Growth Concern Sinks Telecoms as Hollysys Jumps: China Overnight

Chinese telecommunications operators traded in New York dropped on concern a slowdown in the world’s second-largest economy will threaten smartphone usage growth, while Hollysys Automation Technologies Ltd. (HOLI) jumped.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in the U.S. was little changed at 92.48 yesterday. China Unicom (Hong Kong) Ltd. (CHU), the nation’s second- largest wireless network carrier, fell the most in three weeks as China Telecom Corp., the third-biggest, sank to a one-week low. Sina Corp. (SINA) slid for a fourth day before reporting second- quarter results yesterday. NetEase Inc. surged to a one-month high ahead of its earnings announcement after market close.

Chinese Premier Wen Jiabao said downward pressure on the economy remained “relatively large,” the nation’s state radio said yesterday. Easing inflation allows more room to adjust monetary policy, Xinhua News Agency reported separately yesterday, citing Wen. Banks’ bad loans in China increased for a third straight quarter, the banking regulator said yesterday. Analysts predict second-quarter profits at China Unicom and China Telecom will decline, data compiled by Bloomberg show.

“Weaker-than-expected economic growth will delay the process for current mobile service users to upgrade their devices to smartphones,” Michael Ding, lead manager of the China Region Fund (USCOX) at U.S. Global Investors Inc., which oversees $2.2 billion, said by phone from San Antonio, Texas yesterday. This will reduce “the operators’ earnings,” he said.

China ETF Retreats

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., dropped 0.8 percent to $34.93. The Standard & Poor’s 500 Index of the biggest U.S. shares rose 0.1 percent to 1,405.53.

Consumer prices in China rose 1.8 percent last month, the slowest pace since January 2010. Policy makers cut interest rates in June and July after two reductions in banks’ reserve- requirement ratios this year as the economy decelerated for a sixth quarter.

American depositary receipts of China Unicom sank 2.1 percent to $15.90, the steepest decline since July 23.

The company, scheduled to report second-quarter earnings on Aug. 23, will probably say that adjusted profit declined 26 percent to 1.8 billion yuan ($280 million), according to the average estimate of 10 analysts surveyed by Bloomberg.

Goldman Sachs Group Inc. lowered its price estimate for Unicom’s ADRs to $18 from $18.9 in a report yesterday, citing concern that the company may lose third-generation subscribers market share. It maintained a neutral rating on the stock.

China Telecom’s ADRs sank 1.6 percent to $52.69. Goldman reduced its 12-month price target for the company to $59 from $60 and reiterated a neutral rating.

Mobile Network Deal

China Telecom expects to acquire the its parent’s mobile- phone network, with a net asset value of 120 billion yuan by year end, Jack Yung, a Hong Kong-based spokesman of the unit, said in an e-mail on Aug. 3. It is still negotiating terms of the proposed acquisition, and no agreement has been reached, Yung said.

The price China Telecom will pay is “slightly above the book value” and competition will intensify in fixed-line business with China Mobile (CHL) Ltd., Donald Lu, an analyst at Goldman in Beijing, wrote in an e-mailed report yesterday.

ADRs of China Mobile, the country’s biggest carrier, dropped 0.7 percent to $58.89. Goldman increased its price target to $67 from $64 and maintained a buy recommendation on China Mobile.

Sina, Hollysys

Sina, which provides the Twitter-like Weibo service, declined for a fourth day, retreating 1.3 percent to $50.90. The company may report a net loss of $3.9 million for the second quarter, after posting a net income of $9.96 million a year ago, according to the mean estimate of 11 analysts surveyed by Bloomberg.

Hollysys, a Beijing-based maker of industrial automation systems, jumped 7.5 percent to $9.03, the highest level since May 30.

The company said in a Aug. 14 statement that it expects sales of $385 million to $410 million for the fiscal year 2013, exceeding the $370 million average estimate of five analysts.

Beijing-based NetEase, China’s second-biggest online games company, increased 3.8 percent to $58.18 in New York, extending a four-day gain.

The Shanghai Composite Index (SHCOMP) dipped 1.1 percent to 2,118.95 yesterday while the Hang Seng China Enterprises Index (HSCEI) of Chinese companies plunged 1.4 percent to 9,779.06, the most in three weeks.

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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