Earnings Drive Advance as Shanda Rallies: China Overnight
Chinese stocks rose in New York, led by Shanda Games Ltd. and Mindray Medical International Ltd. (MR), as companies reporting better-than-estimated earnings spurred analysts to bolster the outlook for stocks.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in the U.S. climbed 0.3 percent to 93.1 yesterday, rebounding from a 12-week low. Shanda climbed the most in a month and Mindray surged to the highest level in February. Baidu Inc. advanced on a partnership with China’s food and drug regulator to combat fake drugs, while web retailer Vipshop Holdings Ltd. (VIPS) retreated 10 percent from a record high.
China’s economy emerged from its seven-quarter slowdown in the last three months of 2012, when the 19 companies on the China-US gauge that reported since mid-January earned on average more than triple what analysts estimated, data compiled by Bloomberg show. Citigroup Inc. raised Shanda (GAME) to buy, while Oppenheimer & Co. lifted its price target for Mindray by 15 percent after the health-care company’s profit beat projections.
“We’ll see moderate growth in company sales in the first quarter and we do expect them to pick up in the second quarter.” Andy Yeung, an analyst at Oppenheimer in New York who rates Shanda the equivalent of buy, said by phone yesterday. “Fourth-quarter earnings of most U.S.-traded Chinese companies beat consensus as people’s expectations had been pretty low amid China’s economic slowdown last year.”
The iShares FTSE China 25 Index Fund (FXI), the largest Chinese exchange-traded fund in the U.S., added 0.2 percent to $38.12 in New York, after sliding to the lowest level since Dec. 4 on Feb. 25. The Standard & Poor’s 500 Index (SPX) climbed 0.6 percent to 1,496.94.
Shanda, China’s third-largest web games operator, gained 2.7 percent to $3.09, the biggest advance since Jan. 16.
The company, based in Shanghai, posted fourth-quarter sales of 1.08 billion yuan ($180 million), in line with a mean estimate of 1.075 billion yuan by eight analysts surveyed by Bloomberg. Net income for the quarter was 0.92 yuan per ADR, compared with a 0.89-yuan mean estimate.
Citigroup analysts led by Muzhi Li raised the rating on Shanda to buy from neutral, and lifted its price target to $3.9 from $3.8.
The company is trading at about 3 times earnings before interest, interest, tax, depreciation and amortization, which is a “deep discount” to peers, Li wrote in a note yesterday.
American depositary receipts of Mindray, a medical device seller based in Shenzhen, climbed 2.8 percent to $37.7, the highest price since Jan. 31.
Mindray reported fourth-quarter profit of $55.8 million, according to a Feb. 25 statement, exceeding the average $54.7 million projected by four analysts in a Bloomberg survey. Sales for the three months grew 20 percent to $316.1 million, compared with the mean estimate of $308.6 million. The company also announced a dividend of 50 cents for each share, a 25 percent increase from a year ago.
Oppenheimer analyst Ingrid Yin raised the price target for Mindray to $45 from $39 yesterday.
Baidu, based in Beijing, entered a partnership with China’s State Food and Drug Administration to provide a database of qualified medicines and licensed online pharmacies to the search engine, the official Xinhua News Agency reported Feb. 25, citing Sun Xianze, deputy head of the drug regulator.
Baidu’s ADRs advanced 2 percent to $89.73 in New York, the steepest gain since Feb. 6.
NQ Mobile Inc. (NQ), a mobile security company, also based in Beijing, rose 4.7 percent to $6.88, the biggest rally in two weeks.
Vipshop, a Guangzhou-based online fashion store operator, sank 10 percent to $25.6 after a 26 percent, two-day rally. Thirty-day volatility rose to 105, the highest since the ADRs trading started in March. The company said on Feb. 21 that it’s seeking to sell as much as $120 million of shares.
The Hang Seng China Enterprises Index (HSCEI) tumbled 2 percent to 11,104.10 yesterday, the lowest level since Dec. 11, while the Shanghai Composite Index of domestic Chinese shares dropped 1.4 percent to 2,293.34, trimming its gains this year to 1.1 percent.
Chinese stocks will resume this year’s rally as the government works to shore up the nation’s economic recovery, according to China Asset Management Co., the biggest fund manager.
Gains this year in Chinese A shares, stocks traded in Shanghai and the southern city of Shenzhen, “didn’t fully reflect the gradual economic recovery this year,” David Lai, a portfolio manager at the Hong Kong unit of China Asset Management, said by phone Feb. 25. “More projects or plans will be rolled out to support short-term growth after the government reshuffle next month.”
The National People’s Congress, China’s legislature, will start on March 5 its annual meeting where a new cabinet will be elected.
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