Bloomberg News

Outlook Sinks Perfect World as ADRs Drop: China Overnight

March 12, 2013

Chinese stocks fell the most in a month in New York, as Perfect World Co. sank after forecasting sales below analysts’ estimates while Suntech Power Holdings Co. (STP:US) slid amid debt restructuring and plans to close a U.S. plant.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in the U.S. slipped 1.7 percent to 93.06 yesterday, the steepest slide since Feb. 7. Online games developer Perfect World plunged the most since April 2012 and Suntech slumped to a three-month low. Qihoo 360 Technology Ltd. dropped as U.S. regulators queried its 2011 earnings report.

Citigroup Inc. and BOC International Holdings Inc. downgraded Perfect World after the Beijing-based company predicted lower first-quarter sales than analysts estimated. Suntech said it plans to stop production at its Arizona solar- panel manufacturing facility next month. China’s economy, the world’s second-largest, emerged from a seven-quarter slowdown in the last three months of 2012.

“Most companies haven’t given us a strong outlook for the first quarter, as a recovery in corporate operations is lagging behind a recovery in the macroeconomy,” Tian X. Hou, the founder of T.H. Capital LLC, said in a telephone interview from Beijing yesterday. “Perfect World’s fourth-quarter results were the worst among major Chinese web gamers as it lacks new games to drive growth.”

The iShares FTSE China 25 Index Fund (FXI:US), the largest Chinese exchange-traded fund (FXI:US) in the U.S., slid 1.7 percent to $37.98, the biggest decline in a week. The Standard & Poor’s 500 Index (SPX) retreated for the first time in eight days, falling 0.2 percent to 1,552.48. Thirty-day volatility on the China-US gauge climbed to a one-month high of 16 yesterday.

Sales Forecast

Perfect World’s American depositary receipts plunged 8.8 percent to $10.52, the lowest level in three months. Its ADRs have lost 1.5 percent in 2013, compared with a 27 percent jump in NetEase Inc. (NTES:US), China’s second-largest web games operator, and a 20 percent gain in Giant Interactive Group Inc. (GA:US)

Perfect World projected first-quarter sales to be between 592 million yuan ($95.2 million) to 619 million yuan in a statement on March 11, below the 642.8 million yuan average estimate of three analysts compiled by Bloomberg. Its fourth- quarter net income of 1.78 yuan per ADR was also below the mean estimate of 2.5 yuan.

Citigroup cut Perfect World to neutral from buy and lowered its price target by 30 percent to $13.2 in a note yesterday. BOC International also lowered its recommendation to hold, the equivalent of neutral, and Barclays Plc reduced the price goal to $12.3 from $13.5.

Qihoo Retreats

Qihoo, which owns the most-used web browser in China and provides online security and search services, dropped 1.5 percent to $31.34, the lowest close this month.

The U.S. Securities and Exchange Commission asked Qihoo in a Sept. 17 letter to explain details of its 2011 annual report, according to documents published yesterday.

Guangshen Railway Co. (GSH:US), which runs the only train line linking mainland China to Hong Kong, sank 5.4 percent to $24.9, the biggest loss in a month.

China’s Ministry of Railways will be split into two, according to a March 10 report to the National People’s Congress. Some functions will be put into a State Railway Administration under the Ministry of Transportation. A new company, China Railway Corp., will take over commercial operations, according to the plan.

Reforms announced are market-oriented and favor competition, Vivian Liu, an analyst at SinoPac Securities Asia Ltd., said in phone interview yesterday from Shanghai. Railway companies that had enjoyed a degree of government support may be affected, she said.

Production Stop

Suntech tumbled 5.2 percent to $1.09, the lowest price since Dec. 18. The company, based in Wuxi of China’s Jiangsu province, said yesterday it plans to stop its Goodyear, Arizona, facility in April. Higher production costs, as well as U.S. import tariffs on solar cells and aluminum frames contributed to the decision to close the factory, it said.

Five Wall Street investment and hedge funds have the most to lose as the company seeks more time to repay $541 million of convertible debt.

Mongolian Mining Corp. (975), the nation’s biggest coking coal exporter, swung to a full-year loss of $2.5 million in 2012 after prices declined because of slowing demand in China, its main market. That compared with a profit of $119.1 million a year earlier, the Ulan Bator-based company, known as MMC, said yesterday in a statement.

MMC’s dollar bonds due in 2017 fell 2.84 cents on the dollar, the most since the securities were issued in March 2012, to 102.12 cents in New York, according to data compiled by Bloomberg. Yields rose 82 basis points, or 0.82 percentage point, to 8.25 percent.

The Hang Seng China Enterprises Index (HSCEI) dropped 1.3 percent to 11,292.14 yesterday, while the Shanghai Composite Index of domestic Chinese shares slipped 1 percent to 2,286.61, sinking for a fourth day in the longest losing stretch since November.

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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