Credit Suisse’s Buy Spurs Dangdang Rally: China Overnight
The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. added 0.5 percent to 102.7 yesterday, rallying the most in a week. Dangdang, China’s biggest online book seller, surged 8.1 percent and Sohu climbed to a one-week high. Youku Tudou Inc. (YOKU) rose 5.4 percent after Citigroup Inc. reiterated a buy rating on the video website operator. LDK Solar Co. fell to the lowest level in three weeks.
Credit Suisse started coverage of Dangdang and Sohu with the equivalent of a buy rating. “As Internet becomes much more engaging in daily consumer life, value creation from Internet-based businesses is taking a more important role in the overall economy,” Dick Wei, an analyst at Credit Suisse in Hong Kong, wrote in an e-mailed report dated yesterday. Alibaba Group Holding Ltd.’s planned initial public offering in New York will also help Chinese Internet companies, Oppenheimer & Co. said.
“People think Dangdang’s stock should be worth more as it’s probably the most well-known Chinese e-commerce brand among those publicly listed in the U.S.,” Andy Yeung, a New York-based analyst at Oppenheimer, said in a phone interview. “Alibaba’s pending IPO should have a halo effect on all e-commerce companies. Dangdang’s stock price hasn’t gone up as much as its main peers in this year’s Internet stock rally.”
The iShares China Large-Cap ETF (FXI), the largest Chinese exchange-traded fund in the U.S., was little changed at a two-week low of $37.90 in New York. The Standard & Poor’s 500 Index rose 0.3 percent as an unexpected drop in jobless claims overshadowed concern that a budget impasse could hurt the recovery.
Dangdang’s American depositary receipts surged to $10.40, the highest close since Aug. 13. The ADRs have rallied 151 percent this year, compared with a 225 percent surge in Vipshop Holdings Ltd. (VIPS), an online fashion clothing retailer.
Dangdang is not a bookstore anymore as it has made “tangible progress” in transforming into a comprehensive web-based retailer, Credit Suisse’s Wei wrote in the note. “We see Dangdang as a key beneficiary of China’s rapid growth” in the online retailing sector, he wrote.
Sohu, based in Beijing, climbed 3.1 percent to $76.14, gaining the most in a week. Tencent Holdings Ltd. (700), China’s biggest Internet company by market value, last week paid $448 million for a 36.5 percent stake in Sohu’s Sogou search unit.
Sogou’s value could be as much as $3 billion based on Tencent’s investment, exceeding analysts’ average estimate of $1.2 billion, Credit Suisse’s Wei said in his note. Sohu “is one of the leading Internet companies in China with top three positions in online portal, games and online search,” he wrote, setting a price target of $98, which implies a 33 percent gain from the closing level on Sept. 25.
Credit Suisse also recommended buying Sohu’s game unit Changyou.com Ltd., which surged 10 percent yesterday for the largest rally in two months. Baidu Inc., China’s most-used web search engine, and Ctrip.com International Ltd. advanced at least 2 percent after they were given ratings equivalent to buy at Credit Suisse.
Youku, based in Beijing, advanced to a one-week high of $28.46 in New York. It has rallied 56 percent this year.
Youku will start ads on mobile Internet, targeting advertisers such as game developers and retailers, to profit from its rising video traffic, Citigroup analysts led by Muzhi Li wrote in a report yesterday. “We view the company’s attempt to commercialize mobile traffic beyond brands ads positively,” they wrote, reiterating a price goal of $35.80.
LDK, the second-biggest maker of solar wafers, declined 2.6 percent to $1.48 in New York, the lowest level since Sept. 3.
The Xinyu, China-based company said it got a 30-day reprieve from having to pay interest on bonds that were due Aug. 28. The forbearance arrangement, covering payments on the company’s 2014 securities, will expire on Oct. 27, LDK said yesterday in a statement.
The Hang Seng China Enterprises Index (HSCEI) dropped 0.5 percent to 10,541.03 yesterday for a four-day slump, the longest in three months. The Shanghai Composite Index sank 1.9 percent to 2,155.81, the lowest since Sept. 6.
To contact the reporter on this story: Belinda Cao in New York at email@example.com
To contact the editor responsible for this story: Tal Barak Harif at firstname.lastname@example.org