What can one struggling telecoms group give to another? In the case of China Mobile’s (CHL.NYSE, 0941.HKG) purchase of an 18% stake in True Corp. (TRUE.BKK), the third largest telecoms group in Thailand, for US$ 881 million, analysts don’t see much beyond cash, and a case study on not how to do business. They are seeing this mostly as a capital injection. Like China Mobile, True has struggled in its home market as it fights to compete against rivals in providing mobile broadband services. Its executives, however, touted that exchanges of technology, content and applications with a foreign partner would drive growth and turn the company’s fortunes around. But Prasit Sujiravorakul an analyst with Bualung Securities in Bangkok, said on the phone that these touted synergies don’t exist. Rather, he said True Corp requires money to recapitalize its balance sheets, which have taken a blow from years of low earnings, and finance bids for two television bandwidths later this year. The stake’s sale would also improve its credit rating, allowing True to borrow more cheaply and spend less on servicing interest payments on its growing mound of debt. He issued a “HOLD” rating on the firm.
Wuzhou wants to store all your shoes and books under its roof
Two things that are not going right in the Chinese economy at the moment are property and small and medium enterprises. Huge oversupply of not just homes but also offices and weak overseas demand and poor access to credit for small firms is clouding the picture. In such a climate the prospects for a firm that specializes in building commercial complexes in the manufacturing corridor of the Yangtze River Delta and Jiangsu province wouldn’t be great you’d think. Well, analysts at BOCOM International in Hong Kong are liking just such a firm, Wuzhou International Holdings (1939.HKG). They have initiated coverage of the company and given it a “buy” rating on good sentiment about its ride into the “red hot” e-commerce business. Wuzhou International is developing logistics and warehousing platforms and cooperating with the e-commerce enterprises. To that end it has established a database of 120,000 existing and potential clients and built a debut logistics warehouse in the strategically significant location of Zhengzhou. BOCOM International reckons the company is entering harvest period for earnings growth. “We expect its aggressive expansion through inexpensive land acquisitions since 2009 to start paying off going forward,” the noted. With Chinese exports seemingly stabilizing according to the latest trade data for May and state support for SMEs scaling up, business could soar.
Standing on the shoulders of giants and picking their pockets
A company building success on the back of another’s pain and effort is a story often told in business. For telecoms operator China Mobile (CHL.NYSE, 0941.HKG) this is a particularly galling experience. First it has seen tech firms such as Tencent Holdings (2299.HKG) accrue spectacular success with mobile chat apps whiles its own SMS earnings plummet. Now e-commerce giants are taking full advantage of its costly rollout of a 4G mobile network that it this week said would become the world’s largest by year-end. Vipshop Holdings (VIPS.NYSE) can’t wait for customers to get more high speed internet access. The operator of China’s largest flash sale website will see increased smartphone penetration drive new user growth and higher purchase frequency, Barclays Research said in a note this week. Smartphones fit the flash sale model very well, as customers have to make quick purchase decisions in order to secure the best price for goods ranging from apparel to cosmetics and handbags. iResearch forecasts the Chinese flash sales industry to grow from RMB37.8 billion (US$6 billion) in 2013 to RMB153 billion by 2016. The company has captured mobile growth by reportedly creating an independent mobile unit that talks directly to a founding partner. Barclays analysts also see huge potential in improving Vipshop’s low-user penetration to levels that better reflect China’s e-shopper base. As far as bets go, Vipshop is a three-headed horse combining mobile, e-commerce and consumer.
Several Hong Kong listings coming up next week. Dynagreen Environmental Protection (1330.HKG), a mainland waste treatment and power generation company, launched its flotation this week seeking to raise HK$1.1 billion. Ozner Water International (2014.HKG), a Chinese provider of purifiers, surprised the market by pricing its deal at the top end of the indicative range, the first such success on the Hong Kong bourse since February. Hanhua Financial (3903.HKG), an integrated, credit-based guarantee and small and medium enterprises financing solutions provider in China, is also up. Also in the news this week as an announcement by the mainland securities regulator that it would allow 10 firms to IPO in the second half of 2014.