China's Winners and Losers

The SSE Composite Index, Shanghai's stock exchange and one of the world's largest, finished last week down 0.58% and closed at 3,013.41. Investors are nervous that banks will be forced to increase minimum reserves to combat the possibility of rising inflation, Reuters reports.

That could be a short-term overreaction. Strong quarterly reports from E-House (NYSE: EJ  ) and China Real Estate Information suggest that concerns over a Chinese real estate bubble may be overblown.

"But tread carefully here," says Tim Hanson, one of our China experts and co-advisor for our Motley Fool Global Gains service. "There are lots of signs of overcapacity in this specific industry, but there are certainly pockets of opportunity in China."

Pops and drops
Here's a closer look at the best- and worst-performing Chinese stocks of the past week, each of which trades on a major American exchange and is worth at least $150 million in market value. Returns are calculated from the March 5 close.

Last week's winners:

Company

Percentage Gain

CAPS Stars (out of 5)

Fushi Copperweld (Nasdaq: FSIN  )

17.5%

****

Agria Corp.

14.2%

****

Nam Tai Electronics (NYSE: NTE  )

11.6%

*****

Funtalk China Holdings

11.5%

No rating

New Oriental Education (NYSE: EDU  )

11.2%

**

Sources: Capital IQ, Motley Fool CAPS, Yahoo! Finance.

Last week's losers:

Company

Percentage Loss

CAPS Stars (out of 5)

Acorn International (NYSE: ATV  )

(16.1%)

*****

China Security & Surveillance (NYSE: CSR  )

(14.9%)

*****

Universal Travel Group (NYSE: UTA  )

(12.4%)

****

WuXi PharmaTech

(11.6%)

****

Deer Consumer Products

(11.0%)

*

Sources: Capital IQ, Motley Fool CAPS, Yahoo! Finance.

A weekly tour of China
The week's top Chinese stock, Fushi Copperweld, on Wednesday reported a 121% increase in net income on a 26% increase in fourth-quarter revenue. Fushi is among the country's top producers of copper wiring for telecommunications, utilities, and transportation and is a favorite of Motley Fool CAPS investors.

"[This] company has a significant advantage ... as they are bringing superior British technology into the Chinese marketplace through their acquisition of Copperweld," wrote CAPS All-Star Desdemuerto in January.

Nam Tai Electronics rose on no apparent news, but rather investor interest in its super-cheap valuation. Even with last week's rally, the market value of this Global Gains pick is more than 85% denominated in cash and investments.

Finally, shares of China Security & Surveillance fell, after a Wednesday press release from the company said it would sell 20 million new shares of stock to pay down debt and fill its coffers. The company had just less than 69 million shares outstanding as of this writing.

What do you have to say about these stocks? Other Chinese stocks? Log into Motley Fool CAPS today and let your voice be heard. You can also weigh in using the comments box below.

Nam Tai Electronics is a Motley Fool Global Gains recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is also a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is as sweet and smooth as Shanghai's Last Gentleman.


Read/Post Comments (1) | Recommend This Article (5)

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  • Report this Comment On July 15, 2010, at 3:18 PM, marvman0 wrote:

    NTE - Interesting posts from From Yahoo msg Board:

    -------------------------------------------------------------

    Nam Tai - Koo's Plaything 15-Jul-10 11:39 am

    Do not like the portrait of Koo that emerges:

    Koo Founder and key management continuity - looks like everyone else churns.

    Koo giving himself (he is board Chairman) $1.2 million (incl apartment) a year to be CFO + perks (including golf course membership - what companies are still giving these type of perks)regardless of company performance and well above comparable CFOs - is this a company belt tightening?

    Moves AGM were fun/convenient for him - 2009 to Vancouver Canada, know of any other NYSE company that has their AGM here(Koo's previous and maybe current residence), 2010 California - were he buys Napa wine (do you believe this guy paid $200k for a 6L bottle of screaming eagle). Is the AGM not for the benefit of investors and should be held were best for them?

    Has Fun launching law suits and exercising his law degree thru Nam Tai(suing BofChina, UBS, PW, SSA, even previous employees).

    Described as smart and huge Rolodex by some scary crazy senile by others.

    What a portrait - we are relying on this guy to turn this company around!

    -------------------------------------------------------------

    Koo dumped half million shares between 2008 and now 15-Jul-10 01:04 am

    Koo has dumped half a million shares over the period of Nam Tai's business decline from 2008 to 2010 (I think mostly between 2008 and 2009) I guess he somewhat new the storm was coming.

    From 5720K shares in 2008 to 5,224K shares in 2010 - source proxy circulars.

    -------------------------------------------------------------

    Ready to DUMP this LOSER!!!!! 8-Jul-10 01:13 pm

    Additional info for your consumption:

    Lets say the company drives EBITDA of 4% of sales of annual $400M. This would be $16M x 11x multiple is $176M / 44.8M shares = about $4 stock price...roughly were it is. SO NAM TAI IS GETTING CREDIT IN ITS CURRENT VALUATION OF 4% EBITDA and at a 11x mutiple. It still has to do a lot of work to get to this profit level and a 11x multiple is very generous.

    So for the stock price to go up it has to get to 4% EBITDA and grow revenue significantly. The former is doable with hard work. To do better on margin is remotely possible. To grow top line will be very difficult and if done will take years (Sales cycle in EMS I think about 18 mths).

    There must be better options out there. Opportunity cost of ownership is VERY HIGH.

    -------------------------------------------------------------

    POSITIVE NEWS VERY UNLIKELY 11-Jun-10 03:29 pm

    I thought it worth while to re-post my analysis of Nam Tai which comes out as VERY NEGATIVE. I have tried to be objective, however, I would be very pleased to hear from anyone that has a positive business reason to invest in Nam Tai or point out something that I have missed:

    The negatives-

    Total Lack of Transparency - no quarterly conf calls (since YE 2008), no active IR activity, no analysts covering, AGM moved out of the US, no ability to ask mgmt questions directly. Beyond me how a NYSE board could allow this!

    Management Exodus (no competent management left to speak of...):

    2007 CEO lasted 6 mths - Warren Lee

    NA great CFO left end of 2008 - John Farina

    Japanese well connected New CEO left beginning 2009 - Yasukawa

    COO left end of 2009 - LP Wang

    New CEO (previous division CEO) left beginning 2010 (after 20 years w/ Co.) - Karene Wong

    Many others...acting CFO Anthony Chan, entire Legal Team, corp secretaries etc etc

    We are left w/ founder Koo +65 years old (Chairman, CFO, chief cook and bottle washer) calling all the shots.

    Deteriorating (significantly) top and bottom line WHEN ALL COMPETITORS POSTING BIG POSITIVE NUMBERS!

    In a very competitive industry - EMS and clearly one of the smaller players (Nam Tai had dropped from top 15 EMS to now not even 30th; of top five EMS number 1 is approx. over 100x and number 5 over 15x larger. Economies of scale, size (mfg & buying power), global customer solutions matter!

    No competitive advantage...the days when china cheap labor is an advantage are gone. All the major players are there and many moving to lower cost areas in Asia like Vietnam. Besides labor rates in China are increasing dramatically and also by 2012 tax rates will effective at least double (refer to Hon Hai's (Foxconn) issues in Shenzhen with many suicides having to raise labor rates and pass pricing increases to customers and moving production to Tiawan).

    Nam Tai FPC (where mainly applied to mobile market with Japanese technology) could falter significantly with other Asia tech taking over like the Koreans. Besides, Nam Tai has a deteriorating relationship with its Japanese customers (which I think are close to 75% or higher of the current revenue). (I am sure the X Japanese CEO who left in 2008 and is very well connected - his father is x chairman of Epson - is not singing Nam Tai's praise)

    LCD in the form factors and non touch that Nam Tai is in is not a winner.

    Both FPC / LCD have been low margins for the company and do not see how they will improve. Nam Tai has already maximized austerity measures e.g. 30% wage cuts for all staff and turfed anyone they could.

    Very disturbing is the disappearance of the company's Consumer business which has historically grown very well and had very high profit (company says getting out because low margins...this is a very curious statement...how did it go from very high to very low????? - how did this go to nothing????? Very Scary

    Expanding into capital intensive Flexible Printed Circuits w/ NIL previous experience...believe Wuxi Factory largely empty after significant investment (how does company destroy previous lucrative consumer business and invest here?????).

    The Positives-

    Very strong cash position with no debt.

    Stock currently trading at close to cash value so one may spouse limited down side

    This is the analysis which leads me to being a strong sell.

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