Did China really use its political clout to delay a mining megamerger that could fix global commodity prices? Yes, but for its own interests. Beijing’s condition for allowing the merger that formed Glencore Xstrata (GLEN.LON, 0805.HKG) was the sale of Peru’s La Bambas mine to a Chinese consortium made up of state investment and mining companies. The acrid scent of state and business interests rubbing uncomfortably together is all too common in China. The consortium led by MMG (1208.HKG), a unit of state-owned China Minmetals, concluded a US$6 billion bid for the mine this week. It got a great deal. Although MMG paid a premium for the copper mine, which is still under construction, the consortium’s purchase of the mine interest was a “rare opportunity” and a long-term play, Helen Lau, a senior analyst at UOB Kay Hian, said on the phone from Hong Kong. She said the deal made sense at several levels. The mine has “a lot of upside in exploration” and its multi-billion dollar valuation was only based on published resources, so any highly probable discovery of additional copper reserves within the mine’s area would be MMG’s to keep. And as an open pit mine it would cost little to extract the mine’s vast copper resources. In the event of rising or unstable copper prices, low-cost mines like La Bambas would be the ones to ride through turbulence in commodity markets, helping to entrench MMG as a global player in the copper industry while others founder.
Haidian’s affordable Swiss watch
If you ask a foreign business leader what China could import from Switzerland, top of their wish list would be conformity to rules and better corporate governance of both private and state-owned firms. That’s a tall order. But the Chinese have a penchant for another strong Swiss cultural element – luxury watches. China Haidian (0256.HKG), a rapidly expanding Chinese watch producer and distributor, has been acquiring ailing Swiss watchmakers and production facilities at a bargain. With its strong distribution networks across China, Haidian plans to leverage the distinguished history of these luxury watchmakers to the Chinese watch market, where domestic players only play a small, albeit growing, role. One of the more recent purchases by Haidian has been the Dreyfuss Group which owns Rotary watches. The purchase will appear puzzling to investors when seen amid the backdrop of China’s luxury crackdown, which has slowed sales of watches and other luxury goods. But Kepler Cheuvruex analyst Jon Cox said on the phone from Hong Kong that the pick-up in watch sales from private buyers is offsetting the fall in purchases by officials and their sponsors. The market may now be moving to the mid-tier. The relatively low price of Rotary watches, which range from RMB 2,100-3,500 a piece, makes Haidian perfectly placed to tap into China’s growing middle income market, according to Vontobel analyst Rene Weber. Cox agreed, saying that the “low-mid tier is definitely growing faster than the high tier” at average at 15-20% year-on-year.
Strong sales make Brilliance recall look like a tiny speed bump
Things have been anything but smooth for Brilliance China Automotive Holding (1114.HKG) during the past month. In early April, BMW (BMW.ETR), which partners with Brilliance on the mainland, recalled 232,000 vehicles due to loose bolts in some engine control systems. Brilliance had made more than 93,000 of those cars. However, other than a small dip in its share price at the time, the Chinese firm has performed well in April; BWM’s share price took the brunt of the impact, although its price has also recovered. Brilliance might be able to put the loose bolts behind it. This week, the company reported that first-quarter wholesale shipments for the BMW Brilliance joint venture rose 40%. Things might even get better. In a note to investors, UOB Kay Hian said that the company’s earnings momentum could increase further in 2014 “given the ramp-up of production of new capacity and economies of scale arising from steady R&D expenses.” UOB says buy. That could be good advice as long as Brilliance doesn’t hit another recall speed bump.
Sina Corporation’s (SINA.NASDAQ) once red-hot but still very popular Weibo (WB.NASDAQ) microblogging service debuted in the US on Thursday, rising 19% by the close. The firm priced below initial expectations amid a fall in technology stocks in recent weeks. Looking forward, fabrics producer Wing Tai Holdings (1400.HKG) lists next Friday, April 25, and is looking to raise up to US$26 million. UOB Kay Hian notes that the company is heavily automated which makes it cost-effective but that it has incurred continuous net current liabilities for the three years to 2013.