George Soros Top 5 Chinese Stocks: BIDU, ISS, FMCN, CISG, KH

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May 31, 2011
George Soros is a world-renowned investor who has achieved the best performance record in history with his Quantum Fund, which had a cumulative 32% annual return. Soros invests based on the belief that financial markets are chaotic and that people trade based on emotional reactions rather than logic, which affects the prices of stocks, bonds and currencies. He finds opportunities by carefully studying the value and the market prices of assets. As of March 31, 2011, his top five holdings in China are: Baidu Inc. (BIDU, Financial), Isoftstone Holdings Ltd. (ISS, Financial), Focus Media Holding Ltd. (FMCN, Financial), CNinsure Inc. (CISG, Financial) and China Kanghui Holdings (KH, Financial).

Baidu Inc. (BIDU)

Baidu Inc., formerly Inc. is a Chinese-language Internet search provider and is based in Beijing, the People's Republic of China. Baidu Inc. Ads has a market cap of $34.34 billion; its shares were traded at around $133.93 with a P/E ratio of 75.67 and P/S ratio of 28.56. Baidu Inc. Ads had an annual average earnings growth of 48.3% over the past 5 years.

George Soros sold out of Baidu in the fourth quarter of 2010, and bought 139,700 shares in the first quarter 2011 at an average price of $118.27.

China has over 477 million people online, the largest Internet user population in the world. It is still far from reaching market penetration in developing countries. It is also cutting away Google’s search engine market share in China, which fell in below 20%, while Baidu’s share reached 75.5%, according to research by Enfodesk. At a tech conference in China in March, Baidu announced that it is working on a multi-language search platform in preparation for an expansion outside of China.

First quarter 2011 revenues for Baidu were $372 million, an 88.3% increase over the corresponding period in 2010. Net income was $163.5 million, a 122.8% increase from the corresponding period in 2010, and diluted earnings per ADS were $0.47. The company’s adjusted earnings were $211.9 million, a 116.4% increase from the same period 2010. For the second quarter 2011, Baidu expects total revenues in the range of $493.3 million to $503.9 million.

Isoftstone Holdings Ltd. (ISS)

iSoftStone Holdings Limited Ame is an IT service provider operating an integrated service delivery platform for IT services and solutions in the Peoples' Republic of China. Isoftstone Holdings Ltd. has a market cap of $779.58 million; its shares were traded at around $15.38 with and P/S ratio of 3.96.

Soros bought 510,345 shares of iSoftStone Holdings Ltd. in the first quarter of 2011, at an average share price of $19.28. The stock price has declined 12.38% year to date.

The company operates a suite of IT services and solutions, including: IT services, which primarily includes application development and maintenance (ADM), as well as R&D services and infrastructure and software services; consulting and solutions; and business process outsourcing (BPO) services.

iSoftStone’s first quarter 2011 revenues of $20.5 million, increased from $13.8 million in the same quarter 2010. Net income increased to $5.2 million from $788,000 in the same quarter 2010. The company’s operating expenses grew 30% from the first quarter 2010 due to in large part to a continuing investing in management capacity, sales force and marketing efforts to support top-line growth and research and development activities. Net revenues in each of its global markets, which comprise almost 45% of its business, increased as well. iSoftStone is affected by seasonal trends and its first quarter results are typically lower than other quarters.

iSoftStone will be expanding into the public sector for the first time through a multi-million-dollar project they won in the first quarter. “We believe the contract gives us great entry point to grow our presence in the public sector,” the company said in a statement.

Focus Media Holding Ltd. (FMCN)

Focus Media operates the largest out-of-home advertising network in China using audiovisual flat-panel displays based on the number of locations and number of displays in its network. Focus Media Holding Ltd. has a market cap of $4.55 billion; its shares were traded at around $31.4 with a P/E ratio of 31.4 and P/S ratio of 8.82.

George Soros sold out of his position of almost 2 million shares in Focus Media Holding in the fourth quarter of 2009 when the stock had reached $14, after falling as low as $7.45 in the second quarter of 2009. He purchased 400,000 shares in the first quarter 2011 at an average price of $26.22 per share. Year to date the stock price has risen 42.5%.

Most of Focus Media’s revenue growth in the first quarter was driven by advertising and its LCD displays. Focus Media’s advertising net revenue for its LCD display network increased 63%, advertising net revenue from its poster frame network increased 46%, and advertising net revenue from the in-store network increased 23%, from the first quarter 2010. Its net revenue from its LCD display (including a movie theater network), in-store and poster frame businesses increased 54%.

The company’s net income for the first quarter of 2011 was $20.5 million, increased from a net loss of $1.0 million in the first quarter of 2010.

In the first quarter, the company has also spent $240 million repurchasing shares, out of a $300 million share repurchase program, and has plans to buy a 15% stake in Enjoy China Technology Development Company Limited.

CNinsure Inc. (CISG)

CNinsure Inc. is an independent insurance agency and brokerage company operating in China. CNinsure Inc. has a market cap of $801.15 million; its shares were traded at around $15.88 with a P/E ratio of 12.22 and P/S ratio of 3.56.

George Soros sold 640,650 shares of CNinsure Inc. in the first quarter of 2011 at an average share price of $16.6, although it still comprises 0.13% of his portfolio. He had been buying shares every quarter since the first quarter 2010 when the price was $22.04; by the fourth quarter 2010 the price had dropped to $21.41. The stock has fallen 8.3% year to date.

CNinsure’s net income for the first quarter 2011 was $12.2 million, increased from $9.9 million in the first quarter 2010 and down from $18.5 million in the fourth quarter 2010.

The company is currently considering a proposal to be taken private for $0.95 per ordinary share, TPG Asia V MU Inc., Kingsford Resources Limited (a company controlled by Mr. Yinan Hu, chairman of the board of directors and chief executive officer of the company), and entities affiliated with him, and CDH Inservice Limited.

China Kanghui Holdings (KH)

China Kanghui Holdings is a developer, manufacturer and marketer of orthopedic implants in China. China Kanghui Holdings has a market cap of $532.47 million; its shares were traded at around $23.35 with a P/E ratio of 56.95 and P/S ratio of 14.48.

Soros bought 592,000 shares of China Kanghui Holdings at $18.52 and did not purchase more in the first quarter 2011.The stock has increased 28% year to date.

First quarter 2011 net income increased by 23.6% to RMB22.0 from RMB17.8 million in the first quarter 2010. Net income per diluted ADS was RMB0.87 in the first quarter 2011, increased from a net loss per diluted share of RMB0.77 in the first quarter 2010. Domestic sales for its proprietary products increased 21.0% year over year to RMB50.1 million from RMB41.4 million, and international sales of proprietary products increased 246% from RMB11.1 million from RMB3.2 million. The company has cash and cash equivalents of $27.1 million on its balance sheet as of March 31, 2011.

China Kanghui expects year-over-year revenue growth of 20 to 25% in 2011, making revenue for the year 2011 between RMB292 and RMB303.

In March, the company acquired a majority stake in Beijing Wei Rui Li Medical Device Co., Ltd., a provider of hip and knee systems in China. Libo Yang, Chief Executive Officer of Kanghui commented, "Today's announcement is a key component of our plan to launch a full line of reconstruction products in China and in international markets over the next three years. With this acquisition, we expect to launch our first joint implant product into the Chinese market by early 2012, which offers Kanghui another driver for future growth.”

For more of George Soros ’ international stocks, click here.
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