BEST SMALL CAP COMPANY
Tianneng Power
Tianneng Power International has been a long-standing icon in China’s renewable energy landscape and is a company that has continued to innovate under a lean management structure. With its strong knowledge of its sector, Tianneng has stayed ahead of trends and is credited with manufacturing quality products in an emerging segment key to China’s long-term development.
The company, which claims US$688 million capitalisation, is touted as one of the largest supplier of new-energy battery products for electric vehicles in China. It has been lauded throughout 2012 for improving its distribution, its production processes and its breadth through acquisitions. These advancements have buoyed the stock performance of its Hong Kong-listed shares 38.6% year to date, from HKD3.50 on January 3 to HKD4.85 on November 30.
In terms of performance, the company posted operating revenue and net income of Rmb3.82 billion (US$613.4 million) and Rmb376 million in the first half of the year, outpacing forecasts from Citic Securities and Kim Eng Securities with year-on-year growth of 56.9% and 87.2%, respectively.
The company largely achieved its growth by expanding its network from 952 distributors at the end of 2011 to 1,109 in the first half of 2012. This comes as the China CleanTech Index reported a loss of 11.7% through the third quarter of 2012, trailing the Shanghai Composite’s 6.3% dip and the MSCI gain of 6.2%. Within the Index, Tianneng was named one of the best performers of the quarter according to share price.
Tianneng Power is poised to continue leading its sector through renewable energy initiatives. Among its achievements during the year was its Wushan recycling plant, which launched operation in June. It recycles lead used in its lead-acid battery production, and at full capacity the plant is poised to generate 40% of Tianneng’s own demand for lead. This will boost its gross profit margin by an estimated two to three percentage points, notes Citic Securities.
The company has additionally announced plans for a like-sized recycling plant in the Henan Province to be completed by the end of 2014.
BEST MEDIUM CAP COMPANY
China Eastern Airlines
Chinese airlines have seen a difficult year. Between rising fuel prices and weaker global demand, earning expectations across the board look grim. But China Eastern Airlines (CEA) has largely bucked the trends to focus on sustainable growth and the bottom line throughout 2012 rather than breadth.
The country’s aviation regulator has predicted that profits for the airlines industry may rise 5.1% in 2012 – a nominal figure compared to the 300% in 2010.
CEA itself has seen its third quarter profit drop 20% from a year earlier, and its shares tumbled 7.4% in 2012 to date to HKD2.62 on December 3. Yet this compares to the 15.6% drop in share value by China Southern Airlines and 12.2% by Air China.
“In terms of Chinese airline management, CEA is better than the others – it’s private and not government-owned and doesn’t see its management reshuffle every few years, and for that the company hires quality management,” says one airline analyst. “CEA also puts more effort into its investor relations department and is open to disclosing more information to investors on a more regular basis.”
Nomura analysts’ initial forecast is that CEA will announce a decline in call earnings – which excludes impairment losses and foreign exchange – in the high single digits by the end of 2012 compared to a year earlier. Comparatively, China Southern Airlines’ call earnings is poised to drop approximately 20%, and Air China by 50%.
The differential between the CEA and its competitors is its prudent growth strategy. While analysts say its competitors focus on hub-building – or maximum scale across the country – CEA has been very targeted in its growth.
“It has adopted a different company strategy than the other two airlines in which it focuses on profitability rather being the most spread-out airline. It’s about building in areas where it counts,” concludes the sector analyst. “The adoption of this strategy, their strong management, as well as their focus on investor relations in which the company is very willing to answer questions set it apart.”
BEST LARGE CAP COMPANY
Tencent
Tencent is seemingly unstoppable in China.
China-focused analysts overwhelmingly spoke of the financial and governance strength of top tech and media names, including Baidu and China Telecom, but it’s Tencent’s sheer breadth in the market and its innovation in key emerging areas that has made it the top choice over industry peers.
“Its stocks are up nearly 70% and the reason for this excellent performance is its leadership in the mobile internet segment,” says one analyst at a China-based securities firm. “It’s been innovative and is still able to generate excitement around mobile internet developments. It has a strong story in mobile social networking, and even when we see interesting things coming from its competition, it has so many users that it is a clear leader.”
One year ago Tencent received Asiamoney’s coveted best managed large cap prize for China, but it came with caveats. The company was praised for its merger and acquisition activity which analysts believed would render it more competitive in the coming years, but investors were dissatisfied to see its overall bottom line shrink year on year (YoY).
In 2012, Tencent appears to be back to strength. In the year’s third quarter, the company announced total revenue of Rmb11.57 billion (US$1.82 billion), or an increase of 54.3% year-on-year. It attributed the boost to an increase in ever-important online advertising, also up 69% over the previous year, or Rmb1.02 billion, bucking the trend that has stymied its competitors’ performance.
Likewise its Hong Kong-traded stocks have traded up by nearly 70% in 2012 to date, from HKD151.0 on January 3 to HKD256.4 by November 23’s close.
Among its successes of the year is its nearly two-year old WeChat, an online mobile-messaging service that showed its strength this year when it drew 200 million accounts by April. Through WeChat, Tencent has been heralded as the premiere mobile social networking company ahead of its competitors for the following it attracts.
BEST EXECUTIVE
Wang Xiaochu, chairman and CEO, China Telecom
Wang Xiaochu, the chairman and CEO of China Telecom, has been amply transparent about his plans to grow China’s second-largest telecommunications firm and stay competitive with his company’s sizeable rivals, successfully delivering consistent earnings even as the company faces intrinsic challenges.
China Telecom trails industry peers China Mobile and China Unicom in third generation (3G) subscribers, attributed to the lesser-known CDMA technology platform that it’s mandated to use. This system, more common to markets such as Korea, is less familiar than the comparative systems used by China Mobile and China Unicom’s technologies. But Wang has embraced the challenge of delivering that platform to the country’s burgeoning mobile users.
“China Telecom is designated to use the CDMA system, which is not as well known as the systems of its competitors. This means there’s a lack of skill and technical knowledge of this platform, but China Telecom has done a great job rolling out its networks coverage,” says one analyst at a Chinese securities firm. “This has been CEO Wang’s prerogative. Even with the downward pressure that this technology brings, the company’s operations have been excellent and have been able to deliver favourable returns to minority shareholders.”
Wang has followed his multi-step plan to bolster China Telecom’s business to the letter. First, he followed his belief that there were not enough handsets in the country, and promoted mobile usage across the board to achieve economies of scale, regardless of the level of user sophistication. Second, he moved up the value chain, targeting 3G users.
China Telecom is now on the cusp of graduating from this strategy to take on more high-end users. The company has already laid the tracks for this in 2012, contracting the country’s hottest handset brands to use its technology on models including Samsung’s Galaxy, HTC’s mobiles and iPhone 5.
Analysts concede that China Telecom is in a building phase, focusing on marketing and distribution rather than sheer revenue. Its net profit for the first nine months of the year fell 8%, attributed heavier spending to generate growth, selling handsets and paying network lease fees.
But Wang’s clear vision for the company has gone far to reassure investors.
“Wang has been known to be very prudent and very good in terms of his execution of his company, and he knows the mobile sector very well,” another industry analyst says. “He is very clear on his strategy on how he will build on the CDMA system step by step – his leadership is something others leaders in the market can look to.”
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