China Stock Roundup: PetroChina, CNOOC Results Disappoint - Analyst Blog

The benchmark index rebounded on Wednesday boosted by better-than-expected official manufacturing data. The Shanghai Composite closed at its highest level in seven years on Thursday after tech shares negated losses made by financial stocks.

PetroChina Co. Ltd. PTR announced 2014 earnings of RMB 107.2 billion or RMB 0.59 per diluted share, compared with RMB 129.6 billion or RMB 0.71 per diluted share a year earlier. CNOOC Ltd. CEO reported 2014 total revenue of 218.21 billion yuan (US$35.48 billion), down 3.6% from the year-earlier level.

Last Week’s Developments

Last Friday, the Shanghai Composite advanced 0.2%, negating a loss of 0.7% by the end of the day’s trading. Industrials surged after the government indicated it will speed up foreign infrastructure projects to cut overcapacity. President Xi Jinping said that the country will partner with Indonesia on a high speed rail project and increase aerospace and maritime industry-level cooperation.

The CSI 300 increased 0.6%. A gauge of industrial stocks gained 0.7%, adding 7.1% on a weekly basis. Meanwhile, the Shanghai property index surged 3%, emerging as the highest gainer among the five industry groups. The Hang Seng ended nearly flat while the Hang Seng China Enterprises Index declined 0.2%.

The benchmark index advanced 0.2% over the week. According to NBS data, profit of industrial companies declined 4.2% over the first two months of 2015. This added to fears that overcapacity will increase during the slowdown. Experts opined that the market believes the economy was already at its lowest point. This is why sentiment continued to remain upbeat.

Markets and the Economy This Week

Comments from the central bank governor boosted stocks on Monday. People’s Bank of China governor Zhou Xiaochuan said the country’s economy’s growth had declined “a bit too sharply.” He added that there was “more room” for China to ease its monetary policy provided China’s economic growth slows further and inflation continues to weaken. The Shanghai Composite gained 2.6% to close at its highest point since March 2008.

The CSI surged 2.9% while the H-share index jumped 3.4%, its largest increase since Dec 29. The Hang Seng gained 1.5%. The Shanghai property index surged 7.3% following speculation that the PBOC would ease real estate norms at its briefing. After the market closed, the PBOC, the housing ministry and the banking regulator in a joint statement said minimum down payment for buyers of second homes would be lowered to 40%. A sub-index of financial stocks within the CSI 300 increased 4%.

The Shanghai Composite Index declined 1% on Tuesday, losing gains of 1.3% and reducing its quarterly gains to 16%. The benchmark index’s RSI surged to 81% on the day. This is the highest among all equity markets across the world. The fall from the highest level in seven years was caused by fears that recent gains have been excessive and have taken place within too short a period.

The CSI 300 lost 0.9%. The Hang Seng gained 0.2% while the H-share index increased 0.3%. From Monday, overseas investors sold Chinese shares worth nearly $274 million using the Shanghai-Hong Kong exchange link. The Shanghai property index slumped 2.7%, the highest loser among the industry index.

Sub-indices of energy and industrial stocks within the CSI 300 lost 2.2% and 1.9%. These were the highest losing stocks within the 10 industry groups. However, the sub-index for tech stocks surged 57% over the quarter, the highest among the industry groups. These companies were aided a government announcement in March where it said steps would be taken to assist the sector.

Stocks rebounded on Wednesday boosted by better-than-expected official manufacturing data. Official PMI increased from 49.9 in February to 50.1 in March, higher than the estimated 49.7. HSBC Markit data on the sector also exceeded forecasts. These numbers indicate that the government’s stimulus measures have had their desired impact on the manufacturing sector. The Shanghai Composite Index gained 1.7%.

The CSI 300 increased 1.8%. The Hang Seng gained 0.7% while the Hang Seng China Enterprises Index moved up 1.6%. Sub-indices of consumer discretionary, technology and telecom stocks emerged as the highest gainers for the CSI 300. Each of these gauges increased 2.3% or more.

The Shanghai Composite advanced 0.4% to close at its highest level since Mar 2008 on Thursday. Tech shares negated losses made by financial stocks. A gauge of tech companies gained 2%, taking its year-to-date increase to 65%. Earlier this year, Premier Li Keqiang had promised to reduce the economy’s dependence on heavy manufacturing and the property sector.

The CSI 300 increased around 0.1%. The Hang Seng gained 0.8% while the H-share index advanced 1% to close at its highest point since Jul 2011. However, the benchmark index’s RSI remained higher than 70 for the 13th successive day, indicating a decline was in the offing. Meanwhile, the Shanghai property index slumped 1.1%.

Stocks in the News

PetroChina announced 2014 earnings of RMB 107.2 billion or RMB 0.59 per diluted share, compared with RMB 129.6 billion or RMB 0.71 per diluted share a year earlier. Earnings per ADR came in at $9.62 (exchange rate: US$1.00 = RMB 6.13, 1 ADR = 100 shares), lower than the Zacks Consensus Estimate of $9.71. The negative comparisons can be primarily attributable to the sharp drop in oil prices.

However, China’s dominant oil and gas producer’s total revenue for the year edged up 1.1% from 2013 to RMB 2,283 billion, driven by higher output. Importantly, PetroChina has decided to peg its 2015 capital budget at RMB 266 billion, down 8.8% from what it invested in 2014 as it focuses on controlling costs amid plummeting crude realizations.

CNOOC reported 2014 total revenue of 218.21 billion yuan (US$35.48 billion), down 3.6% from the year-earlier level. For 2014, the company reported net profit of 60.20 billion yuan (US$9.79 billion), up 6.6% year over year. The company reported basic earnings per share of 1.35 yuan (US$0.22).

For 2014, CNOOC’s net production was 432.5 million barrels of oil equivalent (MMBoe), up 5.1% from the year-ago level. The company’s annual production was in line with the production target set at the beginning of the year.

The company’s average realized oil price decreased 8.2% year over year to $96.04 per barrel. Realized gas price, however, surged 11.4% to $6.44 per thousand cubic feet (Mcf) from the year-ago level.

Alibaba Group Holding Ltd. BABA has signed a digital distribution deal with Germany-based music company BMG. The deal will give Alibaba rights to more than 2.5 million copyrights to recordings from artists like Kylie Minogue, Bruno Mars, Black Sabbath, the Rolling Stones and John Legend.

The deal between BMG and Alibaba follows a similar distribution agreement that its major competitor, Tencent Holdings, struck with Sony Music Entertainment last December, and a month earlier, Tencent signed the same deal with Warner Music Group.

Trina Solar Ltd. TSL has sold its 49.99 MW U.K. solar plant to Bluefield Solar Income Fund Limited for around $87.7 million. The British investment company has acquired the facility by offering a bridge loan. According to Trina CEO Jifan Gao, the sale is in “full alignment” with the company’s “strategy in overseas markets to build and sell power generation assets.”

Located in Norfolk, the plant utilizes 196,627 modules produced by Trina Solar. The facility is England’s largest standalone solar farm. Construction of the plant started in 3Q14 and was completed in 1Q15. The plant is eligible to qualify for 1.4 Renewables Obligation Certificates (ROCs) per megawatt-hour (MWh). It can provide power to 14,000 homes in Britain per year.

China Telecom Corp. Ltd. CHA has entered into an agreement with Alcatel-Lucent ALU to expand its LTE services. The French company will deploy mobile ultra-broadband access technology to help China’s third largest carrier expand FDD-LTE services to 40 more cities in 12 provinces.

JD.com, Inc. JD launched a crowdfunding platform which will enable startups to secure capital for their projects. Venture companies which are partnering for the platform include ZhenFund, Capital Today and Sequoia Capital. JD Equity Crowdfunding will help businesses find investors at the initial stages.

Per the fund’s model, each project will be headed by an investment manager. This individual will have venture capital or similar experience and will work with that particular company. A small equity stake will be held in each of the projects, which are able to secure funds via the platform.

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

BABA

-3.4%

-4.3%

VIPS

+3.2%

+59.8%

SFUN

+7.3%

-37.6%

JD

+0.4%

+16.8%

BIDU

-0.8%

-0.5%

TSL

+1.8%

+9.5%

CTRP

+2.1%

+5.1%

WBAI

-5.8%

-67.5%

YGE

-21.3%

-39.3%

YOKU

-7.9%

-28.1%

Next Week’s Outlook:

Stocks gained during another week of volatile trading, boosted by comments from the central bank governor and official data. Better-than-expected manufacturing data indicated that the government’s stimulus measures were having their desired effects. Additionally, the PBOC governor indicated that further stimulus measures were on the anvil.

However, losses on Tuesday and RSI data indicate that a larger selloff may be in the offing. At the same time, the government continues to implement reform measures, which is a particularly encouraging sign. For instance, an insurance system for bank deposits will commence on May 1. This will remove all existing restrictions on interest rates since it implies that lenders will be allowed to fail.

No major economic reports are slated for release til Apr 9, except for HSBC services PMI. This means that market movement will be sentiment driven. Any announcements from the government, central bank or other official agencies will be of great assistance to the markets in the days ahead.

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