Investors in New Love Affair With IT Outsourcers 中国IT外包公司营收增长令投资者振奋

By newsdoug on November 16, 2011

VanceInfo, HiSoft thrive on strong outsourcing Forget about profits, and just show us some good top-line growth. That seems to be the message from investors for China IT outsourcing firms, following the latest results announcements from VanceInfo (NYSE: VIT) and HiSoft (NYSE: HSFT) that show solid revenue growth even as profits sank in their latest reporting quarters. VanceInfo shares shot up nearly 17 percent after its third-quarter results announcement (company announcement), while HiSoft shares also rose a more modest but still healthy 5 percent. (company announcement) In VanceInfo’s case, investors appear to be excited about accelerating revenue growth, which the company said will rise sharply to 41 percent in the fourth quarter from 26 percent growth in the third. By comparison, HiSoft said its revenue growth will be about the same in the fourth quarter as it was in the first 9 months of the year at about 45 percent. The strong revenue growth for both companies contrasts sharply with their other US-listed peer, Camelot Information Systems (NYSE: CIS), whose results took a hit last quarter due to its reliance on business from Chinese banks, which are reining in spending under orders from Beijing. (previous post) By comparison, VanceInfo gets the bulk of its business from the telecoms sector, which is spending heavily to build new 3G networks, while HiSoft gets about three-quarters of its business from the US, Europe and Japan, which are obviously not subject to Beijing’s whimsy. Despite the rosy revenue pictures, both VanceInfo and HiSoft saw their third quarter profits drop, with the former’s net profit down by half while the latter’s fell 12 percent. Clearly this drop isn’t of concern to investors, who probably are willing to tolerate higher costs if it means the company is investing for bigger profits further down the road. I personally do like the IT outsourcing space for its big growth potential, though, like any other industry it will also be subject to cyclical tech spending. All that said, the outlook does seem to look good, especially for VanceInfo, for the next 6-12 months.

Bottom line: China’s IT outsourcing sector looks like a strong bet for the next 6-12 months, especially for companies with exposure to tech and Western markets.

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