Bloomberg News

21Vianet Leads Gains After Profit Tops Forecast: China Overnight

November 16, 2011

Nov. 16 (Bloomberg) -- 21Vianet Group Inc., China’s largest independent data-center services provider, and video sharing website Tudou Holdings Ltd. led gains among the most-traded Chinese stocks in the U.S. after reporting profit that beat analysts’ estimates.

The Bloomberg China-US 55 Index climbed 0.8 percent to 102.96 at the close of trading in New York while the Shanghai Composite Index rose less than 0.1 percent in its third daily increase. 21Vianet jumped 7.9 percent to a four-week high after third-quarter sales and earnings both exceeded analysts’ forecasts. Tudou surged 5.7 percent, the most in a month.

Analysts at JPMorgan Securities Asia Pacific and Piper Jaffray & Co. maintained their “overweight” rating after 21Vianet’s earnings release and Credit Suisse gave Tudou a new “outperform” recommendation. Morgan Stanley forecasts a 39 percent gain for emerging-market equities by the end of next year, led by Chinese stocks on speculation the government will loosen monetary policies to support Asia’s biggest economy.

“China offers a greater growth rate than most other countries,” said Kevin Pollack, a fund manager at Paragon Capital LP which invests in U.S.-listed Chinese stocks. “Even in the event of a hard landing or moderated growth, many Chinese stocks still could outperform, especially smaller Chinese companies trading at extremely low valuations.”

‘Soft Landing’

China’s economy grew 9.1 percent in the third quarter from a year earlier, the least in two years. International Monetary Fund Deputy Managing Director Zhu Min said China’s economy is heading for a “soft landing,” adding at a forum in Honolulu Nov. 13 that the economy is becoming more dependent on services and capital investment.

The nation’s central bank raised interest rates three times this year and lifted banks’ reserve-requirement ratio to curb inflation. Consumer price gains slowed to 5.5 percent in October from a three-year high of 6.5 percent in July. Premier Wen Jiabao said last month the government will fine-tune economic policies as needed to sustain growth.

21Vianet said third-quarter net profit was 1.38 yuan (22 cents) for each American depositary receipt, compared with the 0.53 yuan average estimate of three analysts surveyed by Bloomberg. Sales jumped 115 percent to 261.6 million yuan, more than the 250.4 million yuan forecast of analysts. The company expects fourth-quarter sales to be at least 292 million yuan, surpassing analysts’ mean estimate of 257.7 million yuan.

Christopher M. Larsen, an analyst at Piper Jaffray, said 21Vianet’s “strong third-quarter results” beat his estimates. The management’s fourth-quarter guidance “is well above our current estimates,” he said in a research note Nov. 14.

Share Buyback

The Beijing-based company, which completed its U.S. initial public offering in April, announced on Sept. 14 a plan to buy back as much as $30 million of the shares after a 46 percent price decline. 21Vianet had repurchased $4.4 million of its ADRs by the end of September, Chief Financial Officer Shang Wen Hsiao said in a conference call.

21Vianet’s ADRs rose to $10 in New York, trimming its loss this year to 33 percent.

“We expect a soft landing in China and earnings growth should hold up very well in this environment, we think the market is too cheap,” Jonathan Garner, Morgan Stanley’s chief emerging-market and Asia strategist, said in an interview from Singapore yesterday.

Tudou, Elong

Tudou, in which Sina Corp., owner of China’s Twitter-like service, holds a 9 percent stake, said third-quarter net income was 52.5 million yuan, reversing a loss of 0.5 million yuan a year ago. The company said it expected sales to grow as much as 60 percent in the fourth quarter, after rising 52 percent in the prior quarter to 149.7 million yuan.

The company, based in Shanghai, has declined 49 percent since it finished a $174 million IPO in the U.S. in August. Its ADR rose to $14.84 after two days of advances.

Mizuho Securities Asia Ltd. analyst Muzhi Li maintained a “buy” rating on Elong Inc., China’s second-biggest online travel company, after third-quarter sales topped expectations.

The ADRs of Elong, in which Expedia Inc. holds the biggest stake, climbed 2.3 percent to $14.80, the highest level since Oct. 28. The shares surged 16 percent Nov. 14, the most in three months.

Yuan, Valuations

The ishares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., gained 1.3 percent to $37.79. The Standard & Poor’s 500 Index rose 0.5 percent to 1,257.81 on speculation Italian Prime Minister designate Mario Monti will succeed in forming a new government to battle the debt crisis and after growth in retail sales beat estimates.

The Chinese yuan strengthened 0.1 percent to 6.3465 a dollar Nov. 15, according to the China Foreign Exchange Trade System. The currency has risen 4.1 percent this year, the best performance among the 25 emerging-economy currencies tracked by Bloomberg.

The Shanghai benchmark stock measure is trading at 11.9 times estimated earnings, compared with 14.6 for Indian stocks, 10.4 for Brazilian shares and 5.3 for Russian equities.

E-Commerce China Dangdang Inc., the nation’s largest online book retailer, will report earnings for the quarter ended in September before U.S. trading starts today. NetEase.com Inc., China’s second-biggest online games operator, and Youku.com Inc., the nation’s biggest online-video site, will announce their quarterly results after markets close in the U.S. today.

--With assistance from Allen Wan in New York and Weiyi Lim in Singapore. Editors: Marie-France Han, Brendan Walsh

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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