China Banks, LightInTheBox In Share Buy-Backs
It’s the season for consumption and gift buying, but no one seems to want to buy shares of China’s top banks and e-commerce firm LightInTheBox (NYSE: LITB), which have both just announced new share buy-backs. In the case of the big Chinese banks, the buyer is their state-run controlling stakeholder, Central Huijin, which has conducted a modest Chinese-style share repurchase. In LightInTheBox’s case the buyer is the company itself, which has also launched a its own modest share repurchase program.
Traders certainly liked the LightInTheBox plan, with the company’s shares rising 18 percent after it made the announcement. (company announcement; Chinese article) Still, this jump looks a bit like a classic dead-cat bounce, since LightInTheBox shares have lost two-thirds of their value over the last 4 months after rallying strongly following their June IPO in New York. Meantime, the Chinese bank shares are unlikely to get much of a lift from the Huijin buy-back, which was relatively small and just the latest in a steady series of such purchases.
Let’s start with a closer look at LightInTheBox, which became the first major Chinese company to list in New York with its successful IPO in June. The company, which sells cheap Chinese-made wedding dresses to overseas buyers, initially saw its shares more than double from their IPO price. But then it reported disappointing results and weak outlook, which isn’t too unexpected for such a newly listed company that probably overstated its strength in its original IPO materials. Even after the Monday rally, the company’s shares now trade at just $7.51, well off their $22 peak in August and 21 percent below their IPO price of $9.50.
The buy-back plan is relatively modest, and will see LightInTheBox purchase up to $20 million worth of its American Depositary Shares (ADSs) over the next year. I’ve said previously that the sell-off that began in August was probably a case of over-reaction, and that the company was probably financially sound even if it exaggerated some of its early financials. Accordingly, I wouldn’t be surprised to see this new buy-back mark the start of a modest rally that could see LightInTheBox shares rise above their IPO price once again.
The outlook is a bit less clear for the big 4 Chinese state-run lenders, all of which announced new buy-backs by Central Huijin on Monday after markets closed in Hong Kong and Shanghai. The latest purchasing saw Huijin boost its stakes in ICBC (HKEx: 1398; Shanghai: 601398), China Construction Bank (HKEx: 939; Shanghai: 601939), Bank of China (HKEx: 3988; Shanghai: 601398) and Agricultural Bank of China (HKEx: 1288; Shanghai: 601288) by modest amounts ranging from 0.04 percent to 0.06 percent. (ICBC announcement; CCB; BoC; AgBank)
These purchases by Huijin are the equivalent of a buy-back for Hong Kong- and Shanghai-listed Chinese firms, which seldom re-purchase their own shares. Huijin has launched at least 3 or 4 such buy-backs over the last 2 years, each time purchasing similar modest amounts of shares. Like the US buybacks, the amounts involved are usually relatively small but meant to send a signal to investors that Huijin stands ready to step in and buy shares when it senses weakening investor sentiment.
In this case, investors have been worried for much of the last 3 years about an imminent bad-loan crisis at the big Chinese banks, following a major lending binge in 2009 and 2010 as part of China’s 4 trillion yuan economic stimulus plan during the global financial crisis. The banks have been engaged in a steady stream of fund raising since 2010 to boost their balance sheets, and many investors believe they will soon start to take major write-downs for many bad loans they have been hiding up until now. I would tend to agree with that view, and would probably be wary of investing heavily in Chinese bank shares for now.
Bottom line: LightInTheBox shares could see some upside in the next 3 months following a new buy-back, while Chinese bank shares will remain under pressure due to excessive bad loans.
Related posts:
