bigger company in the next 2 years, much the way that Google (Nasdaq: GOOG) purchased Youtube.

Bottom line: The Youku-Tudou merger is notable for setting a precedent, but will ultimately still create a small Internet player most likely to get purchased itself in the next 2 years.

Related postings 相关文章:

◙ Regulator Eyes Online Video in Ad Crackdown 广电总局或限制视频网站广告

◙ Tudou-Sina Tie-Up: More to Come？ 土豆网联手新浪

◙ Tudou Surprises With Profit, Licensing Deal 土豆网意外扭亏为盈视频分享市场的好兆头

Vipshop Takes Lead in IPO Race 维品会或成为今年首家赴美上市中国企业

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The race to make China’s first New York IPO of 2012 is nearing the finish line, with online discount retailer Vipshop emerging as the likely winner after getting off to a late start.The listing will mark not only the first Chinese IPO in New York this year, but also the first in months following disastrous debuts for a few companies that launched offerings last summer at the height of a confidence crisis towards US-listed Chinese stocks after series of accounting scandals. I previously said that growing signs are emerging that the worst of the crisis has passed (previous post), and at least the initial response to Vipshop’s offering appears to confirm that trend. According to a domestic media report, Vipshop has set the price range for the offering at $8.50 to $10.50 per share, meaning it would raise $95 million at the low end of the range and up to $120 million if it can get the highest price. (Chinese article) This range is quite significant, as it is unchanged from Vipshop’s announcement in its first public filing that it planned to raise up to $120 million from the IPO. (previous post) That means that investor reception to the offering was within expectation, unlike last year when many companies had to sharply scale back their capital raising plans after receiving weak or no investor demand at the height of the crisis. Online video site Tudou (Nasdaq: TUDO) became a symbol for how bad things were when it went ahead with its Nasdaq IPO despite awful sentiment last August, with its shares tumbling 12 percent on their first trading day. They continued their downward spiral after that, along with most other US-listed China firms, and now trade at just over half their IPO level. Vipshop became China’s second company to file for a New York IPO last month, following another application by car rental specialist China Auto which planned to raise up to $300 million. Online entertainment specialist Shanda has also filed for an IPO for its Cloudary online literature unit, but the Vipshop plan now looks like the furthest advanced and thus the likely winner. I would expect to see it price near the bottom end of its range as some investor skepticism remains, with its shares likely to trade flat on their debut. But even that kind of performance would be a huge improvement over last year, and would likely spark a flurry of refilings for many of the IPOs that got pulled last year as companies rush to take advantage of a new window of improved sentiment. If that happens, look for companies like online clothing retailer Vancl to file in the next 2 months, and even possibly from group buying leader LaShou, which is reportedly preparing to refile for an IPO after its previous plans also ran into trouble last year.

Bottom line: Vipshop’s New York IPO, the first for a Chinese firm this year, is likely to price near the bottom of its range, but would still mark a sign of improving investor sentiment for China stocks.

Related postings 相关文章:

◙ Vipshop Vies For First Internet Listing of 2012 唯品会欲在赴美上市电商公司中力拔头筹

◙ Debut Offshore IPO Looks Weak, But Not So Bad 阳光油砂上市首日表现差强人意

◙ Confidence Crisis Easing For US China Stocks 中国概念股信任危机缓和

Real Estate Down, But E-House Jumps 房地产股票下跌，但易居上涨

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China’s volatile real estate market is a never-ending source of news these days, with rumors cropping up just about every week about changes of heart in the government’s steadfast determination to cool the overheated market, even though Beijing consistently denies the rumors. The latest news seems to finally acknowledge the market may be bracing for a long winter, with S&P saying  Chinese developers are facing very serious risk of downgrade to their debt. But in a curious twist, E-House (NYSE: EJ), one of the nation’s top real estate services firms, seems to have excited investors with an earnings report that looks very mixed to me, including a massive loss, although the company made a relatively strong forecast for 2012 and also offered a first-ever dividend. Let’s look at the macro news first, which has S&P sounding a very bearish note on China’s real estate sector, saying many developers will be forced to refinance their debt, most likely at higher interest rates, as they are forced to slash prices to boost sluggish sales. (English article) S&P said home prices, which have been falling by low single-digit percentages since the second half of last year, could be down 10 percent year-on-year by June as developers who have been trying to keep prices steady finally give up and cut them to move inventory. The 10 percent figure looks like a good estimate considering current market trends, and I would fully expect to see it accelerate even more in the second half of the year, with year-on-year declines of 20-25 percent likely by year end, dealing a blow to the nation’s many real estate developers. Perhaps investors are expecting a boom in transaction volumes as developers are forced to lower prices, which would play to the advantage of real estate service companies like E-House that depend on transactions rather than home prices for their income. That’s one of the few reasons I can think of for the 10 percent jump in E-House shares after the company reported it swung to a $32 million net loss in the fourth quarter, as revenue slipped 6 percent. (company announcement) Investors may have been encouraged by the E-House’s announcement of a new dividend, following rival Soufun (NYSE: SFUN), which also announced a dividend last year. But at 15 cents per ADS, the payout isn’t very big, equal to about 2 percent of its last closing price. Instead, I suspect investors are excited about E-House’s forecast that 2012 revenue will rise about 25 percent this year despite the weak market, indicating that it indeed does see sales volumes picking up sharply as debt-heavy developers and home owners start selling their homes when they realize the market won’t improve anytime soon.

Bottom line: Real estate developers will come under growing pressure this year as they refinance debt at higher interest rates, while services firms will benefit from rising transaction volumes.

Related postings 相关文章:

◙ Soufun Looks For More Support With New Dividend 搜房网借新派息计划寻求支撑股价

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

◙ E-House, Blackstone Moves Auger Real Estate Rebound 中国房地产市场可能接近底部

 

net cash $392 million

Gree, Bright Food, Fosun in New Global Moves 格力电器、光明食品和复星集团全球新动向

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Overseas expansion was a major theme in the closing days of the first week of the National People’s Congress in Beijing, with top officials from 3 very different companies in the home appliance, food products and investing sectors all discussing ambitious global plans for the year ahead. Gree Electronic Appliance (Shenzhen: 000651), China’s largest maker of air conditioners, detailed ongoing plans to expand in the tough but lucrative US market; while Bright Food (Shanghai: 600597) said it is in talks to buy a French winemaker; and lastly Fosun International (HKEx: 656) said it’s eying investments in a number of overseas markets, especially in Europe where valuations are low as the market confronts its ongoing debt crisis. From my perspective, the Fosun and Bright Food plans both look like smart and interesting moves for reasons I’ll discuss shortly, while the Gree plan looks a bit more questionable and is likely to run into problems. Let’s look quickly at the 3, starting with Gree, whose President Dong Mingzhu, one of China’s most successful female business leaders, said the company has started to build a plant in the US after opening a branch office in California last year. There’s not much else in the report, except for Dong’s belief that strong US infrastructure and investing incentives will offset the market’s higher costs. While such a plan certainly conforms with China’s “go-global” policy, I expect Gree will quickly discover the higher costs and stiff competition are a potent combination that will eventually lead to the failure of this ambitious project. Moving on to Bright Food, Vice President Ge Junjie said the company is in talks to buy a French winemaker, following its deal last year to buy Australia’s Manassen Foods for $382 million. (English article) I really like this latest move, as China is fast becoming a nation of wine drinkers, as younger, more affluent urbanites look for lower-alcohol alternatives to traditional Chinese liquors, most notably the baijiu that is a favorite of many from the older generation. Finally there’s Fosun, whose Chairman Guo Guangchang, one of China’s most successful private investors, said his firm is looking at acquisition targets in Germany and Britain this year, attracted by low valuations of many companies as they struggle with a weak regional economy. Last year the company paid $120 million for 9.5 percent of a Greek company, Folli Follie Group, showing it is serious about investing abroad. (English article) I previously said that another regional investor, HNA Group, was a very entrepreneurial company that could become one of China’s first big global investors without ties to the central government (previous post), and I think that Fosun also fits this description, and could be a player to watch closely in the next 2 years.

Bottom line: Global expansion plans by Bright Food and Fosun International look like strong bets in the year ahead, while a US expansion by Gree Electric looking more problematic.

Related postings 相关文章:

◙ Fosun Pharma Offers Window to China Healthcare Reform

◙ China: A Fickle Global Shopper 中国企业缺乏并购经验

◙ HNA: China’s Next Big Global Investor? 海航集团：中国下一个大型全球投资者？

China Mobile Eyes New Nat’l Cable Network 中国移动有望携手中国广播电视网络公司

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After writing far more negative than positive views about China Mobile (HKEx: 941; NYSE: CHL) I’m happy to say there’s finally a piece of news that I really like in the form of talk that the country’s cash-rich but uninspired dominant mobile carrier may soon take a stake in a national cable TV company now being assembled from a patchwork of regional operators. (English article) According to the reports, which cite a number of unnamed sources, China Mobile has already reached an agreement to partner with the new company, China Radio and Television Network, and the 2 sides are now in discussions about a potential equity investment by China Mobile. This kind of partnership looks like a great idea for both sides, as the new cable company will have a huge need for cash — something that China Mobile has plenty of — once the long-delayed consolidation of China’s cable TV networks into this single new company is complete. At the same time, the big piece missing in China Mobile’s portfolio of products is a good wire-based broadband service, something that rivals China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA) both have from the wired-line phone networks they inherited years ago from China’s former fixed-line phone monopoly. A big cash infusion from China Mobile could help China Radio and Television Network quickly upgrade its numerous regional cable networks, now mostly based on older analog technology, to digital capabilities for broadband and other services like high-definition television and video on demand. China’s regulators would also be likely to welcome this tie-up, as the entry of a strong new player to the broadband market would provide a real alternative to offerings from Unicom and China Telecom, which are now being investigated by the National Development and Reform Commission, China’s state planner, for monopolistic practices in the area. Investors have long complained that China Mobile — which controls two-thirds of the world’s biggest mobile market — has too much cash and should pay a higher dividend, even though the company has failed to raise its dividend pay-out ratio for years. I have always been skeptical of China Mobile’s overseas acquisition strategy, mostly because it has no experience operating outside its highly protected home market. But this kind of equity tie-up would make much more sense, as it would come in China Mobile’s home market and also be highly complementary to its existing business. Of course such a tie-up isn’t completely risk-free, as the new cable company is an untested entity that still has yet to be formally launched. But if things proceed smoothly, I could see this partnership developing rapidly and perhaps even contributing to China Mobile’s stagnant top and bottom lines as soon as the second half of next year.

Bottom line: A new tie-up between China Mobile and China’s new national cable TV operator looks like a smart move, potentially providing China Mobile with a strong cable and digital TV offering.

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Sinopec Weighs New China Gas Bid 中石化似乎考虑提高对中国燃气收购价

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A small brouhaha broke out yesterday in Beijing, after an executive from the Sinopec-led (HKEx: 386; Shanghai: 600028; NYSE: SNP) group that made an unsolicited bid for privately held natural gas distributor China Gas (HKEx: 384) told reporters there would be no new offer after the original bid was rejected. It seems the executive from ENN Energy (HKEx: 2688), which launched the bid with Sinopec last December, made his remarks quickly as he walked past reporters while attending meetings at the National People’s Congress taking place this week in Beijing. Sinopec followed up later in the day with a “clarifying” announcement saying the remarks were purely the opinion of the executive, and that no decision has been made yet about whether the group will make a new and higher offer. (company announcement) The development of this deal has been quite unusual from the start, qualifying as what looks like China’s first truly hostile takeover bid. Sinopec and ENN made their original unsolicited offer late last year, in what would be a highly unusual move in western markets where the acquirer would usually approach the target company first and try to reach a deal before making a formal offer. It would only then launch a hostile unsolicited bid if the 2 sides couldn’t agree on a price. (previous post) In this case, it looks like Sinopec and ENN didn’t even approach China Gas before making their first offer — a choice that I attribute more to lack of experience than any real hostile intent, as most big Chinese state-run giants aren’t used to having their offers to buy other Chinese firms rebuffed in a nation where everything used to be owned by the state anyhow. In this case, China Gas is a relatively rare case of a privately owned company in the energy sector, and its management clearly didn’t like the idea that they weren’t consulted before Sinopec launched its bid. At the time of the initial rejection, Sinopec and ENN didn’t say much, but this latest comment from the ENN executive clearly wasn’t the message that Sinopec wanted to send to the market. Instead, this new clarification appears to indicate that Sinopec is seriously considering raising its offer in the near term, and may even this time decide to actually discuss the matter with China Gas before making its next move public. If it doesn’t reach a friendly deal or decides it still wants to make a new unsolicited offer, look for an interesting hostile takeover bid to potentially take shape, perhaps resulting in an unusual bidding war for China Gas.

Bottom line: Sinopec’s latest remarks indicate it is weighing a new higher bid for China Gas, potentially resulting in a hostile takeover attempt that could produce a bidding war.

Related postings 相关文章:

◙ Battle Heats Up For China Gas

◙ Sinopec Balks at Rebuff to Hostile M&A Bid 中石化试水敌意收购碰壁

◙ Cash-Rich China Eyes More Global Energy Assets　　财大气粗的中国企业着眼更多全球资源并购