Week in review 08/26 to 09/01

I’m back from Sanya. Felt good about the beach and Marriot hotel, I will talk more about the trip later. The following are stuffs I recorded before the trip.

1) Ctrip service is good. Free pick up, delivery; SMS reminder; coupon book including shuttle ride from airport to hotel. By the way, I saw Ctrip’s rep at Sanya airport. She gave me a small tour guide book (free); the book seems very useful. I guess Ctrip is continuing to grow, and create stickness with its customers.

2) Got 2 shares of Vanke at its secondary offering. I bid 500 shares, and the allocate rate is about 0.46%, so I got 2 shares at 31.53 Yuan each. This is smallest stock purchase I ever made. I heard Vanke’s secondary attacted CNY 200 b to bid. Citic Securities slightly beat that with CNY 225 b.

Shanghai Composites and second offerings

The Shanghai Composites Index closed above 5000 the first time on August 23, Thursday. The interesting thing is, this time Chinese goverment is not as nervous as last time around (May 30), because this run up is largely drived by so-called blue chips: especially large banks where the goverment is the majority owner (ICBC, BOC,…).

For smaller investor like us, I think we should look beyond the market, and look at individual companies. By incident (what an incident), two large blue chip companies, Vanke (000002), and Citic Securities (600030). Here is the bloomberg news for Citic Securities secondary.

The Beijing-based company will offer as many as 350 million new shares at 74.91 yuan on Aug. 27, it said in a statement today. It would be China’s third-biggest stock sale this year. The shares jumped 5.9 percent to a record 94.95 yuan in Shanghai.

Citic Securities, after passing Japan’s Nomura Holdings Inc. in market value this week, is seizing on investor enthusiasm for stocks that made China the world’s best-performing market this year. Chairman Wang Dongming, who boosted first-half profit more than fivefold, plans to triple capital at the futures unit to extend his lead over local rivals…

Valuation Premium

Today’s share price gain values Citic Securities at $37 billion, higher than Nomura’s $35 billion. The stock has more than tripled this year. The firm trails only Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co. in market value.

Investors pay a premium for Citic. The stock trades at about 35.8 times estimated full-year profit, according to data compiled by Bloomberg. Goldman, the world’s most profitable securities firm, has a price-earnings multiple of 8.1.

Shanghai snapshot III

X5?

maybe not?

Wang Shi and Vanke

Among Chinese CEOs, I think Wang Shi is real good. I read his book “Road and Dream” lately. Very impressive. Consider what he and his team has done in last 20 years: from nowhere to No. 1 residential real estate developer in China; more importantly, they create a “Vanke” community, the kind of community Chinese middle class are enjoying.

He talked many things in that book, some of the things I liked:

1) Don’t seek abnormal profit margin: he said Vanke will only do the project with less than 25% profit margin. More recently he is talking about the bubble in Chinese real estate market. Will other real estate company’ chairman say that? Unlikely.

2) Organization and efficient: as a company grows, it will usually become less efficent. The cost of management rises. If a company does not pay attention to this, eventually its internal cost will exceed the money it could make. In other words, it will no longer be profitabble. How to stay nimble as company growing big is very important.

Interestingly, Wang Shi’s wife got into the “stock insider sell” controversy lately. You know what did Wang Shi do? He returned the profit from the stock sell to the company.

From management point of view, Vanke is solid because it already has a team of professional managers. Mr. Wang gave up day to day operations and CEO title to someone else, and is enjoying “mount climbing”, partitipating “Boss town”, giving speeches, etc.