Melco Crown Gains on UBS Recommendation: China Overnight

Chinese stocks traded in New York rebounded from the biggest drop in two weeks after UBS AG recommended buying Melco Crown Entertainment Ltd. shares and China Life Insurance Co. forecast a first-half profit surge.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. added 0.7 percent to 92.29 yesterday. Melco, a casino operator in Macau, surged to a six-week high and China Life, the nation’s biggest insurer, traded at the widest premium over the Hong Kong stock in three months. NQ Mobile Inc. advanced to a record high, while Shanda Games Ltd. tumbled for a second day.

UBS raised its recommendation on Melco Crown from neutral, according to a note yesterday. Wynn Resorts Ltd. said in a July 29 conference call that mass-market gaming revenue grew 22 percent this month. China’s ruling Politburo pledged to stabilize growth after exports fell by the most since the global financial crisis while manufacturing and investment cooled.

Estimates by Melco’s peers “have been largely positive on Macau trends, especially when they look into July,” Brian McGill, a Philadelphia-based analyst at Janney Montgomery Scott LLC, said by phone yesterday. “Macau is holding much better than expected for now amid an economic slowdown in China.”

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., added 0.3 percent to $34.40. The Standard & Poor’s 500 Index was little changed as investors awaited results from the Federal Reserve’s policy meeting.

Manila Casino

Melco’s American depositary receipts gained 4 percent to $24.79, the highest price since June 19. The ADRs, each representing three underlying shares in the company, traded 4 percent above its stock in Hong Kong, the highest premium in seven weeks.

UBS lifted Melco’s price target by 15 percent to $30, adding that the company is its top pick among Macau casinos. Melco joined Bell Corp. in the Philippines in building a casino resort in Manila, which is expected to open in July 2014.

The company’s “Macau business is trading at a steep discount to the sector average based on consensus estimated, which is unwarranted,” Anthony Wong, a Hong Kong-based analyst at UBS, wrote in the note. The Manila resort could be a “differentiated and competitive product in the Philippines gaming market.”

China Life’s ADRs soared 2.8 percent to $36.53 in New York, rising the most in two weeks. The 2.4 percent premium in the ADRs was the widest since April 25. Each ADR equals 25 underlying shares in the Beijing-based company.

Profit Surge

The insurer attributed its estimated first-half 50 percent profit surge to an increase in investment income combined with a decline in impairment losses. The company posted a profit of 9.6 billion yuan ($1.6 billion) in the first half of 2012, a 26 percent decline from the same period in 2011.

NQ Mobile, a Beijing-based mobile-security service provider, surged 8.8 percent to $15.16, the highest price since the company’s U.S. listing in May 2011. Is ADRs have gained for 13 consecutive days, the longest stretch of advances on record.

E-Commerce China Dangdang Inc., the nation’s biggest online book retailer, jumped 6.5 percent to $9.51, the highest level since April 2012. Its ADRs have surged 37 percent in July.

Shanda, a Shanghai-based online games company, sank 6.6 percent to a two-week low of $4.66. The drop followed a 20 percent plunge on July 29 after the company said it agreed to buy two units of the parent company.

It’s unclear how this step will help Shanda build its mobile-game platform as the company sought, 86Research Ltd. said in a July 29 note.

Baidu Inc., owner of China’s most popular web search engine, climbed 1.8 percent to $131.69, the highest level in 11 months. The Beijing-based company sold $1 billion in five-year notes yesterday at a yield of 1.9 percentage points over similar-maturity U.S. Treasuries to help fund its $1.9 billion acquisition of app store 91 Wireless, a deal announced July 15.

The Hang Seng China Enterprises Index in Hong Kong gained

0.3 percent to 9,669.61, rebounding from a one-week low, while the Shanghai Composite Index increased 0.7 percent to 1,990.06 in its first advance in five days.

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