China Eastern Airlines Corp. Ltd. (ADR) (CEA), China Southern Airlines Co Ltd (ADR) (ZNH), Ctrip.com International, Ltd. (ADR) (CTRP): Separating the Winners from the Losers in China’s Turbulent Markets

Page 1 of 2

China, once considered the hottest growth market in the world, has had a rough year. Food safety problems, a new bird flu outbreak, stagnant wages, the rising cost of living, and bank liquidity problems have all contributed to the lackluster performance of Chinese stocks this year. Over the past twelve months, the SSE Composite in Shanghai has declined 2%, although the Hong Kong-based Hang Seng has risen 8%. However, both have woefully underperformed the S&P 500 in the U.S., which is still up 16%.

However, in any market there are still winners to follow and losers to avoid. Although the Chinese market can be a tricky one to navigate, there are still some promising growth sectors to consider.

Ctrip.com International, Ltd. (ADR)

Avoiding the airlines

The Chinese travel sector has been hit the worst by avian flu fears and rising fuel prices. Over the past six months, shares of China Eastern Airlines Corp. Ltd. (ADR) (NYSE:CEA) have fallen more than 26%. China Eastern Airlines Corp. Ltd. (ADR) (NYSE:CEA) flies passengers domestically and internationally, and also offers cargo and mail delivery services.

In 2012, China Eastern Airlines Corp. Ltd. (ADR) (NYSE:CEA)’s profit dropped 29.8% year-over-year, a precipitous drop that was slightly better than the 48.2% decline that China Southern Airlines Co Ltd (ADR) (NYSE:ZNH), experienced, and the 33.8% drop that Air China reported.

Together, China Eastern Airlines Corp. Ltd. (ADR) (NYSE:CEA), China Southern Airlines Co Ltd (ADR) (NYSE:ZNH) and Air China are considered the “big three” airlines in China, controlling 80% of the market between them. The three companies are also heavily funded by the Chinese government, receiving $650 million in state subsidies in 2012.

All three airlines have reported bottom line declines for three consecutive years, after reporting strong earnings growth in 2010. 2013 hasn’t been much better–year to date, China Eastern Airlines Corp. Ltd. (ADR) (NYSE:CEA)’s revenue has edged up 1.9%, but its earnings have fallen 14.8%.

AIRYY Chart

Customer satisfaction with Chinese airlines is also at an all-time low. According to FlightStats, only 18% of flights from Beijing’s Capital International Airport are taking off on time. Protests and violent incidents have occurred across the country as a result of the travel delays. According to the Chinese media, the problem has become so severe that several airports have stopped announcing delays over the PA system altogether to avoid antagonizing travelers.

Although the numbers behind those crowds — 296 million domestic passengers in 2012, an 8.8% year-over-year increase — should generate healthy revenue growth for airlines, the competition between the three airlines causes some major markdowns in ticket prices and some slim margins. China Eastern Airlines Corp. Ltd. (ADR) (NYSE:CEA) and China Southern Airlines Co Ltd (ADR) (NYSE:ZNH) only reported profit margins of 2.9% and 2.4%, respectively, which led to lackluster profit growth. Air China fared slightly better, with a profit margin of 4.7%.

Sticking with Ctrip

Although Chinese airlines have performed terribly, shares of Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP), the country’s largest online travel agency, have surged 130% over the past six months, handily outperforming its closest competitor, eLong, Inc. (ADR) (NASDAQ:LONG), which has only gained 1.5% over the same period.

CTRP Chart

In the second quarter, Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP)’s net income rose 76% year-over-year to $34 million, as its revenue rose 28% to $203 million. eLong, by comparison, reported a 27% year-over-year rise in revenue last quarter, but it reported a net loss of $12.43 million, compared to a profit of $2.6 million a year earlier.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!