China Stock Roundup: Yingli Solar Loss Narrows, Shanda Games Profit Dips - Analyst Blog

Stocks had a disappointing week after concerns over new share sales and the property market returned to haunt investors. The benchmark index had shot up to a two month high following the central bank's decision to widen the number of lenders eligible for lower reserve requirements. However, an unexpected decline in foreign direct investment pushed stocks lower on Tuesday. Old fears over IPOs and the property markets resulted in losses on Wednesday as well. The Shanghai Composite experienced its biggest loss in nearly two months today as these fears spilled over onto a second consecutive trading day. Losses for Yingli Green Energy Holding Company Limited YGE narrowed in the first quarter. On the other hand, Shanda Games Limited GAME experienced a reduction in profit.

Last Week's Developments

The benchmark index rose to its highest level in six weeks on Friday. Investor sentiment improved after new bank lending exceeded analyst expectations and growth in industrial production gained strength. Financial and consumer companies gained while energy stocks moved upward, buoyed by a spike in oil prices. The Shanghai Composite Index increased 0.9% to reach its highest level since April 22. The CSI 300 increased 1.1% while the Hang Seng China Enterprises Index moved up 0.8%. However, the Bloomberg China-US Equity Index lost less than 0.1%.

The Shanghai Composite Index increased 2% over the week, the largest weekly gain in two months. The CSI 300 also gained around 2%. The Hang Seng China Enterprises Index moved up 1.7%, marking its fifth successive week of gains. This is the longest series of gains for the index since early 2012.

The increase comes on the back of a reduction in the reserve requirement ratio for certain lenders by the central bank. Lending data for May showed that the amount of new bank loans exceeded expectations. Economic data indicating that the economy had gained strength and expectations about further monetary easing also contributed to investor confidence.

Markets and the Economy This Week

The benchmark index rose to a two-month high, riding on the central bank's decision to increase the number of lenders who qualify for reduction in reserve-requirement ratios. Key banks gained after they stated that they had received permission from the central bank to reduce reserves. Crucial energy stocks moved upward after President Xi Jinping was quoted saying that China should focus on energy conservation and increase alternative energy production. Both the Shanghai Composite Index and the CSI 300 closed 0.7% higher. The Hang China Enterprises Index increased 0.1%.

The Shanghai Composite Index lost 0.9% on Tuesday, its largest decline in nearly a month. An unexpected fall in foreign direct investment resulted in a bad day for stocks. The immediate impact was felt most by financial shares. FDI declined 6.7% in May compared with year-ago figures. This was the largest decline since January last year. It was a dramatic turn of events for the benchmark index which had gained the most in two months the day before, buoyed by a reduction in reserve requirements. The CSI declined 1% while the Hang Seng China Enterprises Index fell 0.5%. The Bloomberg China-US Equity Index gained 0.5%.

Stocks declined for a second successive day on Wednesday, with consumer discretionary stocks losing the most. Concerns over a slump in the property market and IPOs diverting funds from older stocks returned to haunt markets. A decline in housing prices in May, the first such fall in two years triggered property market fears.  The Shanghai Composite Index declined 0.5% and the CSI 300 closed 0.4% lower. The Hang China Enterprises Index declined 0.2%.

The benchmark index experienced its biggest loss in seven weeks today. Fears about new share sales luring funds away from existing stocks and a property market slump continued to haunt markets. A minimum of four companies are slated to launch IPOs this week, following a four-month suspension in new share sales. The sub index of technology companies declined the most among 10 industry groups. Property stocks also moved downward. The Shanghai Composite Index closed 1.6% lower, marking its largest decline in nearly two months. The CSI 300 lost 1.5% while the Hang China Enterprises Index declined 0.9%. This was its largest decline since May 7.

Stocks in the News

Yingli Green Energy Holding Company Limited or Yingli Solar's shares jumped more than 12% on Tuesday – the most in over five months – after the world's largest vertically integrated photovoltaic manufacturer reported a narrower first quarter loss on improved gross margins.

The company reported first quarter 2014 adjusted loss of 35 cents per American Depositary Share ADS, wider than the Zacks Consensus Estimate of a loss of 25 cents. Although the company reported a wider-than-expected loss, it narrowed substantially from a loss of 62 cents per share in the year-ago quarter. Loss in the reported quarter was again narrower than the loss of 31 cents incurred in the fourth quarter of 2013.

Yingli Solar's revenues in the reported quarter were $432.2 million, lagging the Zacks Consensus Estimate of $463.0 million by 6.7%. Revenues increased 0.2% year on year, but dropped 29.5% from the prior quarter.

Gross profit was $67.8 million or 15.7% of total revenue, as against $17.8 million or 4.1% in the year-earlier period and $74.6 million or 12.2% of total revenue in the fourth quarter of 2013.

Cost control initiatives along with increased sales in the higher-priced markets like Japan boosted the gross profit margin. In Japan, shipments increased 30% from the previous quarter.

Shanda Games Limited experienced a drop in first quarter profit, primarily due to about 10% fall in revenues and lower operating margin. First quarter net income came in at RMB 305.7 million or $49.7 million, lower than RMB 367.6 million recorded in the same quarter last year. Earnings per ADS declined to RMB 1.12 or $0.18 from RMB 1.36 recorded a year ago.

Earnings per diluted ADS came in at RMB1.24 or $0.20 as against RMB1.48 in the same quarter last year and RMB1.34 in the fourth quarter of 2013.

Revenues for the first quarter declined 9.6% from RMB 1.1 billion recorded last year to RMB 992 million or $161 million. Mobile games revenue plunged 38.4%, while revenue from massively multi-player online (MMO) games declined 5.7% from year ago figures.

Another major reason for poor results was the decline in operating margin. This crucial metric slumped to 36.9% from 41.3% recorded last year.

CNOOC Limited CEO has entered into a global strategic alliance contract with integrated energy behemoth Royal Dutch Shell plc (RDS.A)

Per the agreement, both companies will share their resources for the development of potential upstream, midstream and downstream projects. Included in the deal, Shell will work together with CNOOC for exploring profitable projects all over the world with an aim to bring sufficient cleaner energy – energy from renewable resources, without polluting the environment − to China. Shell will also join the Chinese oil giant to explore liquefied natural gas LNG projects and deep-water upstream developments in places like Gabon and Brazil.

Trina Solar Limited TSL will supply 23 MW of photovoltaic (“PV”) modules to Linuo Solar Power Co., Ltd.'s distributed generation ("DG") solar project located in China's Shandong province.

Per the agreement, Trina Solar will supply 92,000 Trina Solar TSM-250PC05A modules for the project and the shipment is expected to be completed by Jun 2014. The modules selected for the project have the ability to produce energy during low light and other challenging conditions. The maximum efficiency of these modules is 15.9%.

This solar plant will generate 2990 Kilowatt hours (kWH) of electricity annually and lower the emission of 28,674 tons of CO2 gas.

Performance of Most Actively Traded US-listed Chinese Stocks

The table given below shows the price movements of 10 Chinese companies with the highest three-month average trading volume on U.S. exchanges. Price movements over the last five days and during the last six months have been included.

Ticker	Last 5 Day's Performance	6 month performance
YGE	+33.79%	-24.47%
SFUN	-3.65%	-38.17%
JD	-9.86%	NA
TSL	+13.27%	-7.07%
JASO	+16.22%	+22.08%
YOKU	-1.16%	-27.04%
SOL	+18.15%	-8.44%
NQ	-1.42%	-35.64%
YY	+7.80%	+52.29%
QIHU	+3.14%	+17.97%

Next Week's Outlook:

Markets had started the week on a high following a reduction in reserve ratio requirements for more lenders, which seemed to overpower lingering fears over the health of the economy. A decline in FDI triggered off a series of losses over the rest of the week. Ultimately, old fears over IPOs and the property sector returned to haunt markets for the rest of the week.

These developments indicate how sensitive the market is to any data which is a barometer of economic growth. This is why the economic reports scheduled for release next week are of great significance. These are the HSBC Manufacturing Flash PMI as well as official PMI numbers. Given the precarious nature of investor sentiment, these reports could well determine market direction going forward.

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