Dropping millions on small tech players like they have too much small change rattling around in their pockets is the big game among mega Chinese internet firms these days. Bad boys Alibaba Group, Tencent (0700.HKG), and Baidu (BIDU.NASDAQ) have all been busy trying to outdo each other, like pumped-up dudes in a bar trying to outspend on drinks to impress the ladies. But sometimes it’s the shy and quiet type that is the real deal. In China’s tech scene, that’s Qihoo 360 (QIHU.NASDAQ). The undisputed leader in internet security software and mainland China’s fastest-growing online search service is keeping on the low with its deals. Earlier this month it announced the acquisition of MediaV, a company that runs a precision advertising delivery platform, in a deal that market watchers say could boost its advertising revenue if integration is successful. Qihoo 360 will continue to snap up assets but don’t expect any blockbuster deals, its chairman said this week. Analysts are keen on the company, which reported a higher-than-expected first quarter revenue growth of 141% year-on-year. That was driven by search and mobile advertising. Qihoo 360 said its share of mobile search rose from 23% to 25% in Q1, and the company has set a target of 30% by 2015. “Strong mobile platform to provide opportunities in the mobile internet generation,” noted analysts at BOCOM International. Analysts at Barclays Research also noted a strong drive in mobile gaming revenues. Both sets of analysts are optimistic on Qihoo 360’s mobile and search activities. BOCOM International has a “buy” rating while Barclays Research suggests investors make the stock “overweight” in their portfolios.
Get in on the technology fallout
International Business Machines (IBM.NYSE) investors are no doubt cringing as the US technology company’s servers are carted into the alley behind the People’s Bank of China. A recent spate of cyber disputes between the US and China has caused an increase in scrutiny of the technology equipment employed in government agencies if it happens to be produced by an opposing country. That’s nothing new in the US, where lawmakers have long rallied against the use of Chinese telecoms equipment in sensitive state systems. But only recently has China made the battle cry. Bloomberg reported this week that PBOC and the Ministry of Finance could ditch their IBM-made servers in the fear that the US is listening in. That’s bad news for IBM. Analysts estimate that the firm’s China business accounts for about 4% of global revenues, or US$4 billion annually. IMB shares fell slightly on the news although the report is still unconfirmed. If the US company loses on the increasingly tense cyber-security front, a Chinese firm somewhere is bound to win new business. It’s unclear which Chinese company would fill the empty space in the server rooms at the People’s Bank. However, the overall poor sentiment could make a winner out of companies such as Kingdee International (0268.HKG). The Chinese software maker launched a new cloud computing service this week and UOB Kay Hian says that the deterioration of trust between the world’s two biggest economies will work in Kingdee’s favor. “The newsflow will boost the sentiment for Hong Kong-listed local software developers such [as] Kingdee and Sinosoft (1297.HKG),” UOB said in a report. For a piece of the international discord, investors should consider adding one of these firms to their portfolio.
Ditch that truck for a ride in a passenger car
The State Council’s announcement on 26 May that China will decommission 6 million “yellow label” vehicles that fail to meet emissions standards spells out good news both for the country’s private vehicle sales as well as the air we breathe. Dongfeng Motor Group (0489.HKG) and Geely Automobile Holdings (0175.HKG) can expect to make noteworthy gains from the new legislation, analysts at Barclays Research said in a note. Consumers have a tendency to move upmarket when they replace a vehicle, and as such the State Council decision effectively kills two birds with one stone: Addressing environmental concerns whilst also giving a jolt to China’s consumer economy. But the analysts noted that the new legislation is expected to have little impact on the heavy-duty truck (HDT) market as replacement demand is already, representing 81% of total sales in 2012 and 2013. HDTs are estimated to account for only 667,000 of the 6 million “yellow label” vehicles to be pulled from roads. Thus, without a tinge of irony, heavy-duty stocks are rated “underweight.” Forecasted net income earnings for Sinotruck (3808.HKG) and Weichai Power (2338.HKG) climbed 1% and 22% respectively for 2014, but HDT demand is expected to reach an inflection point and begin a year-on-year decline in May following the implementation of National Emission Standard IV.
Qingdao Port (6198.HKG) is scheduled to list on June 6 as it seeks to raise up to US$465 million (HK$2.9 billion) to build more port facilities. The group is the primary operator of the Port of Qingdao, one of the leading comprehensive ports in the world, and has benefitted from China’s macroeconomic development and strong connections to intermodal transportation systems, notes investment bank UOB Kay Hian. But a slowdown in Chinese exports could hurt its business.
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