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My Q1 2008 grades

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(Update Apr 2) Another news to make myself feel better, Chinese A share mutual funds declined 22% on average (read this Chinese news from Money-Courier). For comparison, Shanghai Composite index dropped about 34%, from 5261.56 to 3472.71 in the period. Note that index is not a good benchmark index because it’s skewed by some big cap stocks such as PetroChina (601857.SS).

(Original Apr 1) I was a decent student in elementary school, but from time to time I did get bad grade in an exam. The tough part for me was getting the report to my mom 🙁

The most miserable quarter
I’m sure lots of money managers will share my “most miserable” comments. My little portfolio shrinked about 25.23% from Dec 31, 2007 to March 31, 2008. Thanks to my bone headed bets on LFT and CROX stocks. For comparison: “In the first quarter of 2008, the Dow fell 7.55% and the S&P 500 index lost 9.92%. The Nasdaq was by far the worst performer among major U.S. equity benchmarks in the first three months of the year, dropping 14.07%.” (source: Business Week). To make myself feel slightly better, note GOOG and AAPL dropped about 33% and 25% in the same time period, respectively.

Lesson learned
1) In early Jan. I told my wife I need to unload LFT and CROX, so that I can sleep well in the night. I finanally was able to pull the trigger on them (LFT in Jan and CROX in Feb). A bit too late (CROX went from 75 to 19 in 3 months). But I’m glad I fufilled my words to my wife on this one (see below what if).

2) Trading cost: 7*45 = 315, not significant, but still sizable. Looked at other discount brokers such as TradeKing, IB but have not decided to switch. I will reduce trading times and increase the size of trading (make more sure bets), to reduce the trading cost.

Good things
Finally I was able to get back to In value I trust. I also got back to more solid stocks such as CHL, RIMM, SYT. And I was able to take some profits when I saw opportunity (don’t want be a pig).

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China ADR crashed

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(Update) Halter US China Index closed down 7.89% and FXI down 7.55%. China Mobile (CHL), a major component of both index, is down 7.79% today.

FXI (FTSE Xinhua 25) dropped 7.23% as of now 11:27 AM US CST.

Halter US China Index (web site), which is more broad based Chinese ADRs traded in the US (although PetroChina, China Mobile has a bigger weight), dropped 7%.

And last but not least, trader818 China ADR index, dropped 8.4%.

Sounds a lot like the Feb 28, 2007, except the bear comes early this year. Although the general US market also dropped a lot, this Chinese drop seems a bit excessive. I unloaded some LFT today (yes I decided to take the bite, rather than hanging there dead). I think going forward small cap Chinese ADRs, especially newly listed IPOs, will perform wose than the large cap ones. Just like the “2-8” and “8-2” phenomena in China domestic market, when things are uncertain, stay with the big guys 🙂

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Fourth quarter 2007 update

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The miserable performance of CROX erased much of my 2007 gains. But thanks to the rebound of Mindray (MR), I am still be able to be above water 🙂

Some random thoughts of Q4 and year 2007 stock performance:

1) Crocs (CROX): I agree with my friend StrengthTrader, Crocs is a fashion product. It’s almost unbelievable for Crocs to become popular in much of the world in such a short time. At least it grew much faster than Nike did 20 years ago. But will Crocs be as big as Nike some day? I don’t know. The market thinks it will NOT (traded at PE of about 20, the company projected 35 to 40% revenue growth in 2008).

2) Mindray (MR): benifit from the global spending of healthcare. Although the US market did not turn out to be as successful as we like, other interntional markets especially South America made up the slack.

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Two more questions for Longtop

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longtop logo

1) Why it quit the outsourcing biz?
We know outsourcing is a typically low margin business. Interested readers can look at the VanceInfo (formerly WorkSoft), the first Chinese IT outsourcing company listed in Nasdaq. It did IPO recently.

Longtop should not get into the oursourcing business to begin with. I suspect the VCs suggested the company to quit the outsourcing business, and the company did so early this year. This move will improve the profit margin and it will look good on the finanial statement. More importantly, it will save the company resources and focus on its main business: the software and service for China financial industry.

As a side note, by quiting outsourcing Longtop may have avoided the effect of “slowdown” of US financial sector (depends on the type of customers they serve). From I heard from Cisco conference call a while back, the US financial indutry is cutting back on IT spending now.

2) Effect of tightening monetary policy
For example, the raise of bank reserve rate by People’s bank of China. The move was to make sure economy not overheat, and banks should be prudent on its lendings. This will not have effect on banks’ IT spending. Because the bank IT budget is separately from its bank reserve. As I said in my previous post, banks are increasingly rely on sophiscated IT systems for customer relations, marketing and sales, internal management, etc.

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Home Inns and Longtop

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Home Inns (HMIN) is raising fund through convertible bond (up to) $149 m (reuters news). It seems they still need the cash to expand.

Longtop got more analyst converge: Deutsche bank and Jefferies initiated with Buy with target price of $30 and $29, respectively. Quoted here:

Deutsche Bank initiates coverage on Longtop Financial Technologies (NYSE: LFT) with a Buy rating, setting a $30 price target, citing a great position within its quickly growing industry, unique barriers to entry and impressive operating results…

Jefferies initiated Longtop Financial (NYSE:LFT) with a Buy rating and $29 target, as they expect strong earnings growth over the next several years from an acceleration in P&L performance and the company’s attractive secular demand backdrop.

home inns map pic
(image from

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My take on Longtop

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longtop logo

First a little background. Longtop did its high profile IPO on Oct. 24, a short month ago at NYSE (think how much market sentiment has changed since then). As the first Chinese software company listed in NYSE, Longtop is in the sweet spot in terms of the customers they serve: the Chinese banks. Chinese banks, both the big 4 and the (smaller) city commercial banks, have lots of money to spend lately, after raising tons of cash through IPO in recent years.

On the serious side, the banks do need to improve the workflow and upgrade their IT system, so that their customers don’t have to wait one hour for over the counter service, or wait half an hour for ATM machine. The banks are also targeting the newly minted middle class for personal banking, credit card and other services. After all, it IS a competitive environment. China opened up RMB services to foreign banks early this year. If people can not get the services at domestic banks, they may go to foreign banks.

Here are two common questions for Longtop.

1) The usage of the IPO proceeds.
According to its F1 prospectus, the company plan to use the net proceeds of this offering as follows:

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Longtop: update

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(Updated) I used the revenue number from company report and calculated the growth rate, using google spreadsheet. Revenue, in thousand of $, the following columns may not align right, click the G speadsheet above if you like.

FY ending
3/31/2007 3/31/2008 growth rate 3/31/2009 growth rate
Q1 9238 11530 24.81% ?
Q2 11204 20200 80.29% ?
Q3 11581 15500 33.84% ?
Q4 7750 10770 38.97% ?
Total 39773 58000 45.83% 80000 37.93%

Couple things:
1) Seasonality: the past quarter (ending Sept. 30) is the strongest. The company did say summer and fall are typical strong quarters. Note the seasonality is quite different from typical US software company, where Q4 (quarter ending Dec 31) is ususally the strongest.

2) Healthy growth overall. The recent boom can be attributed to the boom of Chinese banking industry. The question is can the company can sustain this 40% growth rate?

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Waiting for Longtop Financial earning

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(Update 2) Just listened to its CC, CEO Mr. Lian said fiscal 2009 (Apr 1 2008 to March 31 2009) revenue forecast is 80 m. Note they said fiscal 2008 revenue would be 58 m. I felt they are being conservative on the numbers here. The CEO was very bullish on the IT spending of Chinese banks, insurance companies and financial subsidiary of large companies. FENet will contribute 10 m revenue in fiscal 2009. Not too bad.

Just a little book keeping: CFO Derek said the fiscal 2008 earning will be 68 cents; outstanding shares will be 53 m by March 31 2008.

(Update) Just as I was writing, it reported its quarter. The number of this quarter looked OK. But the outlook for next quarter and the year were so so (45.7% YoY revenue growth).

I would be very interested to hear what CEO Mr. Lian has to say.

(Original) LFT is going to report momentarily. I still have all the shares bought since its late Oct. IPO (yes, under water now), and here are my impressions from reading its prospectus last night.

1) The revenue growth will be OK. They forecast a low 40s growth YoY.

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Is the Chinese bull market over?

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(Update Nov. 17) Shuipi of ChinaTimes(水皮华夏时报) wrote this interesting piece on his newspaper.

(Original) It looks like it, from the highs at 6,200 in early Oct to 5,200 now. But wait a minute, recently the US stock market suffered big loss because of the sub-prime meltdown, and weakening of the dollar. How could the mess in the US drag down the Chinese stock market?

Well, one can say we are in a global economy now, the ripple effect of US sub-prime meltdown means the US business and consumer will watch their wallet more carefully, which is bad for Chinese exporters. We all know the Chinese economy depends a lot on exporting to the US.

China Mobile logo

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Added more longtop

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This morning when two stocks are traded at about same price, I sold remaining Starbucks (SBUX) , and got some more Longtop Financial (LFT). I still like the long term prospect of Starbucks, especially its international expansion. But at this time SBUX is still a slow growth US company, and it will remain so for a while.

Meanwhile, Longtop, the first Chinese IT/software company listed in NYSE, is enjoying healthy growth in the sweet spot in China: financial industry. My recent trip to China confirmed my belief of the long term growth of Chinese banks. Banks will get more sophiscated, i.e., they will use more software and IT services to improve efficiency, to figure out what customer wants, to serve customer better (shorter waiting line, maybe?)…

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