NetEase Slips as Earnings Cloud Outlook: China Overnight
Chinese equities sank for a third day in New York, led by NetEase Inc. (NTES) and E-House China Holdings Ltd. (EJ), as disappointing third-quarter earnings revived concerns over the Chinese economic slowdown.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. retreated 0.5 percent to 89.17 yesterday for its longest stretch of declines since September. NetEase tumbled to a 10-month low as third-quarter profit coming in below the analysts’ estimates spurred at least seven to cut the stock’s price target. Property company E-House slumped to a record low after reducing its revenue goal and Sina (SINA) Corp. dropped after markets closed as its fourth-quarter revenue forecast fell short of analysts’ estimates.
The 39 companies in the China-US gauge that have reported earnings over the past month missed their median analyst estimate by an average 7.2 percent, while sales were short by 1.5 percent, data compiled by Bloomberg show. A measure of 30- day volatility in the index rose to a three-week high yesterday, after China’s ruling Communist party named a new generation of leaders to shepherd an economy forecast by economists to grow at the slowest pace in more than a decade.
“Third-quarter earnings turned out to be worse than the previous quarter in general, which is in line with the slowing trend in the Chinese economy as well as the global economy,” Jingyi Li, an analyst at Harding Loevner LP, which manages about $20 billion in global assets, including emerging market equities, said in an interview at Bloomberg’s headquarters in New York yesterday. “Even though China has announced a new generation of leaders we have no idea yet what they will do for the economy.”
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., slipped 0.1 percent to a one- month low of $35.71. The Standard & Poor’s 500 Index declined 0.2 percent after Wal-Mart Stores Inc. forecast earnings that missed analysts’ estimates and as U.S. lawmakers prepared for budget discussions.
American depositary receipts of NetEase, operator of China’s second-largest online games website, tumbled 5.9 percent to $47.31, the lowest since January.
The Beijing-based company said third-quarter net income declined 2 percent from a year earlier to $129.2 million, or 98 cents per ADR. That missed nine analysts’ average estimate of $1.08. The company also announced a cash dividend of $1 for each ADR and a $100 million share repurchase in a statement dated Nov. 14.
At least seven analysts have reduced the stock’s price target following NetEase’s report. Citigroup Inc. slashed its estimate by 7.8 percent to $56.8 while Morgan Stanley cut its estimate to $62.6 from $68.
NetEase’s operating margin fell to the lowest in 10 years as a result of more marketing activities and higher research expenses in the quarter, Citigroup analysts led by Muzhi Li wrote in a report yesterday. “We anticipate similar margin trends in the fourth quarter due to both new game launches and research and development in mobile game initiatives,” the report said.
E-House dropped 6.6 percent to $3.42, the lowest price since its August 2007 initial offering.
The Shanghai-based company revised down its 2012 sales forecast to as much as $460 million yesterday, from a previous outlook of $510 million on expectation that “growth in online advertising will be softer than expected in the fourth quarter amid challenging overall macroeconomic environment.” The mean estimate of seven analysts surveyed by Bloomberg was for revenue of $476 million this year.
E-House narrowed its net loss during the period to $20.1 million, from a loss of $425.6 million a year ago, it said in a statement yesterday. Sales for the period were $136.6 million, missing analysts’ forecast of $143.3 million.
Shares of Sina, owner of the Twitter-like Weibo service in China, dropped as much as 11 percent to $47 in after-hours trading as its fourth-quarter revenue forecast of as little as $132 million, released yesterday, fell short of the $152.4 million average projection of nine analysts.
E-Commerce China Dangdang Inc. (DANG) the country’s biggest online book seller, known as Dangdang, surged 14 percent to $4.19, the biggest gain in five months.
Dangdang’s 20-cent loss per ADR for the third quarter was smaller than the mean estimate of nine analysts surveyed by Bloomberg of 24 cents. Sales at the Beijing-based company increased 42 percent from a year ago to $204.9 million, more than the $200.9 million mean forecast by 10 analysts.
The company said it expects fourth-quarter sales to be $265 million in a statement yesterday, beating analysts’ projection of $262.6 million.
Trina Solar Ltd. (TSL) led declines in Chinese solar makers. Trina plunged 7.2 percent to a record low of $2.44 in a third day of slump. Yingli Green Energy Holding Co. lost 5.3 percent to $1.44, also the lowest on record. Suntech Power Holdings Co. dropped 3.7 percent to 81 cents.
Twelve-month non-deliverable forwards on the yuan dropped 0.19 percent to 6.3340 a dollar in New York, retreating the most since Oct. 18, after the currency weakened 0.13 percent to 6.2334 a dollar in Shanghai yesterday.
The Shanghai Composite Index (SHCOMP) of Chinese domestic shares slid 1.2 percent to 2,030.29, while the Hang Seng China Enterprises Index (HSCEI) of companies traded in Hong Kong declined 2 percent to 10,199.6, the lowest level since Oct. 10.
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