Vipshop Surges as Earnings Fuel Rebound: China Overnight

Chinese stocks rose in New York for the first time in six days, led by Vipshop Holdings Ltd. and Elong Inc., as companies report better-than-estimated earnings amid a recovery in the world’s second-largest economy.

The Bloomberg China-US Equity Index of the most-traded Chinese equities in the U.S. climbed 1 percent to 94.19, paring a weekly drop of 2.2 percent. Vipshop surged 7.8 percent after the online fashion discounter reported its first quarterly profit. Elong, China’s second-biggest Internet travel agency, jumped the most this month, while SouFun Holdings Ltd. climbed 9 percent on rising new home prices in most Chinese cities.

The 15 companies on the China-US gauge that have reported over the past month posted earnings that were on average more than triple analysts’ estimates, after results fell below projections by 9.1 percent in the previous quarter, data compiled by Bloomberg show. China’s economy emerged from its seven-quarter slowdown in the three months to Dec. 31, when Vipshop earned net income more than eight times the mean of two analysts’ projections.

“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. “Chinese stocks are not overpriced. The Chinese economy troughed in the third quarter, a modest expansion is what’s in store.”

China Valuations

The iShares FTSE China 25 Index Fund, the largest Chinese exchange-traded fund in the U.S., was little changed at $38.54 in New York, declining 4.4 percent in the week. The Standard & Poor’s 500 Index advanced 0.9 percent to 1,515.60, trimming its loss this week to 0.3 percent, the first weekly drop since the end of December. Stocks on the Bloomberg China-US measure trade at 13.2 times estimated earnings, compared with a multiple of 13.4 for the S&P 500.

Vipshop’s American depositary shares climbed to $24.42 in New York Feb. 22, gaining the most 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.

The company, based in Guangzhou, 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 $750,000 profit in the last three months of 2012. Sales in the quarter almost tripled to $299.6 million. Vipshop forecast first-quarter revenue of between $265 million to $270 million, exceeding the analysts’ estimate of $211 million.

Secondary Offering

Vipshop intends to raise $120 million selling shares in a secondary offering, 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.

Elong, based in Beijing, climbed 7 percent to $16.26 in New York Feb. 22, the steepest one-day gain this month. Elong added 0.7 percent last week, while Vipshop fell 1.9 percent.

The company, which earns 78 percent of its revenue from online hotel bookings, said Feb. 21 that sales rose 33 percent to 224.4 million yuan ($36 million) in the fourth quarter. It forecast growth of 25 percent in November. Net income dropped 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 this year, Elong 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 yesterday, reiterating a hold recommendation on the stock.

SouFun, owner of China’s biggest real estate information website, surged to $26.92 Feb. 22 in its biggest one-day advance since October. New home prices in China climbed in most cites in January from the previous month, data from the National Bureau of Statistics issued yesterday showed.

The Hang Seng China Enterprises Index slid 1 percent to 11,317.13 yesterday 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, slipping 4.9 percent in the week.

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