When pollution shut down the northeastern city of Harbin early this week, the blanket of smoke didn’t just worry residents who struggled to see where they were driving in their cars (some crashed). Industrialists, whose factories are a primary source of pollution in the region, were no doubt wringing their hands. After one of the most polluted winters on record, dubbed the “airpocolypse” in January, the government has vowed to scale back on industry such as steel production, especially in Hebei province, which surrounds Beijing. For companies such as China Oriental Group (0581.HKG) and Shougang Concord International Enterprise (0697.HKG), both of which have large steel plants in the province, the news sounds potentially disastrous. Not necessarily. Beijing’s crackdown will hit the small players in the market, which tend to be more serious polluters. In Shougang Concord’s case, the factory is a model for clean operations, said Helen Lau, a senior commodities analyst at UOB Kay Hian in Hong Kong. “Concord is actually selling [pollution credits] to other companies in the area,” she said on Thursday. The state-owned company makes shipping plates with Korean shipbuilder Hyundai Heavy (9540.KRX), an area of the market that is improving this year, Lau noted. China Oriental partners with ArcelorMittal (MT.NYSE, MT.AMS), the world’s biggest steel company, on construction materials. For investors that have wiped the soot off their computer screens, the companies look like bright spots in an industry that has underperformed for the past three years.
Time to get busy at China Mobile
Just because you’re the biggest, doesn’t mean you’re the best. That must be what China Mobile (CHL.NYSE, 0941.HKG), with its more than 755 million customers, is thinking this week with its third-quarter profits down 8.8% compared to the same time last year, the biggest decline in 14 years. The company’s 3G services, four years after deployment, still don’t make enough money. At the same time, Tencent’s (0700.HKG) WeChat smartphone messaging app continues to cannibalize China SMS revenues. A recovery for the world’s largest mobile services provider is still not in sight, analysts said. However, a strong launch into 4G services would help. “We argue the rapid shift toward TD-LTE (4G) should provide a powerful revenue uplift,” said Tucker Grinnan, regional head of telecom and media research at HSBC in Hong Kong. The company is expected to start commercial operations by the end of the year. It’d better hurry up. It also wouldn’t hurt to strike a deal with Apple (APPL.NASDAQ) to sell its new iPhones. Investors will note that both 4G and the sleek Apple phones will be make-or-break deals for China Mobile’s performance in 2014.
A China probe does damage
In one of the starkest losses on the China market in the third quarter of the year, China sales of drugs and vaccines at GlaxoSmithKline (GSK.LON) fell 61%. The country constitutes just 4% of GSK’s business. Still, global profits were down 12% between July and September. At the time of reporting on Thursday, the company’s share price had sunk nearly 2% following the announcement a day earlier. The turbulence is a testament to the damage a probe brought on by one of China’s regulators can do to a firm’s sales. In June, a Chinese investigation accused the UK-based company of bribing doctors to sell pharmaceuticals in the China market. Four months later the impact has surpassed analysts’ expectations. Deutsche Bank reportedly called GSK’s China conundrum “dire.” Conversely, the third quarter of the year was especially kind to some of China’s biggest drugmakers, although there isn’t necessarily a correlation with GSK’s woes. On October 11, Guangzhou Baiyunshan Pharmaceutical Holdings (0874.HKG) traded at its highest price ever, US$4.78. That was after a merger with – and a name change from – Guangzhou Pharmaceutical. Now the company is trading at nearly 40 time its price-to-earnings ratio. Investors shouldn’t forget that 60 foreign drug companies are under investigation in China. Chinese firms still lack the technology to fill the gap should China sales at other Western pharmaceuticals go south. However, an increasing amount of prescriptions will be left for more capable firms such as Guangzhou Baiyunshan to fill.
After Bank of Chongqing started a shortened roadshow on Wednesday in Hong Kong, China Huirong Financial Holdings will look to raise up to US$110 million just five days later. Bank of Chongqing is the first mainland bank to list in three years. It is seeking to raise US$593 million. Suzhou-based Huirong Financial focuses on lending to small and medium enterprise, a rapidly growing market in China.
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