IRG Technology, Media, and Telecoms Weekly China Market Review Hong Kong, May 22, 2009 - (ACN Newswire) - The following is the China excerpt from IRG's TMT Weekly Market Review May 11 - May 18. IRG is a financial advisory and investment firm focused on the core growth sectors in Asia with particular focus on the telecommunications, media and technology (TMT) sectors. Media, Entertainment and Gaming - Chinese wireless value-added services firm KongZhong announced revenues for the first quarter of 2009 increased 38% YoY and increased 11%QoQ to US$29.6 mm. Mobile games accounted for 17% of total revenue in the quarter, compared to 10% in the fourth quarter of 2008, while WVAS revenues in the first quarter increased 19%YoY and increased 2% sequentially to US$23.7 mm. The Company's net income was US$2.5 mm, compared with net income of US$520,000 in the last quarter of 2008. As of March 31, 2009, the company had US$141.7 mm in cash and cash equivalents. - Shanda rumored Hurray's white knight to fend off Best Prospects hostile offer. Best Prospect is trying to buy a 51% stake in the beleaguered WVAS firm and has expressed frustration at Hurrays unresponsiveness to its offers to buy the Company. According to various media reports Chinese online game company Shanda Interactive has been in discussions to acquire Hurray since April and has entered into a one month exclusivity period. Shanda is rumored to have considered acquiring Hurray two years ago. For 4Q 2008, Hurray's revenues increased to US$14.4 mm, an increase of 6.7% QoQ and a decrease of 9.2% YoY. Of that total, WVAS revenues were US$11.5 mm, representing an increase of 3.8% QoQ and an increase of 4.2% YoY. Music revenues were US$3.0 mm, an increase of 19.2% QoQ and a decline of 39.3% YoY with a total net loss of US$9.2 mm. For the entire 2008 total revenues were US$54.0 mm versus US$60.5 mm, while net loss was US$12.0 mm compared to net loss of US$42.0 mm for 2007. Internet - Tencent increases revenue as internet advertising slips. Tencent announced first quarter revenues of RMB 2.5 bn (US$366 mm), an increase of 19.4% MoM and an increase of 74.8% YoY. Internet value-added services revenues increased 28.8% QoQ to RMB 1.9 bn (US$278 mm) and represented 76% of the total revenues in 1Q 2009. Mobile VAS revenues increased 9.9% QoQ to RMB 439.5mm (US$64.3 mm) representing 17.6% of total revenues. Online advertising revenues however decreased 30.1% QoQ to RMB 146.6 mm (US$21.5 mm) and represented 5.9% of total revenues as customers imposed more cautious cost control measures, including delaying the budget approval process and signing of framework contracts given the uncertain economic environment. Tencent's gross profit was RMB 1.7 bn (US$251.7 mm), an increase of 21.5% QoQ and an increase of 64.5% YoY, as gross margin increased to 68.6% from 67.4% last quarter. Net profit was RMB 1.1 bn (US$154.2 mm), an increase of 20.3% QoQ or an increase of 94.4% YoY, with net margin increasing to 42.1% from 41.8% last quarter. The Company indicated that the second quarter of 2009 will present a weaker seasonality for the company's IVAS business. At the end of March 31, 2009, Tencent's cash position stood at RMB 6.6 bn (US$966.2 mm). - Joint venture of NetSun and China Telecom established in Hangzhou. Toocle.cn, the Chinese B2B e-commerce subsidiary of NetSun, formally announced a joint venture with China Telecom. Located in Hangzhou, the joint venture aims to promote technology development in China's rural areas. With an initial investment of CNY10mm (US$1.46mm), the joint venture will hire about 100 employees and Toocle.cn will cooperate with China Telecom to develop the joint venture's Internet platform. The platform s currently in a research and development stage, and the platform is expected to be launched in the next few months. Sun Deliang, chairman of NetSun and the main promoter of this joint venture, said that the establishment of this joint venture is a specific implementation of its "small portal + alliance" development strategy and it will promote the development of NetSun's B2B professional website industry cluster and its comprehensive B2B e-commerce website Toocle.cn. - Ctrip announced decreased hotel bookings but increased profit. Ctrip.com said profits were up 23% YoY for the quarter ended March 31, 2009. Total revenues came in at RMB 429 mm (US$62.8 mm) million, representing a 17% YoY increase and a 1% QoQ increase. Net revenues were RMB 401 mm (US$58.7 mm) for the first quarter of 2009, up 18% YoY, and net income was RMB 121 mm (US$17.7 mm), up 23% YoY. Hotel reservation revenues was RMB 187 mm (US$27.4 mm) for the first quarter of 2009, representing a 9% YoY increase, driven by a 17% increase in hotel room reservation volume, which was partially offset by a decrease in commission per room. However hotel reservation revenues decreased 11% from the previous quarter due to decreased hotel booking volume during the Chinese New Year holidays. Air-ticketing revenues for 1Q 2009 were RMB 18mm (US$2.6 mm), a 16% YoY increase driven by a 40% increase in air-ticketing sales volume, which was partially offset by a decrease in commission per ticket. Air-ticketing revenue increased 11% QoQ due to increased air-ticketing volume. As of March 31, 2009, the balance of cash and short-term investment for Ctrip was RMB 1.4 bn (US$204.9 mm). Ctrip stated that it expects to continue the year-on-year net revenue growth of approximately 10-15% in China for 2Q2009. - 51 Job.com, the internet classifieds and online job recruitment company reported unaudited 1Q financial results with total revenues decreasing 24.6% YoY to RMB 178.3 mm (US$26.1 mm) as print and Internet advertising showed significant declines. Print advertising for 1Q decreased 42.4% YoY to RMB 70.6 mm (US$10.3 mm) compared with RMB 122.4 mm (US$17.9 mm) for the same quarter in 2008. Online recruitment services revenues were RMB 68.2 mm (US$10 mm), representing a 13.0% YoY decrease from RMB 78.4 mm (US$11.5 mm) from the prior year. Net income for the first quarter of 2009 decreased to RMB 9.4mm (US$1.4 mm) from RMB 22.2 mm (US$3.25 mm) for the same quarter in 2008. The Company com stated that the decrease in print advertising was due to fewer print advertising pages in its 51job Weekly, which was impacted by a decline in market demand resulting from the global economic crisis and slowdown of the economy during 1Q. The number of print advertising pages generated in the first quarter of 2009 decreased 36.5% to 2,916 compared with 4,593 pages in the same quarter in 2008. Print advertising prices charged in each city were relatively unchanged YoY, but average revenue per page decreased 9.2% due to a greater contribution of advertising volume from lower priced cities. The decrease in Internet advertising was primarily due to lower average revenue per unique employer, which was partially offset by an increase in the number of unique employers using the company's online recruitment services. Average revenue per unique employer decreased 17.4% QoQ in the first quarter of 2009 as employers reduced expenditures for online recruitment products or chose lower priced products. Gross profit for the first quarter of 2009 decreased 24.1%YoY to RMB 94.7 mm (US$13.9 mm). As of March 31, 2009, the Company had cash and short-term investments totaling RMB 1.1 bn (US$159 mm) compared with RMB 1.1 bn (US$157.2 mm) at December 31, 2008. - Chinese video companies punished for providing vulgar content. China's General Administration of Press and Publication has published a list of four video companies that provided vulgar Internet content. The four companies are listed as: Guangdong Shantou Haiyang Audio-Visual Publishing House ("GSHAVPH"), Jiangxi Culture Audio-Visual Publishing House ("JXCAVPH"), Beijing Wenlu Laser Technology Company ("BWLTC") and Guangdong Jintu Audio and Video Company ("GJAVC"). GSHAVPH is accused of having sold nine kinds of vulgar videos and earning RMB 13,650 (US$1,998) in illegal income and also sold disks on sex education for an illegal income of RMB 7,500 (US$1,098). JXCAVPH is accused of having sold 52 kinds of vulgar videos between 2005 and 2007 and earning RMB 98,500 (US$14,420) of illegal income. It was reported that BWLTC illegally produced many vulgar videos, while GJAVC and JXCAVPH jointly published a total of 24 kinds of vulgar disks since December 2006. Jiang Jianguo, deputy team leader of the Working Committee of Office of the National Campaign on Anti-prostitution and Anti-delinquency and deputy director of GAPP, told local Chinese media this is the first list ever published since the special campaign against vulgar audio and video products was launched and these serious violators have been handed over to the police departments for undisclosed punishments. Telecommunications - Significant cuts in certain fixed-line interconnection fees. Chinas MIIT announced on May 12 that the interconnection (IC) rate of local network inter-district traffic between fixed-line operators will be cut to RMB 0.06/min from the current RMB 0.15/min effective June 1, 2009. No other IC regime changes were mentioned. This rate cut effectively reduces the gap between the tariff and the IC rate, the result of which likely are likely to be insignificant as local network inter-district' traffic is a tiny portion of total traffic for China Telecom and China Unicom, given their respective incumbent/dominant market position in Southern and Northern China. Also as both IC revenue and cost will be reduced the net impact on EBITDA and net profit will be negligible. The notice did not come as a surprise as the MIIT had already mentioned in its Jan 23 policy paper that it is studying IC adjustments to facilitate a new full-service market structure, and to give some preference to TD-SCDMA. Information Technology - VanceInfo Technologies (VIT) announced solid quarterly results. VIT delivered another solid set of results, with top line coming in higher than estimates and above company guidance. The Company stated that it continues to face uncertain demand in the current challenging economic environment. However, with expanded relationships from existing accounts, an encouraging pipeline as well as efficient cost control, VIT stated that it is confident that it will emerge stronger when the economy recovers. The Company announced total net revs of US$30.1 mm (+47% YoY) which exceeded market expectation of US$27.8 mm. Non-GAAP EPADS (ex-SBC) was US$0.10, above the Street's US$0.10. The Company increased 2Q2009 revenue guidance to US$31-$32 mm (+27%-31% YoY), and Non-GAAP EPS was guided to US$0.11-$0.12. Guidance for full-year 2009 revenues was raised to US$128 mm (+25% YoY) from US$123 mm and the Company now expects non-GAAP EPS to between US$0.49 and US$0.51. In 1Q2009, R&D Outsourcing services grew 48% YoY to revenues of US$19.2 mm and accounted for 64% of total revenues, while IT Services revenues grew 44% YoY to US$10.9 mm and accounted for 36% of total revenues. Software - Software piracy rate down to 80% in China but up globally. Business Software Alliance (a US-based non-profit industry organization) published that the software piracy rate in China has decreased from 90% in 2004 to 80% in 2008. According to BSA, during 2008, the world's piracy rate continued to increase, including the piracy rate of PC software at 41%, resulting in losses of US$53 bn to the industry. Statistics show that the world's PC software piracy rate was 38% in 2007 and the number increased to 41% in 2008, although countries such as China and Russia gained some success in their anti-piracy campaigns. According to the BSA anti-piracy campaigns in some countries have gained successes and the piracy rate in nearly half of all countries showed decreases; while the piracy rate in one-third of these countries maintained the former level, the total pirated value was still rising. The piracy rate in the United States is currently about 20%, which is the lowest in the world. The software piracy rate in China however decreased from 90% in 2004 to 80% in 2008 and that in Russia also decreased by 5% to 68%. The result in the Chinese market is mainly attributed to the government's promotion of authentic software and the joint efforts of Internet service providers. At present, there are seven countries where the software piracy rate is still over 90%, including Georgia, Bangladesh, Armenia, Zimbabwe, Sri Lanka, Azerbaijan, and Moldova. Taiwan - Government blocks China Mobile investment in FarEasTone. The Taiwan government ruled out any direct investments by mainland companies in the countrys telecom infrastructure. Taiwans Minister of Economic Affairs, Yiin Chii-ming, said they would allow investment in 99 manufacturing and service sectors, including auto manufacture and electronic components, but he ruled out anything related to national defense or that could jeopardize the nations defense, which included the state-run enterprises oil company China Petroleum, Taiwan Power and primary telecommunications operators, according to the Taipei Times. Under Taiwans existing law, mainland investment in type 1, or basic infrastructure, is not permitted. Hong Kong-listed China Mobile had announced it would invest US$533mm to take a 12% stake in FarEasTone. Hardware - Hon Hai reported first quarter 2009 consolidated operating margin of 3.7% and gross margin of 9.5% which was an increase in YoY terms despite a deteriorating product mix and low utilization. Because of relocation expenses, Hon Hais operating expenses in 1Q went up 13% YoY even as revenue declined only 9%. CEO, Terry Guo, guided that the effects of cost savings from relocation will be felt from late 2009 or 2010. - Richtek announced revised guidance, seeing industry recovery. The Company guided 2Q 2009 sales up 53%-70% QoQ to NT$1.8 - $2 bn (US$54.5 - 60.6 mm) from NT$1.17 bn (US$35.4 mm) in 1Q. Richtek also provided 2Q gross margin guidance of 36-39% and operating profit margin of 20-23%. The Company sees continued recovery on better demand from computing, WiFi and consumer segment. - MediaTek invested US$2.5 mm in mainland mobile phone software company. MediaTek, the Taiwan semiconductor company, announced plans to invest USD2.5 million in Vogins Technology, the Chinese mainland mobile phone software platform company. MediaTek has stated that it plans to enhance its technological advantages by merger and acquisition; in the past the company's targets were primarily hardware companies, recently it has increasingly targeted software providers. Since the beginning of 2009, MediaTek has made investments in C-Media's subsidiary iPeer and has cooperated with the Chinese mainland search engine Baidu.com. Founded in December 2005, Vogins Technology is a mobile terminal application middleware provider and service provider. Its Virtual Runtime Environment is the company's main middleware solution for mobile devices. VRE, which includes an embedded middleware platform and a server service system, provides a high efficient development platform to help mobile device makers develop mobile devices across chipset platforms. MediaTek's cooperation with Vogins Technology will not only make up its technology gap in software program operating system, but also targets to eliminate the irregular promoting measures in the online music sector. Vogins Technology plans to work with the mainland music service provider A8 Music Group to provide application interfaces using the VRE platform on MediaTek's mobile phone products. Hong Kong - CITIC 1616 Holdings announced revenues for 2008 surged by 67.3% to HK$2,5 bn (US$320.7 mm) and net profit increased by 26.4% to HK$332.1 mm (US$42.8 mm). Excluding the IPO-related interest income booked in 2007, net profit for the year would have increased by 49.5%. Earnings per share rose by 17.5% to 16.8 HK cents. The Company also announced a final dividend of 6.4 HK cents per share for 2008. Revenues from voice services rose by 38.8% while SMS services revenues increased by 32.3% and Mobile VAS increased by 59.1%. Revenues from the Internet virtual private network and Internet access services of CPCNet rose by 35.7% to HK$460.2 mm (US$59.4 mm) while net profit jumped by 128% to reach HK$61.1 mm (US$7.8 mm). The Company also completed the acquisition of China Motion NetCom Limited in September 2008, which expanded the scale of its business and enhanced its competitiveness. - Li plans to appeal PCCW ruling. Richard Li plans to take his battle to privatize PCCW to Hong Kongs Court of Final Appeal. The decision was made after the release by the Hong Kong Court of Appeal of the details of its ruling last month to block the HK$17 bn (US$2.1 bn) privatization plan. Spokespersons for Pacific Century Regional Developments (PCRD) and for PCCW said the PCRD would apply to take the case to the Court of Final Appeal. The court said in its 74-page written judgment that there had been clear manipulation of the shareholder vote, citing evidence of phone calls between PCRD vice-chairman Francis Yuen, and Lam Hau-wah, a regional director of insurance firm Fortis. Lam had bought 500,000 PCCW shares and distributed them among Fortis agents and friends, the court found. Lam had also obtained the voter proxy forms from Yuens secretary. The court found that there appeared to be no rationale for the privatization scheme and no explanation for why the company had suffered an almost total loss of value since Li acquired the old Hongkong Telecom. Vote manipulation is nothing less than a form of dishonesty. The court cannot sanction dishonesty, Justice Rogers wrote. The Hong Kong Securities and Futures Commission (SFC) hailed the decision as a landmark ruling for corporate regulation in the city. About IRG IRG is a financial advisory and investment firm focused on the core growth sectors in Asia with particular emphasis on the telecommunications, media and technology (TMT) sectors. IRG's Financial Advisory business is underpinned by the decades of experience in Asia of IRG's professionals, resulting in a unique network of relationships with global and Asian corporations, government institutions, and public and private equity investors. IRG has developed and structured many of the largest and most innovative transactions in the key growth sectors in Asia over the last decade. IRG's Investment business is supported by its corporate finance experience in Asia with over US$13 billion in completed public and private markets transactions executed by IRG professionals over their respective careers in Asia. IRG's platform covers Greater China (Hong Kong, China and Taiwan), Japan, Korea, Singapore, Southeast Asia, and Australia. 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IRG Technology, Media, and Telecoms Weekly China Market Review
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