Bottom line: ZTE will face major supply chain disruptions following new punitive US actions for violating UN sanctions against Iran, forcing it to lower its 2016 sales targets by up to 10-15 percent.
ZTE braces for US sanctions
Officials at telecoms equipment and smartphone maker ZTE (HKEx: 763; Shenzhen: 000063) got a rough start to the new week, after media reported the company was set to get punished by Washington for selling products to Iran in violation of earlier UN sanctions. The news quickly buzzed through the headlines, and prompted ZTE to request a halt to trading of its Hong Kong-listed shares. (HKEx announcement)
This particular case actually dates back to 2012, when reports emerged that the FBI was investigating ZTE for illegally selling US computer equipment to Iran at the height of tensions with the west related to its nuclear development program. (previous post) Crosstown rival Huawei also faced similar accusations at that time. Read Full Post…
Bottom line: A New York IPO by drug maker MediTech and Hong Kong listing by BOC Aviation will both meet with tepid reception and weak debuts, the former due to its small size and latter due to lack of big growth potential.
Drug maker China MediTech registers for NY IPO
A couple of IPOs are in the headlines as we head into the new week, led by a relatively sizable listing plan by drug maker China MediTech that could be the first significant new offering in New York this year by a Chinese firm. Meantime, Bank of China (HKEx: 3988; Shanghai: 601398) is also announcing plans to spin off and list its airline leasing unit, marking its latest asset sale as China’s banks scramble to raise cash to cushion their rapidly crumbling balance sheets.
Each of these listing stories is a bit different, reflecting the big differences between MediTech, a private company controlled by Hong Kong billionaire Li Ka-shing, and Bank of China, one of China’s big 4 state-run banks. MediTech’s choice of New York over Hong Kong probably reflects Li Ka-shing’s recent bearish stance on China, and also highlights the relative stability that New York offers over Hong Kong and China. Bank of China’s choice of Hong Kong reflects the preference by big state-run companies to make overseas listings in the former British colony, and Bank of China is itself also listed there. Read Full Post…
A popular restaurant chain called Memory tops the menu of this week’s Street View, with word that the local eatery is living up to its name with a sudden closure that’s sending it into the history books. Memory’s particular form of untimely death is all too common in China these days, usually occurring when an owner abruptly shutters his business and flees after piling up huge piles of debt.
The story was even more personal for me, since I was just introduced to the chain a few weeks ago when a friend suggested it for dinner one evening. I was so impressed by its innovative take on traditional Shanghai cuisine, combined with its nostalgic decor and extremely reasonable prices, that I even went back for a second helping just last week. But it seems the low prices that were one of its biggest draws were also Memory’s downfall, leading to the sudden closure. Read Full Post…
Bottom line: Guo Guangchang’s appearance at this year’s meeting of China’s legislature is a positive signal for Fosun investors, designed to ease their concerns that he might be in danger of arrest as part of an anti-corruption probe.
Fosun chief Guo attends annual Beijing political pow-wow
Local media are buzzing today with the latest thoughts from some of China’s biggest corporate leaders, many of whom are attending a big meeting in Beijing connected to the annual meeting of China’s legislature. But among all the chatter taking place on the pow-wow’s sidelines, the most interesting tidbit among companies I follow is the mere presence of Guo Guangchang, head of the massive Fosun conglomerate.
Guo’s appearance at the Chinese People’s Political Consultative Conference (CPPCC) would normally be a non-event, since he’s an official member of this group that provides advice to Chinese lawmakers. But Guo was in far more sinister headlines back in December, when he disappeared for a few days under murky circumstances and later said he was assisting in an unspecified government investigation. (previous post) Read Full Post…
Bottom line: IBM’s sale of its Lenovo shares isn’t surprising since it probably received the stock as part of a recent transaction between the pair, but still comes as the latest sign of no confidence in the struggling Chinese PC giant.
IBM dumps Lenovo shares
Things just keep getting worse for struggling PC maker and smartphone wannabe Lenovo (HKEx: 992). Just 2 weeks after new data showed the company’s smartphone sales plunged in its home China market at the end of last year, new reports are saying that US tech giant IBM (NYSE: IBM) is dumping the Lenovo shares that it received as part of a recent transaction between the pair of companies.
The amount of the sale doesn’t look that big, with IBM looking to sell about $150 million worth of Lenovo shares, the reports say. (English article; Chinese article) But it’s important to note those same shares were worth about twice as much in October 2014, which is when IBM probably first received the stock as part of a sale of its low-end server business to Lenovo for $2.1 billion. Read Full Post…
Bottom line: Alibaba’s latest $4 billion fund-raising could signal a potential deal to buy its shares currently held by Yahoo, as both companies look to remove a distracting issue that is affecting both of their stock prices.
Alibaba eyeing Yahoo stake?
Chinese e-commerce giant Alibaba (NYSE: BABA) just can’t seem to get enough money. Despite having more than $18 billion in its coffers at the end of last year and access to billions more in credit, the company is reportedly back in talks with a group of banks to raise another $4 billion. That raises the question of why exactly it needs all this money.
Alibaba has certainly been an aggressive acquirer over the last 2 years, spending billions on a wide range of companies in industries from entertainment, to hired car and social networking services and many others. Two weeks ago the company was in yet another major M&A headline, when it disclosed it had quietly purchased more than 5 percent of faded group buying giant Groupon (Nasdaq: GRPN) in the open market. (previous post) Read Full Post…
Bottom line: Cautionary comments from Caixin and Ele.me about investments from Alibaba and its affiliates reflect a growing wariness from companies at accepting money and yielding control to the e-commerce giant.
Alibaba’s Ant invests in Caixin
The voracious Alibaba (NYSE: BABA) is in 2 new M&A headlines as we head into the end of the week, led by word that its Ant Financial affiliate was an investor in a new fund-raising round in Caixin, one of China’s best respected financial media. A second headline has take-out dining pioneer Ele.me denying reports that Alibaba, which is already one of its biggest shareholders, will devour the company completely. Instead, Ele.me is saying it will continue working closely with Alibaba’s own take-out delivery service called Koubei.
Both headlines reflect a growing resistance by founders of these companies to outright ownership by Alibaba-related companies. In the first case, Caixin was quick to issue a statement saying Ant was only one of several new investors in its new funding round. Ele.me’s case is similar, quashing earlier speculation that it would ultimately get swallowed up by its cash-rich backer. Read Full Post…
Bottom line: Vipshop looks like a strong bet due to its position as a focused e-commerce leader among consumers who are most interested in bargains and less concerned about famous brands.
Vipshop trives on bargain focus
So far this series on my favorite Chinese stocks has focused on big names like Tencent(HKEx: 700) and Fosun International (HKEx: 656), which are sector leaders with strong, focused management. But hiding behind these giants are a field of lesser-known second- and third-largest players in their sectors offering even better growth potential because they are far smaller and at an earlier stage in their development.
One such name is Vipshop (NYSE: VIPS), which has carved out a place as China’s third largest e-commerce company by honing in on shoppers who are more interested in bargains and less concerned with big-name brands. While some may call this area a niche, it’s really more of a focus since it encompasses quite a large segment of the Chinese shopping population. Read Full Post…
The following press releases and news reports about Chinese companies were carried on March 3. To view a full article or story, click on the link next to the headline.
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Qualcomm (Nasdsaq: QCOM) Fined $7.5 Mln in US for Bribery in China, Denies Charges (Chinese article)
Jack Ma’s Ant Financial Said to Be in Talks for Caixin Stake (English article)
Sina (Nasdaq: SINA) Reports Q4 and Fiscal Year Results (PRNewswire)
Deadline Expires for Minsheng Bank (HKEx: 1988) in Talks for HK Broker Quam Stake (HKEx announcement)
Ele.me Says Working with Alibaba (NYSE: BABA) on Take-Out Dining, Denies Merger (Chinese article)
Bottom line: Qiyi’s new tie-up with Universal Music could presage its purchase of Baidu’s music unit, while Qihoo’s new video campaign is likely to stumble due to intense competition from existing players.
Qiyi ties with Universal Music
A couple of new reports are casting a spotlight on the rapid colonization of the video and music spaces by new media companies. The most intriguing of those has Qiyi.com, the online video site affiliated with search leader Baidu (Nasdaq: BIDU), taking a major step into the music space through a tie-up with global entertainment giant Universal Music. The second has the aggressive Qihoo 360 (NYSE: QIHU) making a late but big push into the online video space via a major new hire.
Both of these stories reflect the big challenge that private companies are now posing to traditional TV and radio stations, as they rapidly challenge a state-owned establishment that held a monopoly on China’s entertainment sector for decades. The resulting boom in video and music services has been great for consumers. But in usual Chinese fashion the explosion has sparked another cycle of hyper-competition that has pushed everyone deeply into the red, and is almost certain to end with the typical bust in a few years. Read Full Post…
Bottom line: Hard Rock’s new plan for China resorts and restaurants will do well due to its focus on young, wealthy hipsters, and could also auger a broader move by second-tier global hotel brands into the market.
Hard Rock coming to China
China’s hotel sector has just crossed a sort of milestone, with word that Hard Rock, a well-known but decidedly second-tier western brand, is dipping its toe into the market. Hard Rock’s move comes more than a decade after most of the world’s top hotel operators entered China, and roughly coincides with a recent push by global names like Marriott (NYSE: MAR) and Accor (Paris: AC) into the middle- and lower ends of the market.
Hard Rock has announced plans to build 3 hotel resorts in the cities of Dalian, Shenzhen and Haikou, and additional plans to open Hard Rock restaurants that are more familiar to many consumers. (English article) Such a plan looks a bit late, but could actually be well-timed since most of these resorts won’t be complete for a few years after the market has absorbed a recent glut in new property building. Read Full Post…
