Ctrip Slumps on Declining Margin as SMI Jumps: China Overnight

Ctrip.com International Ltd. (CTRP), China’s largest online travel agency, fell to a three-year low in New York after cutting its profit margin forecast. Semiconductor Manufacturing International Corp. (981) surged.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. slumped 0.3 percent to 84.34 yesterday in New York, led by a 12 percent slump in Ctrip. SMI, as the circuit-chip maker is known, climbed to the highest level since May after raising estimates for third-quarter sales and profit margin. New Oriental Education & Technology Group Inc. (EDU) declined the most among peers on the gauge.

Ctrip’s operating margin this year will be as low as 25 percent due to rising marketing costs, from its previous estimate of 30 percent, Chief Financial Officer Jenny Wu said yesterday on a conference call after second-quarter results showed net income dropped 55 percent. The Chinese economy faces “significant” downside risk, the International Monetary Fund said in an annual review July 24. The IMF cut its 2013 growth forecast for China on July 16 to 8 percent from 8.2 percent in April.

“People are concerned about Ctrip’s performance amid fierce industry competition and the impact of an overall economic slowdown,” Henry Guo, an analyst at ThinkEquity Partners LLC, said by phone yesterday from San Francisco. “Its profit margin will shrink further in the second half and a 5 percentage cut is a big deal for the industry.”

China ETF Gains

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., climbed 0.6 percent to $32.68, snapping a three-day decline. The Standard & Poor’s 500 Index (SPX) was little changed at 1,337.89, as disappointing results at Apple Inc. and an unexpected decline in new home sales overshadowed a rally in financial and industrial shares.

Ctrip sank to $13.13, the lowest price since March 2009.

The Shanghai-based company reported second-quarter sales of $153 million, below the $154.8 million average estimate of 13 analysts surveyed by Bloomberg. Revenue for the July-September period will grow 15 percent to 20 percent from a year earlier, it said in a July 24 statement, compared with the average estimate of a 19 percent increase by 10 analysts before the announcement.

Operating margin, which measures operating profit as a percentage of sales, fell to 17 percent in the second quarter from 32 percent a year ago, according to Wu.

‘Downward Trend’

“This year our margin was on a downward trend,” Wu said on the conference call. “We’ll see costs and expenses climbing up on a year-on-year basis. Since the later part of the second quarter, we launched a more aggressive sales and marketing campaign” to expand business, she said.

Beijing-based Elong Inc. (LONG), a smaller competitor to Ctrip, advanced 4.4 percent, the most in four weeks, $12.10.

SMI, whose biggest customers include U.S. communication chipmaker Broadcom Corp. (BRCM), jumped 6.5 percent to $1.80, completing the biggest three-day increase in 11 months.

The Shanghai-based company raised its forecast for second- quarter sales growth to as much as 26 percent from the prior three months, up from its previous estimate of 21 percent, due to an improvement in business, according to its July 23 filing to the Hong Kong Stock Exchange. It also lifted gross margin estimate to as much as 24 percent from 22 percent.

SMI made the change as “we have seen improvement on business from our customers, exceeding our earlier expectations,” the filing cited CFO Gareth Kung as saying.

Broadcom Results

Broadcom, based in Irvine, California, forecast third- quarter sales will be $2 billion to $2.15 billion in a July 24 statement, comparing with the $2.1 billion average estimate of 38 analysts compiled by Bloomberg. Second-quarter sales gained 9.7 percent from a year ago to $1.97 billion.

The results of Broadcom helped drive up SMI’s stock, which has been an “underperformer of late,” Steven C Pelayo, regional head of technology research at HSBC Securities Asia Ltd., said in an e-mailed response to questions. “Industry pressures, such as weak demand and growing chip inventories, may be a problem soon.”

New Oriental, China’s biggest private educational services provider, tumbled 6.6 percent to a $11.49, the biggest loss in a week. The Beijing-based company declined a record 42 percent last week. It said in a July 17 statement that the SEC was investigating its accounting practices. In a July 18 report, short-selling firm Muddy Waters LLC questioned the ownership of some of New Oriental’s schools, alleging it inflated financial statements.

TAL Slides

TAL Education Group (XRS) slumped 3.8 percent to $7.62, extending a three-day loss. The Beijing-based company said sales for the June-August quarter will rise 26 percent to 31 percent to as much as $67.4 million, after a 48 percent increase in the previous three months, according to a July 24 statement.

The slowdown in China will continue to put pressure on companies’s sales and profit, Jingyi Li, analyst at Harding Loevner LP in Somerville, New Jersey, whose $19 billion in assets under management includes Chinese equities, said in a phone interview.

The Shanghai Composite Index (SHCOMP) of stocks in mainland China retreated 0.5 percent to 2,136.15 yesterday, its lowest level since March 2009.

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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