BEST SMALL CAP COMPANY
SITC Logistics Group
SITC is has a lot of potential in a sector with a lot of room to grow.
The logistics company focuses on intra-Asia business, but carefully managed its currency positions in 2013 amid volatile conditions and wants to expand its horizons through new acquisitions.
Its careful stewardship helped SITC post first-half 2013 revenue of US$589.2 million, up 1.1% from 2012, while net profit rose nearly 23% year-on-year.
“This company is managed quite well – it’s very savvy when it buys ships, at a very low price even compared to others in the industry. And it manages its capital position very well,” says a Hong Kong-based analyst. “It has discipline and it doesn’t just follow trends to expand in the same places that everyone else is expanding or buy what everyone else is buying.”
Standard Chartered analysts note that SITC’s revenue is largely split among the US dollar, the Japanese yen and Chinese renminbi. As logistic revenue is mostly paid in local currencies, its land business has benefited from appreciation in the renminbi and Southeast Asian currencies.
Further, neither the yen’s weakness nor turbulent Sino-Japanese relationships impacted its business by June 2013, though it looked to expand its flows into Southeast Asia as customers moved production sites from China.
While SITC wants to make new acquisitions container and freight shipping, ship brokering and ship management, it’s been conservative in the past 12 months to keep gearing low. Meanwhile a new warehousing facility in Hai Phong City, Vietnam, first announced in October 2010 is expected to begin contributing to the company’s revenue stream in the second half of 2013.
The events helped SITC’s earnings per share to rise 22.4% from the second half of 2012 to the same period in 2013, while its Hong Kong-listed shares rose from HKD1.90 apiece on August 20, 2012 to HKD2.80 on August 19, 2013.
BEST MEDIUM CAP COMPANY
China Eastern Airlines
As China’s airlines industry struggled to rebound from a sluggish 2011/2012, China Eastern opted to go big, expanding domestically and abroad.
One way it has successfully managed is by focusing on travellers to and from Japan – a market that saw choppy traffic in 2012 amid the Diaoyu/Senkaku Island dispute but picked up this year.
After cutting flights in 2012 China Eastern was among the first of its peers to resume daily takeoffs in June of this year, in time to accommodate travellers during China’s Dragon Boat Festival and those planning their summer holidays.
“China Eastern has more routes and more frequent flights to Japan than the other major airlines,” says Kelvin Lau, head of Hong Kong and China transportation research at Daiwa. “After the political tension between China and Japan began easing, China Eastern started to strongly promote its Japan flights, and traffic improved.”
Likewise, the company sought to hedge growing competition from train travel, which rose as China’s main airports experienced record delays. It began offering packages for both air and bus travel, looking to expand its footprint in China and appeal to cost-saving customers.
Elsewhere China Easter suspended flights between Shanghai and Cairns from mid-August through October due to low profit margins, while increasing flights from Shanghai to Vancouver to depart twice daily. Meanwhile it signed a strategic agreement in July to increase air travel in Ningxia to help develop Yinchuan as an air hub in northwest China.
While China Eastern’s shares have been flat year-on-year, at approximately HKD2.6 from August 2012 to August 2013, the second half of the year looks more promising.
“China Eastern’s estimated full year adjusted profit is US$3.4 billion – so it’s still up around 30% year-on-year with the anticipated improvement in the second half of the year,” says Lau.
BEST LARGE CAP COMPANY
Ctrip
Ctrip topped Asiamoney’s list of top large-cap companies over brands such as Alibaba, Baidu and Tencent for its ability to compete in a saturated sector and boost its shares nearly four-fold.
Nasdaq-listed Ctrip, China’s answer to global travel-booking websites Expedia and Orbitz, spurred this growth by offering better rebates than rivals such as eLong.com.
The company had long banked on its early lead in the market to retain its clientele, though cheaper options slowly began eroding its first-mover advantage. Yet after Ctrip adopted a more aggressive strategy to offer discounts in January of this year, its stocks rebounded from a nearly three-year low of US$12.48 a share on July 1, 2012 to US$45.12 by August 13, 2013.
This level approached Ctrip’s all-time high of US$52.06 a share from October 1, 2010.
“A year ago Ctrip decided that it needed to fight for market share, and it decided to create more cost-savings measures for its customers even though this put additional pressure on its margins,” says an equities analyst. “It needed to get the leisure travel share so it fought back in the competitive pricing war – it’s now a lot more competitive in terms of hotel coupons and cash rebates.”
The strategy drew sceptics at the time. Macquarie research noted in January that the introduction of coupons for airfares would put additional pressure on revenues and margins, considering that air contributed approximately 40% of total revenues. However, the move proved to boost business and expand its clientele.
Ctrip is also credited with honing its focus on China’s leisure travel market at a time when the industry has seen strong growth. It was a first mover not just to offer flights domestically and overseas but to create packages around hotels in destinations meant to attract vacationers.
BEST EXECUTIVE
Robin Li, chief executive, Baidu
Baidu has always been at the front of the class when it comes to China’s digital media sector, but this year chief executive Robin Li helped it become a trailblazer in mobile search and marketing.
Under Li’s guidance the company gambled on increasing its operating expenses to gain traction in the mobile market, an area that had eroded its competitiveness for months as tech-savvy users turned from their desktops to phone.
Li’s plan entailed driving more traffic to Baidu’s mobile site by investing in new applications, location-based services and mobile videos. Part of the strategy involved a costly acquisition spree that included the purchase of online video service provider PPS Net TV, bought for US$370 million in May, and app store 91 Wireless, announced in July for US$1.9 billion.
It worked. Mobile services rose to comprise over 10% of Baidu’s quarterly revenue for the first time in the second quarter of this year. It further exceeded analysts’ expectations by reporting net profit of Rmb2.6 billion (US$430.8 million) for the quarter ending June 30. That helped its shares rise from US$109.84 on July 23 to US$141.53 on August 13 – a marked improvement from their value of under US$85 a share in early April, when analysts feared Baidu was losing market share to other aggressive mobile search providers.
“Robin Li at Baidu shepherded this whole mobile-thing – so much of this was his drive and execution into mobile,” says a technology sector analyst. “Baidu’s shares rebounded to above US$135 from being down to US$80-US$90 six months ago. There’s been a lot of operational momentum, particularly on the mobile side.”
There’s more to come. On July 6, China’s central bank issued Baidu an online payment licence, making it one of the few Chinese companies to provide payment services.