Category: Finance & Economics

By Clement Tan and Jill Mao

May 26 (Bloomberg) — Two decades ago, the Wang brothers sold flavored milk and yogurt to children in China. Last week, they sold shares in their airline in an IPO to become millionaires.

Their journey from a poor fishing village to the largest shareholders of budget carrier Juneyao Airlines Co., which begins trading in Shanghai this week, is a success story that mirrors China’s growth. The company is benefiting from a government plan to encourage entrepreneurship in an air-travel market that’s set to become the world’s largest over the next two decades and is currently dominated by state-owned airlines.

At its offer price, Juneyao Air will be valued at 6.35 billion yuan ($1 billion). That’s about a tenth of the market value of Spring Airlines Co., whose stock has surged over 600 percent since a January listing. Every one of the 147 mainland initial public offerings that began trading over the past year has jumped the maximum 44 percent on its first day of trading.

“Certainly, Spring Air’s crazy surge, which outperformed even the broader bull market, would be on the minds of many people,” said Zhang Qi, a Shanghai-based analyst with Haitong Securities Co. “With oil prices at low levels, airlines that are more efficiently run would make an attractive investment proposition.”

Juneyao Air, whose Chinese name means lucky, is selling 68 million shares at 11.18 yuan apiece, raising 760 million yuan from the offering. The stock begins trading May 27.

Continue reading “How to Become an Airline Millionaire, Chinese Style”

By Clement Tan

Dec. 18 (Bloomberg) — China, poised to become the world’s biggest buyer of new planes, also wants to build a graveyard for old aircraft.

China Aircraft Leasing Group Holdings Ltd. is investing $2 billion to build the country’s largest plane disassembly plant in Harbin — known as China’s “Ice City” — some 750 miles northeast of Beijing. The facility starts operation in 2017 and aims to tear apart 50 jets annually after five years, Chief Executive Officer Mike Poon said at a press conference in Hong Kong today.

“The headlines for aircraft in Asia are about new deliveries, but there will be significant retirement of old aircraft,” said Will Horton, a Hong Kong-based analyst at the CAPA Centre for Aviation. “You need a robust system to catalog the parts to sell them in foreign markets.”

China’s foray into the field comes as Boeing Co., the world’s largest plane maker, also is exploring ways to wring money from the end of a jetliner’s life. With the value of parts potentially outweighing an old jet’s resale price, the $3.2 billion a year market for used aircraft parts is growing as companies discard planes well before the end of their 30-year life cycles.

The scrap-aircraft industry is concentrated mainly in the U.S., a mix of closely held operators such as Aircraft Demolition LLC — which works out of Arizona’s Pinal Airpark, known for its open-air storage — and publicly traded companies like AAR Corp.

Continue reading “Graveyard for Jets Coming in China’s Icy City as Orders Boom”

By Alex Webb and Clement Tan

Oct. 29 (Bloomberg) — China’s plan to merge its two biggest trainmakers may allow the country to win more overseas orders with improved and cheaper offerings, increasing pressure on rivals including Siemens AG, Alstom SA and Bombardier Inc.

China’s State Council has ordered the merger of China Northern Locomotive & Rolling Stock Industry Group Corp. and southern counterpart CSR Group into one company, government officials involved in the transaction said yesterday. The pair are already the world’s No. 1 and No. 2 in rail equipment, each getting more than 90 percent of their sales from China.

“This would create a very strong global competitor,” said Ingo-Martin Schachel, a Frankfurt-based Commerzbank AG analyst who rates Siemens shares hold. “It would heighten the need for consolidation among the western manufacturers.”

The increased competition from China comes at a time when manufacturers such as Germany’s Siemens and France’s Alstom are facing constrained public spending in their home markets. China is competing aggressively for overseas rail projects, targeting emerging markets such as Africa, Eastern Europe, Latin America and Southeast Asia. Premier Li Keqiang has touted the country’s rail equipment, engineering and construction companies during overseas trips, signing several deals along the way.

Continue reading “China Merging Trainmakers Adds to Pressure on Siemens”

By Clement Tan

June 20 (Bloomberg) — China rejected a global shipping alliance to protect companies navigating a choppy market. The decision will probably hurt cargo firms’ earnings, including its own.

The Commerce Ministry’s June 17 announcement spiking a deal between the world’s top three container carriers — known as the P3 and led by Copenhagen-based A.P. Moeller-Maersk A/S (MAERSKB) — may undermine recovery in an industry still reeling from the 2008 financial crisis. Overcapacity and low charter rates are likely to stay, jeopardizing earnings, including at China Cosco Holdings Co. (1919) and China Shipping Container Lines Co. (2866), the country’s two biggest.

China’s move “is a hollow victory for Asian liners,” said Paul Dewberry, an analyst at Bank of America Corp.’s Merrill Lynch, in a June 17 note. “This commoditized, fragmented and loss-making industry is in need of P3-type development to force consolidation. The resulting abandonment of P3 by its members will ultimately only prolong the current industry slump.”

Maersk, Mediterranean Shipping Co. and CMA CGM SA agreed last June to establish an operational pact with the aim of reducing costs on Asia-Europe, trans-Atlantic and trans-Pacific routes. Container lines have been battling industry overcapacity after a boom in ship orders collided with the global financial crisis, triggering the worst slump in prices for the carriage of cargo since containerization became global in the 1970s.
Continue reading “China Scuttling P3 Pact Seen to Prolong Shipping Slump”

By Clement Tan

HONG KONG, Nov 28 (Reuters) – Investors looking to exploit the widest gap in three years between the performance of mainland and offshore Chinese stocks could well get their fingers burnt.

H-shares, or Chinese stocks listed in Hong Kong, are trading at their biggest premium to mainland-listed A-shares since October 2010, as offshore investors cheer Beijing’s bold economic reform plan unveiled this month.

The H-share benchmark index surged 7 percent last week alone, its biggest weekly gain in nearly two years, outperforming a 2 percent rise for the CSI300 index of leading A-share listings during the same period.

Qualified foreign investors may see the gap as an opportunity to switch into the A-shares of dual-listed Chinese companies whose H-shares have outperformed. This strategy could backfire, however, as the contrasting liquidity situations in the two markets suggest the gulf could remain for some time.

“Theoretically, you could go long A-shares and short the H-share market, but I wouldn’t be in any hurry to do that now,” said Hong Hao, chief equities strategist at Bank of Communications International.

“With liquidity so tight in the mainland and improving in Hong Kong as global funds start to allocate more money to offshore equities, you are going to end up getting squeezed on both sides,” Hong said.

Continue reading “Wide gap for China mainland, offshore stocks may be hard to bridge”

By Clement Tan

HONG KONG, Oct 9 (Reuters) – When it comes to mainland Chinese stocks this year, small is hot.

Up nearly 80 percent in 2013, Shenzhen-listed penny stocks have outperformed a moribund broader market in a big way. But fears are growing that the market is looking ripe for a correction.

Retail investors chasing outsized returns have aggressively pushed small-cap stocks higher, which is much harder to do on large-cap stocks. There are signs that institutional investors are also in the game, prodding penny stocks to record highs.

However, concerns are growing that stock valuations have gone too far ahead of earnings. Investors would also be disappointed if their high expectations of major economic reforms are not met when the ruling Communist Party holds its key policy meeting in November.

The Nasdaq-styled ChiNext Composite Index of mainly high growth, high tech counters listed in Shenzhen and only came into being in 2010, is now trading at 55 times its price-to-earnings (PE) ratio.

This is almost four times the 14.8 times PE ratio that the CSI300 of the biggest Shanghai and Shenzhen A-share listings, which is down about 3 percent on the year. Mid-cap counters have also similarly outperformed.

“It’s definitely a bubble for some of these small-caps, but not true for all of them,” Heather Hsu, CLSA-Fortune Securities A-share strategist, told an investment conference in Hong Kong late last month.

Continue reading “Bubble trouble brewing for shiny China penny stocks”