Chinese Web Firms That Lack Suitors Appear Undervalued
Several Chinese Internet stocks have taken off in recent weeks following news that online-gaming giant Shanda Interactive Entertainment could make a play for Chinese Web portal Sina.
Now, some investors reckon other companies, including portals Netease.com and Sohu.com, could be takeover targets as well.
But don't bet on it. While some analysts tout Netease's prospects, others say the best buys in the Chinese Internet business right now might be Web outfits that don't figure into takeover talk and whose shares haven't gotten a lift lately -- including smaller companies that provide entertainment and other services to mobile-phone users.
Among such companies are Beijing-based Tom Online, backed by Hong Kong tycoon Li Ka-shing, and Linktone, headquartered in Shanghai and run by Silicon Valley-trained entrepreneur Raymond Yang.
The wireless-Internet sector in China has been extremely risky, and some big investors still won't touch it. The main damper has been a continued regulatory crackdown by the Chinese government, which has been trying for nearly a year to stamp unethical marketing and billing practices in the industry.
One bad practice, for example, involves making it difficult for users to halt subscriptions to certain mobile services, such as special "ring tones," or even horoscopes delivered to wireless phones. (Some people unwittingly signed up for the services after receiving "spam" e-mail on their phones, and then had no idea how to cancel them.) The government crackdown has dented profits at several mobile-content companies.
But much of the cleanup is now done, and China's wireless market remains huge, with more than 330 million subscribers. While the market has been volatile for some of the stocks, "things will stabilize," predicts William Bao Bean, an analyst with Deutsche Bank in Hong Kong. "The underlying point is that demand for these services is still quite strong."
Indeed, Tom Online, a company that derives about 92% of its revenue from wireless services, earlier this month reported a 73% profit increase for 2004, despite the regulatory clampdown. Linktone recently said profit for the quarter ended Dec. 31 more than doubled from a year earlier.
In a research note in February, analysts Safa Rashtchy and Aaron M. Kessler of U.S. investment bank Piper Jaffray called Tom Online "one of the most undervalued stocks in our China universe." At the time, the stock was trading at about 14 times calendar year 2005 earnings, compared with 45 times 2005 earnings for Shanda and 20 times for Sohu. China's wireless sector remains "a major opportunity," the analysts wrote.
Since mid-February -- when Shanda unexpectedly said it had taken a 19.5% stake in Sina and might try to take a controlling interest in the company -- shares of both Linktone and Tom Online have stayed roughly flat.
Meanwhile, shares of Netease.com, which is a Web portal like Sina, have surged 15% and Sohu.com's stock price has climbed nearly 14% -- driven higher partly by investor speculation that the companies could be takeover targets.
Still, many analysts are taking a wait-and-see attitude on Sohu.com's prospects. Since early 2004, the company has lost some top executives including its chief financial officer and Victor Koo, its president and chief operating officer. In November, Sohu.com said that Mr. Koo would leave his post by the end of this month, although he will stay on temporarily as a consultant. A company spokeswoman says Sohu.com has managed "smooth transitions" through the departures and has capable and experienced managers at lower levels.
But Sohu.com, the No. 2 portal player behind Sina, also has struggled to build top-notch search and online-games businesses, says Duncan Clark, a partner with consulting firm BDA China Ltd. in Beijing. The company needs to rebuild its management ranks and refocus is strategy -- or else "look at a partnership or be sold," he says.
Mr. Clark and some investors don't think Sohu.com's founder and chairman, Charles Zhang, will ever sell out. Mr. Zhang still owns 25% of the company and Sohu.com has had a "poison pill" takeover-defense plan in place for years. "I'm not sure they're going to be taken over," says Jerry Zhang, an analyst with Evergreen Investments in Boston who is no relation to the Sohu.com chairman. Indeed, in an interview, Charles Zhang said he, "the management, and the board are very unified to...remain independent." Netease.com, too, is still controlled by its founder, board member William Ding.
Analysts say founder control means a suitor isn't likely to snap up Netease.com anytime soon, either. But unlike Sohu.com, Netease is excelling in the hot area of creating online games and could be a good buy all by itself. In 2005, revenue from games could provide 80% of company sales, according to Piper Jaffray.
J.P.Morgan has an "overweight" rating on Netease.com while Piper Jaffray rates it "outperform" with a US$63 price target. Last Thursday, in their latest trading, Netease.com's American depositary receipts closed at $45.50.
Some analysts say smaller Chinese Internet players shouldn't be overlooked, either. Tom Online, with backing from companies controlled by Hong Kong tycoon Mr. Li, could turn into an acquirer and build itself into a bigger, more diverse Internet player. It recently bought 80% of Indian mobile-gaming company Indiagames Ltd.
Linktone, while it remains relatively small, saw its sales triple during 2004 to reach $50 million The company is also moving into new types of wireless businesses that haven't been targeted as much by regulators from the Chinese government.
Indeed, despite changes in the regulatory environment, wireless content remains "a profitable, sustainable business model" in phone-happy China, says Wang Lei Lei, Tom Online's CEO.
中国网络股似乎被低估
受网络游戏巨头盛大互动娱乐有限公司(Shanda Interactive Entertainment Ltd., SNDA)可能控股中国门户网站新浪网(Sina)的消息推动，一些中国互联网公司的股票最近几周出现上扬趋势。
如今，一些投资者猜测，包括门户网站网易(Netease.com)、搜狐(Sohu.com)在内的其他公司也有可能成为收购对象。
但是，别对此抱有期望。虽然部分分析师对网易的前景大加称赞，但其他分析师表示，眼下中国互联网业的最佳收购对象或许是那些没有卷入收购谈判、股价近来也未获提升的网络设备公司──包括向手机用户提供娱乐及其他服务的小公司。
其中包括香港富豪李嘉诚(Li Ka-shing)旗下的TOM在线(Tom Online)以及有硅谷经历的企业家杨镭(Raymond Yang)执掌的灵通网(Linktone)。
中国的互联网无线服务领域隐含著很大风险，一些大投资者仍不愿碰它。主要的障碍是中国政府对该行业的监管力度不断加强。近一年来，中国政府一直在打击该领域存在的不合理的营销及收费手段。
比如，用户很难取消某些手机服务项目如特殊的铃声或者甚至是占卜短信。（一些人是在接到广告短信之后无意中订制了这些服务，但此后却不知道该如何取消服务。）政府的打击导致一些手机内容供应商利润下降。
但是，整顿活动基本已告结束，而且中国拥有一个庞大的无线市场，用户超过3.30亿人。德意志银行(Deutsche Bank)驻香港分析师威廉?比恩(William Bao Bean)称，虽然部分无线公司的股价一直起伏不定，但一切将趋于稳定。根本的一点是对这些服务的需求仍然十分强劲。
Tom在线本月初公布，尽管遭到行业整顿的冲击，其2004年净利润仍攀升73%。该公司大约92%的收入来自无线服务。灵通网最近也宣布，去年第四季度的利润比上年同期增长一倍多。
在2月份的研究报告中，美国投资银行Piper Jaffray的分析师拉什奇(Safa Rashtchy)和凯斯勒(Aaron M. Kessler)写道，“Tom在线是在我们投资的中国股票中估值被严重低估的股票之一。”当时，该股基于2005年预期收益的本益比为14倍左右，而盛大和搜狐分别为45倍和20倍。分析师写道，中国无线服务类股仍蕴含著巨大潜力。
2月中旬，盛大出人意料地宣布已持有新浪19.5%的股份，而且可能会设法进一步控股──此后，灵通网和Tom在线的股票均大致持平。
而与此同时，网易和搜狐的股票分别上涨15%和近14%──在一定程度上受到投资者对它们可能被收购的预期推动。
不过，很多分析师对搜狐的前景采取了观望态度。自从2004年年初以来，该公司一些高层人士相继离职，包括总裁兼首席运营长古永锵(Victor Koo)以及财务总监。去年11月，搜狐宣布，古永锵将于三月底离开公司，不过仍将暂时担任顾问一职。公司发言人表示，交接工作顺利进行，而且公司已经建立了富有经验的管理团队。
不过，咨询公司BDA China Ltd.的合伙人邓肯?克拉克(Duncan Clark)表示，作为仅次于新浪的中国第二大门户网站，搜狐也在艰难地开拓搜索引擎和网络游戏业务。他说，该公司要重建管理团队并调整战略，就应寻找合作伙伴或者将公司出售。
克拉克和一些投资者认为，搜狐创始人、董事长张朝阳(Charles Zhang)绝不会把公司卖掉。张朝阳仍持有公司25%的股份，而且搜狐多年前就制定了“毒丸“反收购计划。波士顿Evergreen Investments的分析师Jerry Zhang称，他对搜狐是否会被收购没有把握。实际上，张朝阳曾在接受采访时表示，管理层和董事会都一致认为要保持独立。而网易的控股权仍掌握在创始人丁磊(William Ding)的手中。
分析师称，创始人控股意味著一个求购者不可能很快收购网易。但是和搜狐不同的是，网易在创建网络游戏的热门领域表现出众，可能是一个很好的收购目标。Piper Jaffray预计，游戏业务收入2005年可能占到网易公司总收入的80%。
JP摩根(J.P.Morgan)对网易的评级为增持，Piper Jaffray给出的评级为强于大盘，目标价位63美元。上周四，网易的美国存托凭证收于45.50美元。
部分分析师称，规模略小一些的中国互联网公司也不应被忽视。有李嘉诚雄厚支持的Tom在线也有可能成为收购方，将自己打造成一个规模更大、业务更加多元化的互联网公司。该公司最近收购了印度无线游戏公司Indiagames Ltd.大约80%的股份。
灵通网虽然规模仍然较小，但它的销售额去年增长了两倍，达到5,000万美元。该公司还在向那些尚未成为政府监管目标的无线业务新领域发起冲击。
Tom在线首席执行长王雷雷表示，尽管监管环境有所改变，但在手机盛行的中国，无线内容仍是一个盈利丰厚的稳妥的商业模式。
