China Unicom, Qualcomm, China Mobile in the China Stock Roundup - Analyst Blog

Chinese stocks had a difficult week following apprehensions that new share sales would lure funds away from existing stocks. A drop in the HSBC flash PMI readings indicating that manufacturing was undergoing a contraction added to market concerns. The slump in tech stocks continued to have a negative impact on markets. Tuesday was the lone bright spot in the week, primarily due to a rally in financial and phone stocks

Last Week's Developments

Markets took a hit in Thursday after energy producers and financial stocks took losses, negating gains by tech stocks. Chinese Premier Li Keqiang insisted that the government was not mulling “strong” stimulus measures. However, The Goldman Sachs Group, Inc. GS was of the view that steps taken earlier during the week were “small in magnitude in terms of their macro impact, but send a clear signal of loosening intention.”

The Shanghai Composite Index and the CSI 300 declined 0.3% and 0.4% respectively. The Hang Seng China Enterprises Index gained 0.1%.

Stocks experienced their heaviest weekly losses in a month on Friday. This was primarily a result of a slower rate of increase in home prices. Real estate companies bore the brunt of this development.

The Shanghai Composite Index declined 0.1% while the CSI 300 also moved lower by nearly the same quantum. The Bloomberg China-US 55 Index moved up 0.7%. Markets in Hong Kong were closed, beginning a trading holiday from the 18^th to the 21^st of the month.

Markets and the Economy This Week

On Monday, markets continued their slide with the benchmark index posting its largest decline in more than a month. This was primarily an outcome of apprehensions that new share sales would drag away funds from older stocks. Last week, IPO prospectuses for 28 companies had been posted by the China Securities Regulatory Commission on its website during the preceding week.

The Shanghai Composite Index lost 1.5% while the CSI 300 moved down 1.7%. According to the China Business News, regulators would begin examining IPO plans this week. Meanwhile the Economic Information Daily said preferred shares worth around 370 billion yuan ($59 billion) would be issued by banks.

The Shanghai Composite Index gained for the first time in four days, moving up 0.3% on Tuesday. Gains were largely a result of a rally in financial and phone stocks, which negated losses in technology shares. Tencent Holdings Ltd.'s QQ.com's announcement that it will provide mobile-phone services for Tesla Motors, Inc. TSLA helped China United Network Communications Ltd. chalk up its largest gains in six weeks.

However, the Hang Seng China Enterprises Index moved down 0.4% following the resumption of trading after holidays. The CSI 300 gained 0.4% while the Bloomberg China-US 55 Index declined 0.3%.

Stocks declined once again on Wednesday after an index of manufacturing indicated a contraction in the economy. Apprehensions that new share sales would move funds away from existing stocks continued to haunt the markets.

The preliminary reading of the HSBC Flash PMI came in at 48.3 in April, in line with analysts' estimates. However, this is below 50, which separates sector expansion and contraction. Meanwhile, the Chinese Securities Regulatory Commission posted 19 more IPO prospectuses on its website on Tuesday bring the total number posted since January to 65.

The Shanghai Composite Index lost 0.3% while the CSI 300 fell 0.1%. Meanwhile the Hang Seng China Enterprises Index declined 1.3% while the Bloomberg China-US 55 Index gained 0.8%.

Concerns over new share sales finally dragged markets to a three-week low today. Technology and small-cap stocks suffered maximum losses.

Meanwhile, the Chinese government continued to announce new measures to stimulate growth. The government will now allow private investment in 60 projects in sectors primarily controlled by state owned companies. A statement released on Wednesday indicates these projects would include clean energy, sports and railways.

The Shanghai Composite Index declined 0.5% while the CSI 300 lost 0.2%. The Bloomberg China-US 55 Index also declined, by 1.7% while the Hang Seng China Enterprises Index gained 0.2%.

Stocks in the News

China Mobile Limited CHL, the world's largest mobile operator by subscriber base, announced the results for full-year 2013 with adjusted net income of RMB 121.69 billion ($19.65 billion) that fell 5.9% year over year owing to higher infrastructure cost and stiff competition. The reduction in earnings affected the stock price as it declined 6.23% after market close on NYSE on Thursday.

In 2013, total revenue climbed 8.3% year over year to RMB 630.17 billion ($101.77 billion). Telecommunication service revenues, comprising roughly 93.75% of total revenue, were RMB 590.81 billion ($95.41 billion), up 5.4% year over year. Steady revenue growth was attributable to rapid growth of wireless data revenue, which was up by a massive 58.6%. EBITDA came in at RMB 240.43 billion ($38.83 billion), down 5.2% from the prior year.

China Unicom Hong Kong Ltd. CHU, China's second largest mobile operator, announced results for first-quarter 2014 with adjusted net income of RMB 3.302 billion ($539.5 million) that surged 73.8% year over year on strong revenue growth and higher adoption of the 3G plan. Earnings per share soared 75% year over year to RMB 0.14 (2 cents).

Total revenue (excluding deferred fixed-line upfront connection fee) climbed 8.3% year over year to RMB 76.5 billion ($12.5 billion) in the first quarter. China Unicom no longer has the exclusive right to distribute Apple Inc.'s AAPL iPhones to China Telecom Corporation Ltd. CHA. In spite of that, total revenue from the mobile business increased 15.4% year over year to RMB 40.68 billion ($6.7 billion).

Qualcomm Inc. QCOM reported mixed financial results for the second quarter of fiscal 2014. While net income surpassed the Zacks Consensus Estimate, total revenue fell below the same. On a GAAP basis, quarterly net income from continuing operations stood at $1,958 million or $1.14 per share compared with $1,863 million or $1.06 per share in the year-ago quarter.

However, adjusted (excluding special items) earnings per share came in at $1.20, breezing past the Zacks Consensus Estimate of $1.09. Quarterly total revenue of $6,367 million was up 4% year over year, but fell below the Zacks Consensus Estimate of $6,497 million.

Weibo Corp. WB, a Chinese language micro-blogging platform launched its IPO on the Nasdaq, last Friday. A subsidiary of online media company SINA Corp. SINA, the company garnered a lower than expected sum of $286 million after it reduced the size of its US IPO. This follows the continuing decline in technology shares and apprehensions about a reduction in the rate of growth of users.

Earlier, Weibo Corp had filed an amended F-1, under which it offered 20 million American Depositary Shares ADS at a price range of $17.00 to $19.00. At the mid-point of the price range, Weibo expected to raise $360.0 million.

However, the recent slump in the markets had forced the company to offer shares at the lower end of the band according to sources. The company has also sold a lower number of shares, only 16.8 million, to reduce dilution.

Performance of Most Actively Traded US-listed Chinese Stocks

The table given below shows the price movements of 10 Chinese companies with the highest three-month average trading volume on U.S. exchanges. Price movements over the last five days and during the last six months have been included.

Next Week's Outlook:

HSBC Flash PMI numbers will continue to dominate the headlines next week until official figures are released next Thursday. Concerns that new IPOs will lure funds away from excising equities continue to influence the bourses. The continuing slump in tech stocks is another drag and Chinese markets could be in for a tough time in the near future.

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