Category: China

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Business China

Price war leaves bad taste to loyal customers

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Last week one of the biggest news in consumer electronics arena is Apple decided to cut the iPhone price. Consider Apple just started shipping iPhone in late June, this move is a blow to its most loyal customers (early adopters). Apple quickly responded to the angry customers by offering $100 credit (source: Apple.com).

From my own experience, US car makers do those kind of price cut all the time. They carry out price wars mainly in two ways: rebate and/or low interest loan. Sometimes I saw a $8000 rebate on a 20 to 30 k truck or SUV. One side effect of those kind of promotion is the lower residual value of pre-owned cars (trucks), compared to similar model Japanese cars/trucks.

Interestingly, this car price wars are now extended in China, for the good or bad of consumer. On the good side, the new customers can buy the cars on the cheap; on the other hand, the early (loyal) customers paid a premium for the car. This is an Chinese article talking about Hyundai cars. The war is not limited to Korean car makers. It appears to me low end car makers have most to lose; while high end cars such as BMW still have much price power. (Picture below: Hyundai Coupe).

hyundai cars pic

PS, after I wrote the above, I realized there is difference between price cut and price war. But I think there is a strong connection between the two: price cut is the tactics of a price war, e.g., Apple announced a price war against its competitors (Motorola, Palm, RIM etc.) by cutting the iPhone price. Now the competitors will have to respond by cutting their prices if they don’t want to give up market share.

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China Stocks

WuXi Pharma Tech Q2 results

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Here are the results from Yahoo Finance, some highlights:

Second Quarter 2007 Highlights:

— Total net revenues increased 99.3% over the second quarter of 2006 to
US$30.2 million. (1H revenue $64 m, slight decline over Q1 2007?)
— Net income increased 482.1% over the second quarter of 2006 to US$7.1
million.
— Diluted earnings per American Depositary Share (“ADS”) for the second
quarter of 2007 was US$0.11. Diluted earnings per ADS excluding share-
based compensation expenses (non-GAAP) for the second quarter of 2007
was US$0.13.

The stock took a hit last Thursday because the market expected more for its year 2007 outlook. Currently the company expects rev of $128 to 132 million.

On business level, I like Wuxi’s business model and the global outsourcing trend in the pharma R&D. One concern of outsourcing is margin. I’m listening to its Conference Call now, will add comments if I find anything interesting.

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China Fun

Marriott Sanya Resort

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is very nice. Here is the picture taken from “view lounge”. We are looking at world famous Yang Long Bay. I have not been to many beaches in China; but from what I heard Yang Long Bay has the best beach in China.

IMG_5384

The service of Marriott is 5 star. This tripAdvisor review confirmed my view. They are doing a “family package” promotion at this time, so ask about it when booking. Here is their web page.

Last but not least, a trivia question, do you know how many Marriott Resort(s) are there in China? Marriott Hotels?

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China Stocks

The world is not flat

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At least on Internet front, as I read this post from Wang Jianshuo.

Similar thing can be said about the China stock market, the “open H-share to domestic investors” initiative took a pause this week. The new word is it will start in 2 months; and the minimum balance is 300 k Yuan (vs. previous 100 k Yuan). This news will certainlly boost the domestic A share market, as hot money stays inside China, for the moment. Sersiously I don’t think this policy will have too much effect to Hongkong, as some forward thinking Chinese investors already found their ways in Hongkong and US stock market. Just as I said in previous post, some foreign investors (e.g., Yale university) already found their ways in China A share market.

So, how about we say “the world is not flat; it’s in the process of becoming flat,…”

Categories
China Stocks

Three ways to buy H shares

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With the Chinese goverment recent policy of “opening H shares to domestic investors”, there are three ways to buy H shares for China domestic investors, and people with different investment objectives and pockets can pick and choose.

1) QDII: there are many bank issued QDII products. Those products mostly invest in H shares, and it’s very likely the fund managers will buy something they are familar, the Chinese companies listed in Hongkong. This is indirect way of buying H shares; it carries modest risk and the return will also be moderate.

2) Open an account in Hongkong Stock Exchange directly: this is not officially endorsed by the Chinese regulators. But many people have done that, and I think those people at least enjoyed the recent “bump” after the “China life gate to H shares” news. In reality, I think those are “forward thinking” investors, and they usually have deep pockets. The down side of this approach is: it’s difficult to get the money in and out of China, because that’s not blessed by the goverment.

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Business China

Best buy in Shanghai

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Last Saturday we went to Xu Jia Hui, one of the better known shopping centers in Shanghai. I voguely remember there were not too much when my bro and I visited there in 1991. It was completely developed in last 15 years. There are many stores, including Gang Hui Plaza, Metro City, etc. We found the newest store in Xu Jia Hui, Best Buy, the US electronics and applicance retailer. I heard from Wang Jianshuo the Best Buy opened its first store in Shanghai. But when I stood at the sky bridge leading to Best Buy, I was still a bit surprised. The store has 4 stories and lots of people, both customers and store clerks. Here are some pictures:

IMG_5216

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China Stocks

Shanghai Composites and second offerings

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The Shanghai Composites Index closed above 5000 the first time on August 23, Thursday. The interesting thing is, this time Chinese goverment is not as nervous as last time around (May 30), because this run up is largely drived by so-called blue chips: especially large banks where the goverment is the majority owner (ICBC, BOC,…).

For smaller investor like us, I think we should look beyond the market, and look at individual companies. By incident (what an incident), two large blue chip companies, Vanke (000002), and Citic Securities (600030). Here is the bloomberg news for Citic Securities secondary.

The Beijing-based company will offer as many as 350 million new shares at 74.91 yuan on Aug. 27, it said in a statement today. It would be China’s third-biggest stock sale this year. The shares jumped 5.9 percent to a record 94.95 yuan in Shanghai.

Citic Securities, after passing Japan’s Nomura Holdings Inc. in market value this week, is seizing on investor enthusiasm for stocks that made China the world’s best-performing market this year. Chairman Wang Dongming, who boosted first-half profit more than fivefold, plans to triple capital at the futures unit to extend his lead over local rivals…

Valuation Premium

Today’s share price gain values Citic Securities at $37 billion, higher than Nomura’s $35 billion. The stock has more than tripled this year. The firm trails only Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co. in market value.

Investors pay a premium for Citic. The stock trades at about 35.8 times estimated full-year profit, according to data compiled by Bloomberg. Goldman, the world’s most profitable securities firm, has a price-earnings multiple of 8.1.

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Categories
China Fun

New Oriental class break

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Found the following video clip at Tudou, the China’s very own YouTube. The content pushed the envelop a little so don’t play it before your boss, coworker or kids. I haven’t verified whether this is indeed from a class break of New Oriental.

This (in a very small way) reflects the entertainment of China generation Y (young people born after 1980, or 80后).

Categories
China

Shanghai Snapshot V

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I had some free time the other evening, so I walked around the Hongqiao Shanghai City (or Hongqiao Parkson as known to many people), and took some pictures.

Outside view:

IMG_5168

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Categories
China Stocks

Q and A on China A shares

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1. Chinese stock market has started in early 1990s and it has not done well until 2005. Why the China A shares market suddenly became so hot since then?
When the Chinese stock market started in the early 1990s, it’s a way for the state owned companies to raise the capital, and market speculators to make money. It’s not friendly to small shareholders because there are two types of shares in additional to floating shares: the state shares and Fa Ren Gu (legal entity shares); those shares can not be floated. Normally the majority shareholder is the goverment (or some Fa Ren) and they have no incentive to help the stock (floating shares) price go up because their shares can not float.

This all changed in 2005 in the Gu Gai (stock reform): during which the floating shareholder are compensated, and the state owned shares and Fa Ren Shares can be floated within a pre-arranged time frame, just like the share plan of big shareholders in the US stock market (unlock period). Now all the shareholders have aligned their interest. The big shareholder and management have incentive to deliver.

Of course another reason is people got lots of money: Chinese has a more than 40% saving rate; the emerging middle class; people made money in business and investing (housing etc.)

2. How can I buy the China A shares?
At this time the A shares are open to Chinese residents. For foreign investors, they can buy through the QFII (source: ChinaDaily), stands for qualified foreign institutional investors, e.g., Morgan Stanley etc.

3. Why some companies like to buy “shell”?
In China there is this listing requirement that a company needs to be profitable before it can list. Some companies that did not meet this req. but want to list, have decided to buy the shell of already listed companies. That will drive up the stock price of the “shell” company. It often triggered lots of insider trading. Buying “shell” is generally not as good as IPO. Lately the Chinese securities regulatory commission (CSRC, equivalent of SEC in the US) has tightened this “shell buying” activities. This makes economic sense to me.

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