Vipshop Surges as Earnings Fuel Rebound: China Overnight
Vipshop Holdings Ltd. (VIPS) drove a rebound in Chinese stocks traded in New York as the online fashion retailer joined companies posting better-than-estimated earnings amid a recovery in the world’s second-largest economy.
Shares of Vipshop, which sells brands from Guess to Adidas from its website at a discount, rallied 7.8 percent to $24.42 in New York Feb. 22 after the Guangzhou-based company reported a first quarterly profit more than eight times the mean of two analysts’ estimates compiled by Bloomberg. The Bloomberg China-US Equity Index of the most-traded Chinese equities in the U.S. climbed 1 percent, trimming a weekly drop of 2.2 percent spurred by concern global stimulus will be withdrawn.
China’s economy emerged from its seven-quarter slowdown in the last three months of 2012, when the 15 companies on the China-US gauge that reported over the past month earned on average more than triple what analysts estimated, data compiled by Bloomberg show. Vipshop, which has quadrupled its market value since its U.S. debut in March, followed Sina Corp. and 51Job Inc. in issuing a higher-than-projected sales forecast.
“We have pretty healthy expectations for company earnings growth,” Marc Tommasi, head of global investment strategy at Manning & Napier Advisors LLC, which manages $45 billion in assets including Chinese equities, said by phone from Rochester, New York Feb. 22. “The Chinese economy troughed in the third quarter, a modest expansion is what’s in store.”
Bigger Than Dangdang
Vipshop, whose online store vipshop.com has been likened to New York-based Gilt Groupe Inc.’s Gilt.com in the U.S., is valued at $1.2 billion, compared with a market capitalization of $268 million at the company’s March 23 initial public offering in New York. It is now almost four times the size of E-Commerce China Dangdang Inc. (DANG), the nation’s biggest online book retailer, which is valued at $320.6 million, from $593 million in March, data compiled by Bloomberg show.
Vipshop posted fourth-quarter net income of $6.3 million, from a net loss of $63.5 million a year earlier. The mean of two analysts’ estimates was for a $750,000 profit. Sales in the quarter almost tripled to $299.6 million, and Vipshop forecast first-quarter revenue of between $265 million to $270 million, exceeding the analysts’ estimate of $211 million.
“Among the e-commerce companies in China, Vipshop is one of the few, or maybe the only one, that’s been able to prove that they can grow very fast and still make money,” Jeff Papp, a senior analyst at Oberweis Asset Management Inc., which manages about $700 million of investments and invests in Vipshop, said by phone from Lisle, Illinois. “Vipshop has a strong position in its niche market. Currently it works very well with its suppliers so they don’t need to look elsewhere.”
Vipshop’s American depositary shares rose the most Feb. 22 in two weeks. Trading volume in the ADS’ was almost seven times the daily average over the past three months, data compiled by Bloomberg show. Dangdang’s American depositary receipts slid 1.9 percent last week to $4.09, and are down 74 percent since the company’s December 2010 IPO.
Dangdang, based in Beijing, got 66 percent of its sales from books and other media products in the third quarter of 2012, according to a Nov. 15 statement. The company’s net loss of 100.1 million yuan for the three months to Sept. 30 compared with a loss of 73.4 million a year earlier. The company will report sales of 1.63 billion yuan for the fourth quarter, while the loss will widen to 130.9 million yuan, according to the mean of five analysts’ projections compiled by Bloomberg.
“Dangdang’s main business is books and that’s extremely competitive,” Papp said. “The branded merchandise that they sell is just too small a part of their business.”
Vipshop intends to sell as much as $120 million of stock, according to a Feb. 21 filing. The offer will involve both the issuance of new shares as well as sales by existing private investors, the company said.
The iShares FTSE China 25 Index Fund (FXI), the largest Chinese exchange-traded fund in the U.S., was little changed at $38.54 in New York Feb. 22, declining 4.4 percent last week. Earnings in the third quarter for companies on Bloomberg’s China-US measure fell below analysts’ estimates by 9.1 percent, data compiled by Bloomberg show.
Stocks on the gauge trade at 13.2 times estimated earnings, compared with a multiple of 13.4 for the Standard & Poor’s 500 Index.
Elong Inc. (LONG), China’s second-largest online travel company, climbed 7 percent to $16.26 in New York Feb. 22, the steepest rally this month. The company’s ADRs added 0.7 percent last week.
Elong, which earns 78 percent of its revenue from online hotel bookings, said in a Feb. 21 statement that sales rose 33 percent to 224.4 million yuan ($36 million) in the fourth quarter, after forecasting growth of 25 percent in November. Profit declined to 5.7 million yuan from 15 million yuan a year earlier. Revenue will increase by as much as 30 percent in the first three months of this year, the company predicted.
The results “could be attributed to Elong’s consistent strategy of investing in the online hotel booking business,” Tian Hou, founder of T.H. Capital LLC, wrote in a note dated Feb. 22, reiterating a hold recommendation on the stock.
Solar stocks were the biggest decliners on the China-US index last week amid reports European Union member nations have approved a plan to register solar panel imports from China. Trina Solar Ltd. (TSL), based in Changzhou, lost 8.3 percent to $4.67, while LDK Solar Co., the world’s second-largest maker of wafers used to make solar cells, sank 6.9 percent to $1.75.
The Hang Seng China Enterprises Index (HSCEI) slid 1 percent to 11,317.13 Feb. 22 for a weekly loss of 4.5 percent, while the Shanghai Composite Index of domestic Chinese shares dropped 0.5 percent to 2,314.16, dropping 4.9 percent last week.
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