China Watch: Mixed Earnings Results of Major Chinese Corporations

By Sterling Wong  OCT 26, 2012 3:15 PM

Baidu and ZTE also make the news.

 


MINYANVILLE ORIGINAL This week, Microsoft’s (NASDAQ:MSFT) Surface tablet launched in China at the same time as it did in the US and a few other countries. Microsoft hopes this simultaneous release will cut down on rampant piracy.
 
"The fact that there is no (release) delay and they are treating China as one of their primary markets reflects how important China is to Microsoft and I think that's evident in how they plan to launch Surface," Adam Leach, an analyst with technology consulting firm Ovum in London, told Reuters.
 
Meanwhile, earnings releases dominated the Chinese business landscape this week. Here are the highlights:
 
China Unicom (NYSE:CHU): China Unicom missed estimates with its third-quarter earnings report. Net income rose 27% to 2.02 billion yuan ($324 million) from 1.59 billion yuan a year ago. Analysts had projected net income of 2.21 billion yuan. Revenue, meanwhile, increased 16% to 63.5 billion yuan, compared to analysts’ estimate of 63 billion yuan.
 
After losing exclusivity to the iPhone (NASDAQ:AAPL), China Unicom has ramped up spending to promote lower-end smartphones, whose subscribers typically use less data.  
 
“It appears the miss was driven by higher selling, marketing,” as well as administrative expenses, Lisa Soh, a analyst with Macquarie Group in Hong Kong, told Bloomberg.
 
China Mobile (NYSE:CHL): China Mobile’s earnings for the first nine months of the year increased 1.4% to 93.31 billion yuan ($14.92 billion) from 91.98 billion yuan in the same period a year ago.
 
For the third quarter, the world's largest mobile carrier by subscribers posted earnings of 31.11 billion yuan, up 1.3% from a year ago, and beating the consensus estimate of $30.5 billion yuan. China Mobile has recorded single-digit profit growth in the past three years, thanks to its heavy handset subsidies.
 
"Even with iPhones, the bottomline will still be pressured because of the increasing rebates in mobile phones," Philip Mok, a Hong Kong-based analyst at Phillip Securities, told Reuters. "(The key risk) will be slower-than-expected growth in its 3G customer base."
The company didn't provide a figure for the third quarter, but based on its first-half net of 62.2 billion yuan, China Mobile's third-quarter figure was 31.11 billion yuan.
 
ZTE (SHE:000063): The world’s fourth-largest mobile phone maker recorded a net loss of 1.945 billion yuan ($311.43 million) in the third quarter, the first time it has notched up a quarterly loss since it listed in Hong Kong in 2004. In the same quarter last year, the company had notched a net profit of 299.27 million yuan. Quarterly revenue declined 13% to 18.09 billion yuan from 20.83 billion yuan a year ago, with the global economic slowdown affecting demand for ZTE’s telecommunications equipment.
 
Along with fellow Chinese telecommunications company, Huawei (SHE:002502), ZTE was accused by US lawmakers of posing a threat to national security. A report from a Congressional committee also suggested that ZTE has business ties with Iran, a country embargoed by the US. Because of the report’s findings, Cisco Systems (NASDAQ:CSCO) has ended its seven-year strategic cooperation agreement. Despite the quarterly loss, ZTE expects to make a profit for the full year, with the consensus estimate currently at 642 million yuan.
 
"Things should move up from here, in terms of profitability and margins. We have to watch whether their telecom equipment business overseas picks up," Michael Li, an analyst with Everbright Securities in Hong Kong, told Reuters.
 
Bank of China (PINK:BACHY): The first of China’s "Big 4" banks to report earnings for the third quarter, Bank of China set an optimistic tone for its rivals as it posted its largest quarterly profit increase in a year. Net profit jumped to 34.76 billion yuan (US$5.57 billion) from 29.8 billion yuan a year ago, when the consensus on the Street was 32.7 billion yuan.
 
Net interest margin also expanded to 2.12%, easing worries that loan profitability would fall when the Chinese central bank moved in June to loosen interest rate restrictions.
 
The rest of the "Big 4" -- Industrial and Commercial Bank of China, Agricultural Bank of China, and China Construction Bank -- will report earnings through next week.
 
Baidu (NASDAQ:BIDU): Ahead of Baidu’s earnings release on Monday, several brokers revised their price targets on the company. Stifel Nicolaus cut its price target on the Chinese search giant to $140 from $165 because of “an evolving and less certain search landscape in China.” Stifel nonetheless believes that “the core growth opportunities for Baidu remain strong and the company has strong positions in emerging online businesses such as iQiyi (online video), and Qunar (online travel).” Likewise, Barclays also scaled back its price target on the company to $151 from $153.
 
This week, Baidu vice president Wang Zhan projected a note of confidence for investors, saying that his company expects advertising revenue to pass 20 billion yuan ($3.20 billion) in 2012, compared to 14.5 billion yuan in 2011.
 
BYD: Chinese car maker BYD, which is backed by Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A), announced its first overseas venture this week. The company has signed a deal to produce 50 of its e6 electric car for London cab service provider greentomatocars, according to Reuters. The fleet will be delivered to greentomatocars by the second quarter of 2013.
 
Launched in 2010, the e6 features BYD’s proprietary Iron Phosphate (Fe) battery, which can last for 186 miles of traveling in "urban conditions" on a single charge, with a top speed of 87 MPH.
 
Earlier in the year, worries about the safety of the electric vehicle rose after an e6 taxi burst into flames in a fatal accident. However, an investigation ruled that the cause of the fire was not the car battery but the speed of the collision.

Twitter: @sterlingwong
No positions in stocks mentioned.

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