China Economic Scan Weekly Stockmarket Review – 1 May 2009
Chinese stocks finished the week up with the Hang Seng rising 1.7%, the Shanghai Composite up 1.2%, the Shenzhen Component up 2%, and Taiwan’s TAIEX up 1.9% following a 6.7% rally in Taiwanese stocks on Thursday. The past week was full of earnings announcements with mixed results across the board. Zhongwang raised $1.26 billion, and Goldman Sachs increased their forecast for Chinese stocks.
Goldman Sachs increased its estimates for Chinese stock indexes this year, pinning the CSI 300 Index to rise to 2,600 (from a current 2,544.86), and the Hang Seng China Enterprises Index at 10,300 (from a current 8,770.97). “China’s aggressive domestic policy stimulus appears to be working to offset the weakness in the external sector,” the note by strategists led by Hong Kong-based Timothy Moe said.
The Hang Seng China index (tracks Hong Kong stocks) is up 14% so far this year, and the CSI 300 (tracks Chinese mainland stocks) is up 40%, while the MSCI World Index is down 4%. Chinese stock markets were closed on Friday for Labour day.
China Zhongwang Holdings raised HK$9.8 billion ($1.26 billion) as it priced the world’s largest initial public offering (IPO) in 9 months toward the low end of an offering range of HK$6.80-to-HK$8.80. The nation’s largest maker of extruded aluminum products by capacity sold 1.4 billion new shares at HK$7 apiece. The sale of a 25.9% stake in the IPO valued Zhongwang at HK$37.8 billion, or about 10.7 times this year’s earnings as estimated by investment banks involved in the sale.
The week featured a swath of companies reporting their 2009 Q1 earnings. Bank of China said net income fell 14% to 18.57 billion yuan ($2.72 billion) Q1 2009, beating analyst forecasts of 17.8 billion yuan. BoC offered 511 billion yuan of new loans in Q1 2009, taking total advances to 3.81 trillion yuan as of March 31, up 15.5%.
China Construction Bank's Q1 net profit fell 18.2% YoY to 26.3 billion yuan ($3.85 billion). Interest income was 50.87 billion yuan, down 6.55%, and its non-performing loans (NPL) totaled 81.9 billion yuan, down 1.95 billion yuan and its NPL ratio was 1.9%, down 0.3 percentage points from the end of 2008.
Bank of Communications Q1 2009 earnings up 1% to 7.94 billion yuan, or 0.16 yuan per share; and also beat analyst estimates of 6.5 billion yuan and increased loans by 21%. Banking shares gained during the week after the China Insurance Regulatory Commission allowed banks to take stakes in the country's insurance companies.
Baidu reported Q1 net income up 24% YoY, of 181.1 million yuan ($26.5 million). Excluding stock-based compensation, earnings rose to 86 cents per ADR vs consensus estimate of 76 cents. Revenue climbed 41% to $118.6 million, above the company's Feb forecast of $114 million to $117 million. Deutsche Bank initiated coverage of the company last month with a buy rating.
Cosco Pacific Ltd, container-terminal operator, posted a 34% drop in Q1 09 profit to $43.4 million, or 1.93 cents a share, on sales of $75.4 million. Cosco's container traffic fell 8% (it handled 9.57 million twenty-foot equivalent boxes) as recessions in the U.S. and EU reduced demand for shipments of Asian-made toys, furniture and other goods.
China Merchants Bank Co. Q1 09 profit fell 33% to 4.21 billion yuan ($617 million), or 0.28 yuan a share; and below analyst estimates of 4.64 billion yuan. Net interest income fell 23% to 9.2 billion yuan in the first 3 months after the net interest margin, a measure of lending profitability, narrowed to 2.47%. Net fee and commission income dropped 14% to 1.67 billion yuan.
Citic Securities, China's biggest brokerage firm by market value, said its net profit for Q1 09 fell 40% to 1.5 billion yuan ($219.8 million) on revenue of 3.46 billion yuan, down 40% as commission fee income nearly halved to 2.87 billion yuan. Commission fees: securities underwriting income fell 81% to 117.8 million yuan and securities brokerage income fell 19% to 2.09 billion yuan. Investment income dropped 86% to 285.5 million yuan from 2.08 billion yuan a year earlier.
In another key development, China Mobile agreed to buy a 12% stake in Taiwan's Far EasTone for $529 million; one of the biggest investments by a Chinese firm in Taiwan. The transaction follows talks between China and Taiwan that agreed on encouraging investment. The price per share being paid is T$40, a 14% premium to Wednesday's closing price of T$35.20.