Bloomberg News

SouFun Leads ADR Drop as Profit Outlook Worsens: China Overnight

March 29, 2012

Chinese stocks listed in the U.S. slumped a third day, led by SouFun Holdings Ltd. (SFUN:US), on concern profit growth is slowing as the global economy falters and the cost of lending remains at the highest in more than two years.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. sank 1.4 percent to 101.86 yesterday in New York, the lowest level in three weeks, eroding this quarter’s advance to 13 percent. SouFun, owner of China’s largest realty website, posted the largest loss in six weeks. American depositary receipts of PetroChina Co. (PTR:US) traded at a discount to Hong Kong shares for a third day after the oil company reported 2011 earnings that missed estimates.

Forty-eight firms on the U.S.-traded Chinese companies gauge have released annual earnings this year, posting an average loss of 0.7 percent, trailing analysts’ estimates by 3.2 percent and down from average profit growth of 28 percent in the same period of 2011, data compiled by Bloomberg show. Policy makers have kept China’s benchmark lending rate on hold since July, while other emerging nations from Brazil to Russia reduce borrowing costs to insulate against a global slowdown.

“The market is reacting to slower earnings growth or declines at some companies, which was caused by the government’s monetary tightening last year,” said Jeff Papp, a senior analyst in Lisle, Illinois at Oberweis Asset Management Inc., which manages $700 million of assets including Chinese stocks.

Societe Generale SA analysts said in a March 27 report that Chinese corporate profits won’t grow at all this year amid the European debt crisis and sluggish U.S. recovery.

Government Measures

The IShares FTSE China 25 Index Fund (FXI:US), the biggest Chinese exchange-traded fund in the U.S., sank 1.1 percent in a third day of losses to a two-month low of $36.30, cutting its gain this quarter to 4.1 percent. The Standard & Poor’s 500 Index (SPX) retreated 0.2 percent to 1,403.24, extending a three-day slump.

“We may see company profits recover from the second half of this year as the government is expected to roll out more measures to stimulate growth,” Oberweis’ Papp said.

The benchmark one-year lending rate was raised to 6.56 percent in July, the highest level since 2008. The People’s Bank of China cut the amount lenders must keep in reserve on Feb. 24 for the second time since December. Policy makers lowered the nation’s 2012 economic growth goal to 7.5 percent on March 5, from an 8 percent target over the previous seven years.

Beijing-based SouFun plunged 6.1 percent to $18.07 in New York, the biggest one-day drop since Feb. 15. The stock has rebounded 24 percent this quarter after losing 18 percent in 2011.

‘Tough’ Market

SouFun said in a Feb. 15 statement that fourth-quarter net income declined 24 percent from a year ago to $30.1 million. The company forecast sales for 2012 will grow between 10.5 percent and 16.3 percent, after increasing 53 percent in 2011 to $343.8 million, according to the statement.

China’s real estate market will still be “tough” in the first half, SouFun chief executive officer Vincent Mo said on a conference call with analysts on Feb. 15. “For the second half of the year, the market probably will turn better, depending on the central government’s regulation policies,” Mo said.

E-House China Holdings Ltd. (EJ:US), a Shanghai-based provider of property agency services, fell 1.8 percent to $5.50, the lowest level since Jan. 13. The stock has gained 15 percent this quarter, following a 71 percent slump last year.

“China’s property market will remain weak this year and real estate companies still face pressure,” Echo He, a senior analyst covering U.S.-traded Chinese stocks at Maxim Group LLC in New York, said yesterday by phone. He rates E-House sell, with a 12-month price target of $5.

PetroChina Discount

ADRs of PetroChina declined for a third day, down 0.8 percent to $137.74, the weakest level since Jan. 6. Each ADR represents 100 common shares in the company. The ADRs traded 0.4 percent lower than the company’s Hong Kong stock (PTR:US), which sank 2 percent to HK$10.74, the equivalent of $1.38 per share. The discount narrowed from 1.6 percent on March 28.

Net income for 2011 at the Beijing-based energy producer, China’s second-largest refiner, missed analysts’ estimates as losses from selling diesel and gasoline at state-controlled prices outweighed gains in crude sales.

Profit dropped 5 percent to 133 billion yuan ($21 billion) last year, PetroChina said in a statement to the Hong Kong stock exchange yesterday. That compares with a mean estimate of 138 billion yuan in a survey of 20 analysts compiled by Bloomberg.

NetEase Downgraded

The Shanghai Composite Index (SHCOMP) dropped 1.4 percent to a two- month low of 2,252.16 yesterday. The decline brought losses over the past three trading sessions to 4.2 percent, the biggest three-day slide since Dec. 15. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong fell 1.6 percent to 10,532.98. The gauge has declined every day since March 13, except for March 27.

NetEase Inc. -- which said in a statement yesterday that it received shareholder approval to change its name from NetEase.com (NTES:US) Inc. -- fell the most in three weeks in the U.S. as Deutsche Bank AG reduced its rating on the stock on prospects the operator of China’s second-largest online games website will lose market share to Tencent Holdings Ltd. (700)

ADRs of NetEase fell for a third day, dropping 1.8 percent to $58.34, the biggest decline since March 6. Tencent, China’s biggest Internet company by sales, slipped 2.1 percent to HK$216 ($27.82) yesterday in Hong Kong trading and is up 38 percent this quarter.

Deutsche Bank downgraded NetEase to hold from buy in a report dated yesterday, saying the stock was fairly valued.

Yingli Green Energy Holding Co. (YGE:US), the world’s sixth-biggest silicon-based solar module maker, fell 1.4 percent to $3.65 in New York, boosting its loss in the quarter to 10 percent.

Nitin Kumar, an analyst at Nomura Singapore Ltd., downgraded the bank’s recommendation on the company to reduce from neutral yesterday, meaning they expect its absolute return to be down 5 percent or more. The price target was lowered to $3 from $3.40.

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

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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Companies Mentioned

  • SFUN
    (SouFun Holdings Ltd)
    • $9.49 USD
    • -0.33
    • -3.48%
  • PTR
    (PetroChina Co Ltd)
    • $134.51 USD
    • -1.69
    • -1.26%
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