When searching out a bite to eat in a massive metroplex like Shanghai, Dianping, a restaurant-rating application, might guide you past the multitude of highly mediocre stalls on any given street and toward a tiny noodle shop that’s hidden down the darkest alley yet filled to the doorway with salivating customers. Tencent Holdings (0700.HKG) said on Wednesday that it wants 20% of Dianping, which also functions as a group-purchasing store, and that it’s willing to pay up to US$500 million for it. True, the deal is no What’sApp buyout, which is set to cost Facebook (FB.NASDAQ) US$19 billion. Still, Dianping and its 100 million active users is a major addition to Tencent’s increasingly large family, which includes messenger apps WeChat, QQ and hundreds of millions of users globally. But will the restaurant-rater help the internet giant make some money? Some analysts say yes. “Because the investment in Dianping enhances Tencent’s product offerings and reinforces the user stickiness of its platforms, it is a positive step towards Tencent’s further monetization of its online applications,” Moody’s Investors Services said in a note on Thursday. The group-purchasing function gets users to spend money online, something that will eventually bring digital cash in the company’s direction. Investors should take note of Tencent’s growing reach into users’ smartphones and into their wallets.
Pump, pump pump it up
Oil, cars and state-owned enterprise reform make for an appetizing prospect on China. The effects of such a combination were clearly seen week when investors piled into one of the biggest oil and gasoline firms. China Petroleum & Chemical Corp (Sinopec; NYSE.SNP, 0386.HKG, 600028.SHA) on Wednesday said that it would allow up to 30% private ownership in its lucrative oil marketing division. That drove its share price up 9.4% in Hong Kong and by the 10% daily limit in Shanghai as analysts were quick to herald the move as the first major step in making a state-owned giant more market oriented. But by lunchtime Friday both sets of shares were trading down on the day. Perhaps the sudden volatility was a realization that investing in state-enterprise reform is a risky play as nothing is ever assured. So how to play Sinopec? Analyst consensus, according to Bloomberg, is to buy. Of all the reasons being given to buy, the firm’s roughly 60% share of the Chinese gas failing station market looks solid. According to Sinopec, the fuel stations are now worth RMB40 million-RMB50 million each, a 1000% surge in a decade. On top of that it wants to bring in outside management skills to improve the profitability of the stores. “Sinopec has over 30,000 fuel stations, which are well-located in the affluent southern part of China. We expect huge revaluation gains…,” UOB Kay Hian analyst Helen Lau said in a note.
MGM China isn’t playing games
By most accounts, the MGM Cotai will be a game-changer when it opens in mid-2016 in a 5-square-kilometer eponymous district that Macau has reclaimed from the sea. The new casino will expand the company’s hotel numbers and gaming tables in the city several times over. But in the Asian gaming business, that grand opening is still a long way off. And Cotai is an expensive build out. Fortunately, MGM China Holdings (2282.HKG) looks like it will have no problem coming up with the capital in the meantime. This week, the company reported a 27% jump in revenue year-on-year, beating out most analyst expectations. The China arm of the international gaming and hotel brand is actually providing buoyancy for what could otherwise be slowing total revenue growth. Barclays Research expects MGM China to keep growing through the launch of Cotai. The bank said the company’s earnings before interest, tax, depreciation and amortization (EBITDA) will grow by 15% between 2013 and 2016. The stock is cheap today, and Barclays recommends adding more of it to portfolios before the price rises.
IPO watch
The breaking news this week for Chinese listings is Harbin Bank’s plans for a US$1 billion float in Hong Kong in April. The listing hasn’t been confirmed yet, but given the number of mainland banks that have targeted Hong Kong as a listing destination in the past six months, the news isn’t surprising. China Everbright Bank (6818.HKG, 601818. SHA) was the largest of several banks to sell shares in Hong Kong last year. Despite the bank noise, next week will be quiet in Hong Kong, with just one Cayman Islands-incorporated firm, Huisheng International Holdings, set to list on Friday.