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Shanda Surges on Outlook as Baidu Sinks on Deal: China Overnight

August 14, 2013

Shanda Games Ltd. (GAME:US) led gains in Chinese stocks traded in New York on prospects the game operator’s second-quarter earnings will beat estimates. Baidu Inc. (BIDU:US) retreated from a 16-month high.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. slipped 0.2 percent to $97.24 yesterday, with 33 companies climbing and 22 retreating. Shanda surged the most in four weeks as budget hotel chain operator Home Inns & Hotels Management Inc. (HMIN:US) jumped to the highest since 2011. Baidu dropped after signing an agreement to buy 91 Wireless for $1.85 billion.

Shanda will probably say that earnings rose 14 percent to $1.38 a share, according to the mean estimate of two analysts surveyed by Bloomberg. The Shanghai-based company may announce measures to focus more on mobile games next week, according to 86Research Ltd. China will promote information technology and Internet-based consumption to help drive economic growth following two quarters of slower expansion, the nation’s cabinet said in a statement yesterday.

“People are betting Shanda will report good second-quarter results,” Nick Ning, an analyst at 86Research, said by e-mail yesterday. “Rumor has it they will announce a bigger focus on mobile games next week.”

The iShares China Large-Cap ETF (FXI:US), the largest Chinese exchange-traded fund (FXI:US) in the U.S., added 0.1 percent to $36.41, the highest level since June 3. The Standard & Poor’s 500 Index slipped 0.5 percent amid mounting speculation that the Federal Reserve will scale back stimulus this year.

Trading Volume

Shanda’s American depositary receipts jumped 11 percent to $4.43, the most since July 18. Trading volume was triple the three-month average, according to data compiled by Bloomberg.

Two games, developed by Korea’s NCsoft Corp. (036570) and WeMade Entertainment Co. and operated by Shanda in China, accounted for about 40 percent of Shanda’s revenue in the first quarter, according to Ning.

“NCsoft attributed a stronger AION in China as one key driver for their sequential top-line growth, and WeMade said its Mir II stabilized in China” in their first-half results release, Ning said.

Home Inns, operator of China’s biggest budget hotel chain, soared 7.5 percent to $35.30, the highest since November 2011.

Margin Improvement

Adjusted net income at the Shanghai-based company rose 33 percent to $2.89 for each ADR in April-June, the company said in a statement after markets Aug. 12. That compared with an average estimate of $2.53 per ADR by three analysts compiled by Bloomberg. Adjusted earnings before interest, taxes, depreciation and amortization rose to 24.6 percent of its total sales, from 22.9 percent a year earlier.

“The momentum of its margin improvement is sustainable, and the expanding profit margins more than offset a lower top-line guidance,” Ella Ji, an analyst at Oppenheimer & Co. in New York, said by e-mail yesterday. A recovery in the accommodation market “should continue given the stable policy environment outlook.”

At least three analysts raised their price targets for Home Inns in the last two days, including Goldman Sachs Group Inc.

Renren Inc. (RENN:US), owner of a real-name social media company, tumbled 8.3 percent to $4.20, sinking the first time in three days. The company jumped 15 percent the previous day after Inc.’s technology news outlet said Renren was in talks to sell its group-buying unit to Baidu. Renren was scheduled to report second-quarter results after markets close.

Vipshop Falls

“I don’t think the big Internet guys want to have group buy site to offer users,” Jeff Papp, a senior analyst at Oberweis Asset Management Inc. said by e-mail from Lisle, Illinois. “Renren’s group-buy division has been a drag on margins. Its base business is in decline.”

Baidu’s ADRs dropped 2.1 percent to $138.51, declining the most in seven days.

Vipshop Holdings Ltd. (VIPS:US), a web retailer of discounted fashion goods, tumbled 11 percent in after-hours trading following the company’s earnings report.

Guangzhou-based Vipshop said third-quarter sales (VIPS:US) may rise as much as 137 percent from a year earlier to $370 million, compared with the mean estimate of $369.3 million of four analysts compiled by Bloomberg. Its second-quarter adjusted profit of 20 cents per ADR beat the average projection of 18 cents. Its ADRs rose 1.3 percent at market close yesterday.

The Shanghai Composite Index (SHCOMP) slid 0.3 percent to 2,100.14, retreating from the highest level since June 19. The Hong Kong market was closed yesterday due to a typhoon.

To contact the reporter on this story: Belinda Cao in New York at

To contact the editor responsible for this story: Tal Barak Harif at

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