Shanda Falls as Earnings Fuel Valuations: China OvernightBelinda Cao
Shanda Games Ltd. and Youku Tudou Inc. led declines in Chinese stocks traded in New York last week after a rally led by Internet companies pushed valuations to the highest in a month.
The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. fell 0.4 percent to 94.44 after a four-week rally. The measure traded at 13.7 times trailing profit, near the highest valuation since June 28. Youku Tudou, owner of China’s biggest video websites, fell the most in five months as Shanda Games sank 11 percent. Noah Holdings Ltd. surged 27 percent last week after raising its profit outlook and LightInTheBox Holding Co. jumped to a record high.
Internet stocks have benefited from better-than-estimated profit in the second quarter as 16 out of 18 companies that have reported earnings since July 22 have beaten analysts’ projections on average, data compiled by Bloomberg showed. The gains sent the price-to-earnings ratio on shares of Shanda Games to a two-year high on July 26. Online book retailer E-Commerce China Dangdang Inc. dropped last week for the first time in a month after its price-to-book value multiple climbed to the highest level since 2011.
“Many of the Internet companies have rich valuations after the nice rally we saw in the last couple of weeks,” Henry Guo, an analyst at ABR Investment Strategy LLC, said in a phone interview from San Francisco on Aug. 9. “If there’s no good trigger news, it’s hard for us to see a rally without a pause.”
The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., dropped 1.3 percent last week to $34.53, the first slump in a month. The Standard & Poor’s 500 Index slipped 1.1 percent as investors pulled money from exchange-traded funds and weighed signs the Federal Reserve stimulus this year.
Shanda, a web games operator based in Shanghai, sank to $3.82 in New York last week, the lowest level since June 24. It plunged 39 percent in a 10-day slump through Aug. 9, the longest stretch of declines since its U.S. listing in September 2009.
The slide followed a July 28 statement by the Shanghai-based company saying it will pay $811.5 million for two units of its parent Shanda Interactive Entertainment Ltd. It’s unclear how the move, which reduces the company’s cash on hand, will help Shanda build its mobile-game platform, 86Research Ltd. said in a note July 29.
Youku’s American depositary receipts tumbled 6.9 percent last week to $23.29, dropping the most since May.
Beijing-based Youku said it expected revenue to be as low as 830 million yuan ($136 million) in an Aug. 8 statement, compared with an 857 million yuan average estimate of seven analysts surveyed by Bloomberg before the release.
Goldman Sachs Group Inc. cut its rating for Youku to neutral from buy in a note Aug. 9, citing concerns over its growth outlook in the next 12 months.
Dangdang, China’s biggest online book retailer, slid 3.7 percent last week to $10.15. Beijing-based Dangdang, which has surged 145 percent this year, will release its second-quarter results on Aug. 15.
Noah jumped to $16.10, the highest level since May 2011. The Shanghai-based company is scheduled to report second-quarter earnings on Aug. 21.
Noah, which distributes wealth-management products for commission fees, boosted its 2013 adjusted net income forecast Aug. 8 from its estimate of up to $37 million given on May 6. Its current 2013 profit projection represents growth of as much as 105 percent from 2012.
LightInTheBox, a Beijing-based company that sells life style products to overseas market, surged 29 percent to $20.94, the highest since its U.S. initial public offering in June. It plans to release second-quarter results on Aug. 19.
Sina Corp. and NQ Mobile Inc. are scheduled to report second-quarter earnings after U.S. markets close today.
The Hang Seng China Enterprises Index in Hong Kong fell 1.4 percent to 9,599.46, sliding for a second week. The Shanghai Composite Index rallied 1.1 percent to 2,052.24 in its third week of gains.