Wall Street saw better days then today. The DJIA is down over 300 points on high unemployment rate and record oil, approaching $150 a barrel. No wonder, shares of U.S. listed Chinese companies, or ADRs, follow suit measured by the broad China ADR Index or CAI. As the following table demonstrates, Chinese ADRs lost 3.41% today however there is a significant difference between NYSE and NASDAQ listed ADRs.
While index heavy NYSE listed China stocks lost ground, measured by the China NYSE Index (CYI), NASDAQ listed Chinese ADRs hold ground thanks to a superb performance of NetEase (NTES), The9 and some solar companies.
|
|
Date |
Today |
P/E |
EPS |
|
CAI |
6/6/2008 |
-3.41% |
95.35 |
1.78 |
|
CYI |
6/6/2008 |
-3.91% |
173.89 |
3.76 |
|
CQI |
6/6/2008 |
0.98% |
35.48 |
0.20 |
| TOP MOVERS |
6/6/2008 14:37 |
|
Symbol |
Price |
Change |
Change% |
|
|
|
|
|
|
NTES |
23.93 |
0.92 |
4.00% |
|
NCTY |
26.12 |
0.33 |
1.28% |
|
LDK |
42.91 |
0.23 |
0.54% |
|
CTEL |
5.34 |
0.19 |
3.69% |
|
UTSI |
5.43 |
0.15 |
2.84% |
|
|
|
|
|
|
GRIN |
0.61 |
0.06 |
10.91% |
|
SOLF |
22.20 |
0.04 |
0.18% |
|
ATS |
1.60 |
0.03 |
1.91% |
|
TOMO |
9.05 |
0.01 |
0.11% |
|
COGO |
13.12 |
0.00 |
0.00% |
|
|
|
|
|
|
SHI |
42.29 |
-2.42 |
-5.41% |
|
LFC |
56.98 |
-2.77 |
-4.64% |
|
CHA |
61.38 |
-3.54 |
-5.45% |
|
CHL |
71.13 |
-3.70 |
-4.94% |
|
TSL |
45.83 |
-3.80 |
-7.66% |
|
|
|
|
|
|
CN |
56.20 |
-4.56 |
-7.50% |
|
PTR |
137.16 |
-5.13 |
-3.61% |
|
FMCN |
31.48 |
-5.31 |
-14.43% |
|
SOHU |
85.30 |
-5.96 |
-6.53% |
|
BIDU |
347.16 |
-14.65 |
-4.05% |
As the following screenshot from Google finance shows, Trina Solar reported 2008 Q1 results, just to lose 8% after the bell.
However it highlighted the best performers of the solar sector, Solar Fun (SOLF) and LDK Solar (LDK). Let's look at LDK for example. The stock is up 16% since announcing 2008 Q1. The company reported strong revenue growth and secured raw material supply. As a reminder, Chinavestor published a 10+ page fundamental analysis of the company, posted for premium subscribers. Have you been following our advice, you were in the money... Anyhow, Solarfun (SOLF) has outshown LDK after announcing 2007 Q4 results, the stock is up over 100% since reporting profit doubling and a bright outlook. Again, when it comes to Chinese solar stocks, you have to look at quality earnings, raw material supply security and technology to separate the darlings from the dogs.
Going back to today's gainers: NetEase, China's second largest online game developer after Shanda Inderative (SNDA) announced the launch of the Tianxia II, a self developed 3D game. Looking at historical performance of NTES, here is a quick recap from the March 2008 Newsletter.
To the contrary of Giant’s sluggish gaming performance, China’s second biggest online games provider NetEase.com (NTES) topped consensus Wall Street estimates by reporting a 22% increase in fourth quarter profit fuelled by healthy growth at its current titles. ‘Fantasy Westward Journey’, NetEase’s most popular game attracted a record number of players, defying naysayers if older titles could keep players interested.
The last online gamer to report in February was The9 Ltd. (NCTY), a day after Giant and NetEase. Revenues for The9 grew by 34% quarter-over-quarter (QoQ) for the company on the back of ‘The Burning Crusade’, an extension pack for The9’s one big title of ‘World of Warcraft’ (WoW). Still, profit margin remains a relatively low 20% compared to highly profitable Giant (GA), due to license fees attributed to WoW while Giant relies on in-house developed games with no license fees involved. Thanks to the 34% growth in revenues the company is closing in on Giant in terms of revenue to take the number three spot in the Chinese online game market. However despite significant revenue growth YoY, quarterly profit fell by 18% vs. same period in 2006 but it was still above market expectations. The news sent its shares up 9.6% the next day, erasing YTD losses for the stock. Looking into the future we like companies that beat analysts’ expectations not because expectations are so low but because of fast and healthier growth. From this respect The9 Ltd. has a long way to go before we can heartily recommend this stock for our subscribers.
When looking at the online gaming market in China, investors have to keep in mind that revenues derived from gaming are more than online advertising or the internet search market because people in China use the internet for primariliy for gaming. Total online game sales are expected to grow close to 40% this year close to $2 billion, according to market estimates.
Looking at this hot and fast growing sector, we continue to like Shanda Interactive (SNDA) and NetEase (NTES). Giant (GA) has growth problems at present but has a relatively healthy number of new games coming from its pipeline. But the number of new games marketed does not translate to success automatically and as such Giant’s pipeline carries significant risk as well. The9 (NCTY) has been closing in on Giant in terms of revenue; however, its gaming portfolio is ageing and its profitability is expected to remain low.
Looking at the losers today, high oil price hurt Petrochina (PTR) and Sinopec Asia's largest refiner, (SNP). Beijing keeps a tight control over refined gas prices, forcing refineries to pay market price for crude yet charge artificially low prices for gas at the pump. Petrochemical related Sinopec Shanghai Petrochemical (SHI) is just as much hurt and is down by $2.42.
Baidu.com (BIDU), China's leading search engine, lost -4.05% or $14.65 today. Shares of this mighty company proved to be extremely volatile. On one hand the company delivers strong earnings and lives up to the potential it portrays, however success of the company resulted in enormous investors' appetite for the stocks pushing valuations sky high. The key for BIDU investors is to find balance between perceived and actual growth. Again, we keep a close eye on Baidu.com at Chinavestor and keep publishing our own in-house 10+ pager long original fundamental analyses.
Wish you successful investing and a great weekend.