Earnings Miss Sinks ADRs as Renren Tumbles: China Overnight
Chinese stocks traded in New York fell from a one-month high after a competitor of Spreadtrum Communications Inc. (SPRD) reported revenue that missed estimates and Renren Inc. (RENN) posted a larger-than-forecast second-quarter loss.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. dropped for the first time in four days, losing 0.7 percent to 90.88 at the close. Spreadtrum sank the most in seven weeks while Renren, a Chinese social-network operator, retreated 3.2 percent. China Southern Airlines Co. (ZNH) and China Eastern Airlines Corp. (CEA) declined after canceling flights as a storm lashed the region with rain and wind.
Renren reported yesterday a second-quarter loss of 6 cents per share, exceeding the mean 4-cent loss estimated by eight analysts surveyed by Bloomberg, as the slowest economic growth in three years prompted retailers to cut back on advertising. RDA Miceoelectronics Inc. (RDA), which competes with Spreadtrum, said sales missed estimates by $1.1 million. Fourteen companies on the Bloomberg China-US index that have reported earnings since the middle of July have trailed analysts’ sales estimates by 9.4 percent, according to data compiled by Bloomberg.
“The earnings trends in China are more negative than what we’ve been seeing for stocks in the U.S. and elsewhere,” Alec Young, a global equity strategist at S&P Capital IQ, said in a telephone interview from New York. “China has been weak in recent months, and investors know that. The question now is will the macro data start to improve.”
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., rose for a fourth day, adding 0.2 percent to $35.25. The Standard & Poor’s 500 Index (SPX) rose 0.1 percent to 1,402.22.
Outlook Misses Estimates
Shanghai-based Spreadtrum, which counts HTC Corp. (2498) as a customer, fell the most since June 21, losing 6.1 percent to $19.11 as rival RDA Miceoelectronics Inc. reported second- quarter sales that missed analysts’ estimates. Spreadtrum is scheduled to report second-quarter earnings today after the close of markets.
“A lot of the chip guys are feeling the heat in terms of making their numbers,” said Jay Srivatsa, the managing director of equity research at Chardan Capital Markets LLC. “RDA made it clear that the 3G business in China remains in transition. That indicates to investors that Spreadtrum’s second-quarter and third-quarter numbers could be light.”
Renren fell for a second day, dropping to $3.98 as the website operator yesterday reported a second-quarter loss of 6 cents per share, exceeding the mean 4-cent loss estimated by eight analysts surveyed by Bloomberg. The slowest economic growth in three years prompted retailers to cut back on advertising, said Echo He, an analyst at Maxim Group LLC.
The Beijing-based company said it expects third-quarter revenue of $49 million to $51 million, below the $51.1 million average estimate of seven analysts surveyed by Bloomberg.
“The slowing economy is hurting Internet sites that offer newer services such as social networking and video,” Maxim’s He said in a New York phone interview. “Chinese advertisers are cutting back in general.”
Youku, operator of China’s most-popular video website, dropped from its highest since July 13, retreating 3 percent to $18.32.
Guangzhou-based China Southern Airlines, the nation’s biggest carrier by passengers, dropped 3.3 percent to $23.67, a one-month low after Typhoon Haikui struck eastern China grounding flights at Shanghai’s two airports. Shanghai-based China Eastern, the country’s second-largest carrier, fell 2 percent to $16.89.
The Shanghai Composite Index (SHCOMP) gained 0.2 percent yesterday to 2,160.99 while the Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong added 0.2 percent to 9,867.76, the highest since May 15.
Suntech Power Holdings Co. (STP), the Chinese solar-panel producer that said July 30 it may have been defrauded by an affiliate, gained the most in seven months, surging 16 percent to $1.07 as Caijing reported the solar company’s loans from the China Development Bank won’t be affected by a potential fraud at its affiliate.
“This looks like an encouraging commitment by the CDB, and certainly warrants a pop in the stock considering how far it had fallen over the last two weeks,” Pavel Molchanov, an analyst at Raymond James & Associates, said in a phone interview from Houston. “But this matter has never been an existential threat to the company. The more fundamental problem for Suntech is the fact that its balance sheet is in dire shape.”
Suntech said its net debt at the end of the first quarter was $1.6 billion. The company’s market capitalization at the end of trading was $193 million. Suntech shares had fallen 31 percent since the company made the potential fraud public on July 30, through Aug. 7.
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