Ctrip.com International Ltd. (CTRP:US), China’s largest online travel agency, fell to the lowest in three years in New York after cutting its profit margin forecast. Semiconductor Manufacturing International Corp. (981) surged.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. slumped 0.3 percent to 84.39 by 3:24 p.m. in New York, with 35 companies retreating and 19 gaining. Ctrip tumbled 13 percent. SMI, as the circuit-chip maker is known, climbed to the highest level since May after raising estimates for third-quarter sales and profit margin. New Oriental Education & Technology Group Inc. (EDU:US) declined the most among peers on the gauge.
Ctrip’s operating margin this year will be as low as 25 percent due to rising marketing costs, from its previous estimate of 30 percent, Chief Financial Officer Jenny Wu said yesterday on a conference call after reporting second-quarter results that showed a 55 percent drop in profit. The Chinese economy faces “significant” downside risk, the International Monetary Fund said in an annual review July 24. The IMF cut its 2013 growth forecast for China on July 16 to 8 percent from 8.2 percent three months ago.
“People are concerned about Ctrip’s performance amid fierce industry competition and the impact of an overall economic slowdown,” Henry Guo, an analyst at ThinkEquity Partners LLC, said by phone yesterday from San Francisco. “Its profit margin will shrink further in the second half and a 5 percentage cut is a big deal in the industry.”
China ETF Gains
The iShares FTSE China 25 Index Fund (FXI:US), the biggest Chinese exchange-traded fund in the U.S., climbed 1 percent to $32.80, snapping a three-day decline. The Standard & Poor’s 500 Index (SPX) advanced 0.3 percent to 1,341.85, snapping a three-day decline, as a rally in financial shares tempered disappointment with Apple Inc.’s results and an unexpected decline in new home sales.
Ctrip sank to $12.98, heading for the lowest closing price since March 2009.
The Shanghai-based company reported second-quarter sales of $153 million, below the $154.8 million average estimate of 13 analysts surveyed by Bloomberg. Revenue for the July-September period will grow 15 percent to 20 percent from a year earlier, it said in a July 24 statement, compared with the average estimate of a 19 percent increase by 10 analysts before the announcement.
Operating margin (CTRP:US), which measures operating profit as a percentage of sales, fell to 17 percent in the second quarter from 32 percent a year ago, according to Wu.
“This year our margin was on a downward trend,” Wu said on the conference call. “We’ll see costs and expenses climbing up on a year-on-year basis. Since the later part of the second quarter, we launched a more aggressive sales and marketing campaign” to expand business, she said.
Beijing-based Elong Inc. (LONG:US), a smaller competitor to Ctrip, climbed 3.8 percent to a week high of $12.03.
Semiconductor International, whose biggest customers include U.S. communication chipmaker Broadcom Corp. (BRCM:US), jumped 7.7 percent to $1.82, poised for the biggest three-day increase in 11 months.
The Shanghai-based company raised its forecast for second- quarter sales growth to as much as 26 percent from the prior three months, up from its previous estimate of 21 percent, due to an improvement in business, according to its July 22 filing to the Hong Kong Stock Exchange.
Broadcom, based in Irvine, California, forecast third- quarter sales will be $2 billion to $2.15 billion in a July 24 statement, comparing with the $2.1 billion average estimate (BRCM:US) of 38 analysts compiled by Bloomberg. Second-quarter sales gained 9.7 percent from a year ago to $1.97 billion.
The results of Broadcom helped drive up SMI’s stock, which has been an “underperformer of late,” Steven C Pelayo, regional head of technology research at HSBC Securities Asia Ltd., said in an e-mailed response to questions. “Industry pressures, such as weak demand and growing chip inventories, may be a problem soon.”
New Oriental, China’s biggest private educational services provider, lost 5.5 percent to a one-week low of $11.63. The Beijing-based company lost a record 42 percent last week. It said in a July 17 statement that the SEC was investigating its accounting practices. In a July 18 report, short-selling firm Muddy Waters LLC questioned the ownership of some of its schools, alleging it inflated financial statements.
TAL Education Group (XRS:US) slumped 3.4 percent to $7.65, extending a three-day loss.
The slowdown in China will continue to put pressure on companies’s sales and profit, Jingyi Li, analyst at Harding Loevner LP in Somerville, New Jersey, whose $19 billion in assets under management includes Chinese equities, said in a phone interview.
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