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

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

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!