Perfect World Plunges as Profit Margin Narrows: China Overnight

Perfect World Co. Ltd. tumbled the most in two years, leading declines among Chinese stocks trading in the U.S. after the online game developer said its profit margin narrowed in the first quarter.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. fell 0.6 percent to 100.17 in New York. Perfect World retreated the most since April 2012. E-House China Holdings Ltd., an online real-estate agency, jumped the most in eight months after posting first-quarter earnings that exceeded analysts’ estimates.

Beijing-based Perfect World said its gross margin shrank to 73.6 percent during the three months ended in March from 75.1 percent the previous quarter. First-quarter sales of $146 million exceeded the average estimate of $140 million among three analysts surveyed by Bloomberg.

“Growth of mobile games will likely boost revenues but affect gross margins,” analysts led by Eddie Leung at Bank of America Corp. with a buy rating on the stock, wrote in a research note. “We still expect volatile margin patterns due to fluctuations in marketing expenses to promote new games.”

Perfect World fell 9.1 percent to $16.67, the lowest since November.

Four brokerages, including Credit Suisse Group AG, Pacific Crest Securities, China International Capital Corp. and Barclays Plc, cut their price targets on the stock yesterday, according to data compiled by Bloomberg. Each has a price target of $24 or lower.

E-House rallied 13 percent, the most since September, to $9.22. The company posted first-quarter net income of 8 cents per share, compared with the average forecast of 4 cents among analysts surveyed by Bloomberg.

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., declined 0.6 percent to a one-week low of $35.55. The Standard & Poor’s 500 Index slipped 0.7 percent to 1,872.83.

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