This is an analysis on the technology stocks in China which offer a great upside in their valuation. We believe, Chinese technology sector should be a focus of investors as it has a tendency to outperform its US peers.
JA Solar Holdings Co Ltd (NASDAQ: JASO) is engaged in the business of designing, developing, manufacturing and selling solar module products. The Company is also engaged in the manufacturing and sales of solar cells. For the year ended 31 December 2010, JA Solar Holdings Co. Ltd.’s revenues totaled RMB11.76bn, up from RMB3.78bn in the previous year. Its net income in 2010 totaled RMB1.78bn versus a loss of RMB196.5mn in the prior period. The increased revenues reflect an increase in sales while the increased net income reflects an increase in the companyâ€™s gross profit as well as its operating profit. It reported a gross profit margin of 21.65% and a net profit margin of 15%, while the sectorâ€™s average net profit margin is 13.18%. JA Solar Holdings has a current ratio of 3.14 which means the stock has ample liquidity. The current ratio for the sector is 2.03x. The company reported a current Price to Earning (P/E) multiple of 0.79x which indicates significant upside for the stock. Its major competitors are Suntech Power Holdings Co., Ltd (STP), Trina Solar Limited (TSL) Yingli Green Energy Hold. Co. Ltd (YGE). JA Solar Holdingsâ€™ stock has already appreciated 7 times since its low and offers a significant return on equity of 30.87%.
Kongzhong Corp (Nasdaq: KONG) is a provider of digital entertainment services for consumers in China. The Company operates in three segments: wireless value-added services (WVAS), mobile games and wireless Internet services (WIS). For the nine months ended 30 September 2010, KongZhong Corporation’s revenues increased by 17% to USD111.3mn as compared to the prior period, while its net income decreased by 35% to USD6.9mn. The increase in revenues reflects an increase in the revenue generated by the companyâ€™s Mobile and Online games segments. On the other hand, its net income was partially offset by an increase in product development charges, higher sales & marketing expense and an increased general & administrative expense. The company reported a gross profit margin of 45.18% while the net profit margin is reported at 8.15%. Its current ratio is 2.91x which implies ample liquidity. The company is currently trading at a Price to Earnings ratio of 8.17x which shows the stock still offers significant upside in valuation as the sectorâ€™s Price to Earnings multiple is 17.76x. Kongzhong reported a return on equity of 6.16%, which reflects management effectiveness, and a revenue growth of 2.87% compared to the sectorâ€™s 12.34% growth. The major competitors of the company are SINA Corporation (SINA), Linktone Ltd (LIR) and Sohu.com Inc (SOHU).
Linktone Ltd (NASDAQ: LTON) provides entertainment-oriented telecom value-added services and content to mobile users over the second generation (2G) and 2.5G mobile telecommunications networks in China and Indonesia, as well as the third generation (3G) mobile telecommunications network in Indonesia. For the nine months ended 30 September 2011, Linktone Ltd.’s revenue decreased by 20% to USD43.4mn as compared to the prior period. Its net income from continuing operations totaled USD5.2mn, which was up from USD809K in the prior period. Lowered revenues are on account of a decrease in revenue from normal operations. The higher net income was on account of lowered product development and selling & marketing expenses.Â The company reported a gross profit margin of 32.29%. The stock price has appreciated by 130% but still offers a potential upside. The current ratio of the company is 3.71x indicating ample liquidity. Its current Price to Earnings is 14.2x while the return on equity is reported at negative 0.69%. In comparison, the sector is currently trading at a Price to earnings multiple of 15.17x. Linktone reported a net profit margin of 6.95% compared to the sectorâ€™s 9.07%. Its major competitors are Shanda Interactive Entertainment Ltd (SNDA), Focus Media Holding Limited (FMCN) and KongZhong Corporation.
The9 Ltd (NASDAQ: NCTY) provides massive multiplayer online role playing games (MMORPGs) and other games that it owns or in-licensees within China. For the fiscal year ended 31 December 2010, The9 Ltdâ€™s revenues decreased by 86% to RMB102.8mn and its net loss increased by 21% to RMB303.5mn. Lowered revenues reflect a substantial decrease in income from online game services and other revenue from website solutions. The company has a negative gross profit margin of 0.41% and a current ratio of 4.94x. However, the stock has appreciated 293% from its yearly lows. The sector is currently trading at a Price to Earnings multiple of 17.76x. The company reported a revenue growth of 0.62% compared to the sectorâ€™s 12.34%. The company reported a negative return on equity of 13.41% while the sector returned 14.91%. Its major competitors are Net Ease Inc (NTES), Perfect World Co Limited (PWRD) and Giant Interactive Group Inc (GA) .
Ninetowns Internet Technology Group Co Ltd (NASDAQ: NINE) is a software company that enables enterprises and trade-related Peopleâ€™s Republic of China Government agencies to streamline the import/export processes in China. Ninetowns and its subsidiaries are principally engaged in the sale of enterprise software and in the provision of after-sales maintenance services. For the six months ended 30 June 2010, Ninetowns Internet Technology Group Co. Ltd.’s revenues remained flat at RMB38.4mn while Net loss totaled RMB7mn, versus a profit of RMB3m in the prior period. Stable revenues reflect stability in the sales volume of the Company while the net loss was on account of increased general and administrative expenses, decreased interest income, and a loss of change in fair value of marketable options. Ninetowns Internet Technology Group reported a gross profit margin of 76.78% while the net profit margin was at 16.12%. The companyâ€™s stock has a beta of 0.83 and a return on equity of 1.36%. The stock has appreciated by 35% from its yearly low and offers a significant upside on its current price due to a high gross profit margin. Its major competitors are Microsoft Corporation (MSFT)Â and Oracle Corporation (ORCL)
Sohu.com Inc (NASDAQ: SOHU) is a Chinese online media, search, gaming, community and mobile service group. Sohu operates s variety of matrices of Chinese language, Web properties and online games in China. For the three months ended 31 March 2011, Sohu.com Inc.’s revenues increased by 35% to USD174.4mn and its net income increased by 48% to USD44.8mn compared to the prior period. Higher revenues reflect an increase in income from online brand advertising segment, higher sales from game segment and increased income from the sponsored search segment. The higher net income also reflects by an increase in gross profit, higher other income and an increase in the operating profit margin. The company reported a gross profit margin of 73.84% and a net profit margin of 32.34%, while the sectorâ€™s average gross profit and net profit margins are at 47.07% Â and 13.18%, respectively. The stock is currently trading at a Price to Earnings multiple of 13.80x. The company has a current ratio of 3.95x which means it has ample liquidity and it return on equity of 21.14% reflects management effectiveness. The stock has a beta of 1.44 which means it is volatile in nature. The sector is trading at a Price to earnings multiple of 15.7x. Major competitors of the company are SINA Corporation (SINA), NetEase.com, Inc. (NTES) and Baidu.com, Inc.