business newsChina: Low-Key Launch for New iPad; Chinese Companies See Massive Profit Declines
By
Sterling Wong
Jul 20, 2012 2:40 pm
Chinese Internet companies are among the hardest hit this year.
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MINYANVILLE ORIGINAL The stalling of the Chinese economic engine continued to be a major global concern this week, with the slowdown affecting hundreds of Chinese companies who saw profit declines.
According to Societe Generale, out of the 760 listed companies to report results, over 50% of them observed a drop in net income. Among the companies that have suffered profit declines are telecommunications company ZTE Corp, which reported a possible 80% fall in first-half net income, and Air China, which said profit declined by over 50%.
More measures are expected from the Chinese government to prop up the economy. Already, the Chinese central bank has cut interest rates twice, while Chinese Vice Premier Li Keqiang call for structural tax reforms earlier this month, which indicate corporate tax cuts are likely.
Here’s more in this week’s business news:
Twitter: @sterlingwong
According to Societe Generale, out of the 760 listed companies to report results, over 50% of them observed a drop in net income. Among the companies that have suffered profit declines are telecommunications company ZTE Corp, which reported a possible 80% fall in first-half net income, and Air China, which said profit declined by over 50%.
More measures are expected from the Chinese government to prop up the economy. Already, the Chinese central bank has cut interest rates twice, while Chinese Vice Premier Li Keqiang call for structural tax reforms earlier this month, which indicate corporate tax cuts are likely.
Here’s more in this week’s business news:
Apple (AAPL): The new iPad made its long-awaited debut in China last Friday, but while agitated crowds and unruly behavior marked the release of the iPhone 4S, the debut of the new iPad was a low-key event.
Instead of long lines and frustrated customers, there were only orderly queues at Apple’s five retail stores in Beijing and Shanghai, thanks to the introduction of an online reservation system, which required buyers to reserve an iPad a day before heading to a store to collect it at a set time.
"I'm very surprised that there is no line. I thought there was going be a long line so I came over a bit earlier to pick it up," an IT worker, Sun Xufei, who was the first in line of a small queue of around 20 people waiting outside the Shanghai Lujiazui Apple store, told Reuters.
It’s also likely that some of the Chinese pent-up demand has been met by China’s gray market. Vendors have been shipping in iPads from the US and Hong Kong since its release in those territories.
Chinese Internet Companies: If Facebook (FB) is looking for peer company to share its share price misery, it should look East. As 24/7 Wall St reports, it’s been a tough year for Chinese Internet companies, with all but one company’s share price having fallen off a cliff compared to a year ago.
Leading the losers list is Sina (SINA), down about 63% from 12 months ago. Next is Renren (RENN), down 60%, then Sohu (SOHU) (-56%), China Dangdang (DANG) (-54%), and Baidu (BIDU), down 29%. Only Tudou (TUDO), which will soon be acquired by Youku (YOKU), has been spared the pain, with the price increase after news of the acquisition helping to keep its fall to a mere -1%.
A slowdown in Internet adoption has affected these stocks. User growth rates in China, previously at more than 50%, have fallen to about 10%-12%. The slowdown in the Chinese economy has also affected these companies.
Sohu and Baidu will report earnings next week. They are the only two of the group expected to improve on earnings from a year ago, even though revenue figures have increased across the board. The rest of the Chinese Internet companies will report earnings in August.
Yum Brands (YUM): Yum reported second quarter earnings of $0.69 per share, which was up 6.2% from earnings of $0.65 per share a year ago. The figure fell just a bit shy of the $0.70 per share estimate from the Street.
While it experienced strong growth in the US, poor results from China dragged the fast food company down. Operating profits in the mainland fell 4% in the second quarter, thanks to rising costs. Wages increased by 13% and food prices were up by 6% in the quarter. Yum noted that it also incurred higher start-up costs because of the record number of new restaurant openings in China.
Despite the poor profit numbers, same store sales in China still increased by 10%, which was down from 19% a year ago. Yum expects its China business to bounce back in the second half of the year and return to double-digit profit growth.
“We expect this to be short lived as our menu initiatives, including pricing, begin to take hold and inflation moderates… We’ve got great brands there. Keep making our brands affordable, make sure we have great operations, make sure the assets look great and the numbers will take care of themselves,” said Yum CEO David Novak in a conference call with analysts on Thursday.
New Oriental Education and Technology Group (EDU): After noted short-seller Muddy Waters alleged that New Oriental was a fraudulent company, its stock plunged 35% on Wednesday.
In a research report titled “Magna Cum Fraude,” Muddy Waters questioned New Oriental’s financial statements from the past two years and whether or not the company misstated the ownership of some of its schools to prop up the cash levels on its balance sheets.
In response, New Oriental released a statement saying that it owned 664 schools and learning centers at the end of May and that 21 other third-party operations were never considered as the company’s. New Oriental’s stock rose 18% in trading in New York after its response.
Instead of long lines and frustrated customers, there were only orderly queues at Apple’s five retail stores in Beijing and Shanghai, thanks to the introduction of an online reservation system, which required buyers to reserve an iPad a day before heading to a store to collect it at a set time.
"I'm very surprised that there is no line. I thought there was going be a long line so I came over a bit earlier to pick it up," an IT worker, Sun Xufei, who was the first in line of a small queue of around 20 people waiting outside the Shanghai Lujiazui Apple store, told Reuters.
It’s also likely that some of the Chinese pent-up demand has been met by China’s gray market. Vendors have been shipping in iPads from the US and Hong Kong since its release in those territories.
Chinese Internet Companies: If Facebook (FB) is looking for peer company to share its share price misery, it should look East. As 24/7 Wall St reports, it’s been a tough year for Chinese Internet companies, with all but one company’s share price having fallen off a cliff compared to a year ago.
Leading the losers list is Sina (SINA), down about 63% from 12 months ago. Next is Renren (RENN), down 60%, then Sohu (SOHU) (-56%), China Dangdang (DANG) (-54%), and Baidu (BIDU), down 29%. Only Tudou (TUDO), which will soon be acquired by Youku (YOKU), has been spared the pain, with the price increase after news of the acquisition helping to keep its fall to a mere -1%.
A slowdown in Internet adoption has affected these stocks. User growth rates in China, previously at more than 50%, have fallen to about 10%-12%. The slowdown in the Chinese economy has also affected these companies.
Sohu and Baidu will report earnings next week. They are the only two of the group expected to improve on earnings from a year ago, even though revenue figures have increased across the board. The rest of the Chinese Internet companies will report earnings in August.
Yum Brands (YUM): Yum reported second quarter earnings of $0.69 per share, which was up 6.2% from earnings of $0.65 per share a year ago. The figure fell just a bit shy of the $0.70 per share estimate from the Street.
While it experienced strong growth in the US, poor results from China dragged the fast food company down. Operating profits in the mainland fell 4% in the second quarter, thanks to rising costs. Wages increased by 13% and food prices were up by 6% in the quarter. Yum noted that it also incurred higher start-up costs because of the record number of new restaurant openings in China.
Despite the poor profit numbers, same store sales in China still increased by 10%, which was down from 19% a year ago. Yum expects its China business to bounce back in the second half of the year and return to double-digit profit growth.
“We expect this to be short lived as our menu initiatives, including pricing, begin to take hold and inflation moderates… We’ve got great brands there. Keep making our brands affordable, make sure we have great operations, make sure the assets look great and the numbers will take care of themselves,” said Yum CEO David Novak in a conference call with analysts on Thursday.
New Oriental Education and Technology Group (EDU): After noted short-seller Muddy Waters alleged that New Oriental was a fraudulent company, its stock plunged 35% on Wednesday.
In a research report titled “Magna Cum Fraude,” Muddy Waters questioned New Oriental’s financial statements from the past two years and whether or not the company misstated the ownership of some of its schools to prop up the cash levels on its balance sheets.
In response, New Oriental released a statement saying that it owned 664 schools and learning centers at the end of May and that 21 other third-party operations were never considered as the company’s. New Oriental’s stock rose 18% in trading in New York after its response.
Twitter: @sterlingwong
No positions in stocks mentioned.
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