Chinese equities in New York dropped, extending the longest stretch of declines since November. Ctrip.com International Ltd. (CTRP:US) tumbled on concern plans to offer discounted plane tickets will reduce profit.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. fell for a third day, sliding 0.8 percent to 99.69 by 2:04 p.m. and extending its weekly slump to 2 percent, the most in two months. Ctrip, China’s largest web travel agency, sank as much as 16 percent, triggering a short sale restriction from the Securities and Exchange Commission. China Life Insurance Co. (LFC:US) slipped after an industry regulator said 2013 would be the most difficult year for insurers.
Ctrip, which revealed yesterday that it plans to cut about 500 employees, plunged after Travel Daily reported that the Shanghai-based company will extend a program of cash rebates for airline tickets, citing a Ctrip statement. This means the continuation of a “price war” in the Chinese travel industry, Muzhi Li, an analyst at Citigroup Inc., wrote in a report reiterating a sell rating on Ctrip.
“Ctrip’s cash rebate program in air tickets is even more negative to its stock than its layoff news,” Henry Guo, a senior analyst at ABR Investment Strategy LLC, which focuses on technology and media companies, said by phone from San Francisco yesterday. “Ctrip’s promotional program in air tickets will be followed by its biggest rivals as well as smaller agencies, causing a price war that will hurt its earnings.”
The China-US Index followed the Hang Seng China Enterprises Index (HSCEI) and the Shanghai Composite Index (SHCOMP) lower this week, as valuations approached the highest levels in eight months.
The Hang Seng China Enterprises gauge fell 0.8 percent to 12,001.81, bringing its drop in the week to 0.9 percent. The Shanghai Composite measure of domestic Chinese shares slid 0.5 percent to 2,291.30 yesterday, slumping 1.1 percent in the week
Companies on the China-US gauge trade at an average 13.5 times estimated earnings, within 3.5 percent of the highest valuation in two months, reached Jan. 10. The 55-stock measure has added 0.5 percent this year.
The iShares FTSE China 25 Index Fund (FXI:US), the largest Chinese exchange-traded fund (FXI:US) in the U.S., slipped 1.4 percent to $40.93 yesterday, capping a weekly loss of 1.9 percent. The Standard & Poor’s 500 Index climbed 0.4 percent to five-year high of 1,500.99, as Starbucks Corp. (SBUX:US) and Procter & Gamble Co. reported increased profit and German business confidence beat forecasts.
Ctrip’s American depositary receipts tumbled 12 percent to $19.89, set for the biggest rout since December 2010.
“Ctrip’s additional price cut is roughly 10 percent of ticket prices, which couldn’t be covered by 4 to 5 percent of commission rates,” Citigroup’s Li wrote in a note yesterday. “Therefore, Ctrip would lose money on each discounted ticket sale.” Hong Kong-based Li maintained a price target of $11.4 for Ctrip’s ADRs.
Ctrip is scheduled (CTRP:US) to report fourth-quarter results on Jan. 31. Its profit margin fell to 16.5 percent in the third quarter of 2012 from 33.4 percent a year earlier, data compiled by Bloomberg show.
The first quarter of 2013 could be “particularly challenging” for Ctrip due to the air ticket discounts, as profit margin will come under pressure, Tian X. Hou, founder of T.H. Capital LLC said in a report yesterday. “We expect the impact from the new round of air price competition to be worse than the previous hotel promotions.”
ADRs of China Life, the nation’s biggest insurer, based in Beijing, dropped 3.3 percent to $49.89, poised for the steepest slump since Oct. 17.
Xiang Junbo, Chairman of the China Insurance Regulation Commission, said 2013 could be the most difficult year for the insurance industry due to lower investment returns and rising operation costs, the Xinhua News Agency reported Jan. 24 on its website, citing Xiang’s speech at a work conference. The primary task this year is for the companies to stabilize growth, he said, according to Xinhua.
Ambow Education Holding Ltd. (AMBO:US), a private tutoring service provider based in Beijing, slipped 4.6 percent on its fifth straight day of declines to a record low of $1.87. Its ADRs have lost 17 percent this year.
The Beijing-based company, which last released earnings in July for the quarter ended in March, is a “foreign private issuer” under SEC regulations and is not required to file quarterly reports or financial statements with the U.S. regulator, Ambow media manager Mandy Li said in an e-mail on Jan. 24.
NetEase Inc., operator of China’s second-largest online games website, gained 3.8 percent to $46.91, the biggest gainer on the China-US gauge. The Beijing-based company is scheduled to report fourth-quarter earnings on Feb. 6.
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