TALES OF THE TAPE: New Oriental’s Outlook Healthy,Despite Flu

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Swine flu fears kept students from enrolling in New Oriental Education & Technology Group’s (EDU) summer classes, hurting quarterly results, but long-term growth prospects are intact as the company benefits from enthusiasm for learning English in China.

New Oriental, which offers language classes for children and adults, saw record cancellations and deferments for summer classes because students and parents were concerned about H1N1, commonly called swine flu. Revenue increased 26% when analysts were expecting 31% growth.

As a result, the company’s American Depositary Shares are down 11% since its fiscal first-quarter earnings report last week. However, the swine flu effect is expected to be temporary and New Oriental’s earnings per share are expected to grow 40% this fiscal year, according to Thomson Reuters.

“The swine flu is like any other natural disaster. It may last a quarter or two, and then it goes away,” said Brandon Dobell, an analyst with William Blair & Co. He added that this was the first time the company missed expectations in two years, and that’s what hit the share price.

The company expects flu fears to continue to hurt enrollment during the current quarter.

“The adverse effects on our business from the fear of H1N1 will gradually subside as the H1N1 flu vaccine has been made available in China this month,” said Minhong Yu, New Oriental’s founder and chairman.

New Oriental ADSs closed Friday at $72.33. The ADSs are up 32% this year, compared with a 20% gain in the S&P 500.

The English-language training market in China was valued around $1.9 billion in 2004 and is expected to double in 2010, said Robert W. Baird & Co.’s analyst Amy Junker.

William Blair’s Dobell said, “Parents still want to send their kids to learn English as early as possible and kids still need to take tests to get into elementary schools, middle schools and colleges.”

New Oriental began it operations helping college students prepare for overseas language tests in 1993 and has expanded into broad English education.

The company now has 287 learning centers, expanding beyond major cities, and is the largest provider of private English education in China, based on number of programs, student enrollment and geographic scope. As far away as Anshan, a small town hundreds of miles north of Beijing, New Oriental opened an English-learning center last year where parents are willing to spend hours waiting in line to get their children into the program.

New Oriental’s success has prompted competition in the market, with Global IELTS Group and NeWorld Education Group both gaining private-equity financing. Neither company is traded in the U.S.

NeWorld specializes in Japanese training. New Oriental offers Japanese and other languages but says English is its most popular program.

For the quarter ending Aug. 31, New Oriental reported net income of $57.1 million, up 27% from a year earlier, on revenue of $149.4 million.

 

-By Kate Zhao, Dow Jones Newswires; 212-416-2665; ying.zhao@dowjones.com

NetEase Shares Fall As China Restricts Online Gaming

   By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Shares of NetEase.com Inc. (NTES), China’s largest online gaming company by market capitalization, slumped Monday as Chinese authorities have banned foreign investors from operating online games “in any form” in the country.

China’s General Administration of Press & Publication and National Copyright Administration announced Friday that no foreign-invested companies are allowed to operate online games in China either through setting up wholly owned enterprises or joint ventures and cooperatives.

The decision contradicts an earlier one made by the Ministry of Culture, which in late September allowed NetEase to relaunch the World of Warcraft, an international game, with Blizzard Entertainment, a subsidiary of a U.S. online game developer Activision Blizzard Inc. (ATVI).

But “in what appears to be a never-ending story, the relaunch has taken another interesting turn,” said Roth Capital Partners analyst Adam Krejcik. The decision aims “to prevent overseas firms from participating in or effectively controlling online game operations,” said Krejcik.

Shares of NetEase dropped 5.3% to close at $38.35, after falling as low as $36.15. Shares of other Chinese online game companies also fell, with Perfect World Co. (PWRD) down 4.2% and Changyou.com Ltd. (CYOU) falling 1.3%.

NetEase had decided to commercialize the World of Warcraft in late September without GAPP approval. With the new regulation, the administration will probably try to shut down the game again, analysts said.

“NetEase is stuck in the middle of an ugly power struggle between two government agencies in China,” said Krejcik. “Therefore, siding with one government department is risky and could result in longer term problems for NetEase.”

China’s online game players reached 49.4 million in 2008, the largest online game population in Asia. The industry generated revenue of $2.7 billion last year, representing a 76.6% increase over 2007, according to International Data Corp.

-By Kate Zhao, Dow Jones Newswires; 212-416-2665; ying.zhao@dowjones.com

ViroPharma Shares Fall As Rival Gets Marketing OK For Drug

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Shares of ViroPharma Inc. (VPHM) dropped Monday after the U.S. Food and Drug Administration announced marketing approval of Australian biopharmaceutical company CSL Ltd.’s (CSL.AU) treatment Berinert for acute abdominal or facial attacks of hereditary angioedema.

The approval spurs competitive concerns for ViroPharma’s Cinryze, which is also approved to prevent hereditary angioedema symptoms that involve episodes of swelling in various body parts.

“There has been concern amongst investors that Berinert could be a formidable competitor to Cinryze and capture market share in the prophylactic setting,” said ThinkEquity analyst Brian Skorney.

ViroPharma shares dropped 3.6% to $9.45 in recent trading and are off 27% so far this year.

But company spokesman Robert Doody denied the possibility of increased competition or market share loss, saying the drugs are approved for different indications. Cinryze is approved to prevent HAE, while CSL’s Berinert is approved to treat the attacks themselves.

“The labeled indications are important from a commercial perspective because it limits the marketing activity of either company,” said ThinkEquity’s Skorney, adding that neither company would take the risk of marketing illegally.

Still, there has been speculation that Berinert’s approval could lead to off-label competition between the two companies.

“Once a drug is approved, it is up to physicians how to use it,” Skorney said.

 

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Shares of ViroPharma Inc. (VPHM) dropped Monday after the U.S. Food and Drug Administration announced marketing approval of Australian biopharmaceutical company CSL Ltd.’s (CSL.AU) treatment Berinert for acute abdominal or facial attacks of hereditary angioedema.

The approval spurs competitive concerns for ViroPharma’s Cinryze, which is also approved to prevent hereditary angioedema symptoms that involve episodes of swelling in various body parts.

“There has been concern amongst investors that Berinert could be a formidable competitor to Cinryze and capture market share in the prophylactic setting,” said ThinkEquity analyst Brian Skorney.

ViroPharma shares dropped 3.6% to $9.45 in recent trading and are off 27% so far this year.

But company spokesman Robert Doody denied the possibility of increased competition or market share loss, saying the drugs are approved for different indications. Cinryze is approved to prevent HAE, while CSL’s Berinert is approved to treat the attacks themselves.

“The labeled indications are important from a commercial perspective because it limits the marketing activity of either company,” said ThinkEquity’s Skorney, adding that neither company would take the risk of marketing illegally.

Still, there has been speculation that Berinert’s approval could lead to off-label competition between the two companies.

“Once a drug is approved, it is up to physicians how to use it,” Skorney said.

 

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

Acuity Brands Shares Rise Before 4Q Report; Stimulus To Help

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Shares of Acuity Brands Inc. (AYI) jumped more than 6% Tuesday, a day ahead of its fiscal fourth-quarter results, as analysts weighed the potential for the lighting-fixtures manufacturer to see improving market conditions driven by the U.S. stimulus plan.

Acuity and rivals have been positioning their lighting and control portfolios for energy efficiencies while cutting costs, including layoffs, in response. The U.S. stimulus package may give the sector a boost late this year, while broader pending energy legislation could provide a long-term catalyst.

Wedbush Morgan Securities analyst Craig Irwin said as the largest lighting fixtures manufacturer in the U.S., Acuity will become one of the biggest winners of the market opportunity in stimulus-plan funded projects.

“There is probably a couple of hundred of million dollars for lighting there, and Acuity can capture a share of that,” he said.

Irwin also added that in Wednesday’s conference call, there is a good possibility the company will detail how much it expects to receive from the stimulus plan.

The U.S. Department of Energy has disbursed $1.4 billion this year to 1,200 projects under the first round of energy-efficiency block grants from the stimulus plan, under which there is $66 billion available in funding for construction and energy efficiency projects.

“The disbursement was the first tranche of energy efficiency funding we expected to materialize in the end markets,” said Irwin, who added the question remains when the full effect of the stimulus plan will be felt.

Acuity shares closed up 3.4% to $32.49 after earlier soaring as high as $33.39 amid a broad market rally.

Although the benefits won’t show significantly in Acuity Brands’ fiscal fourth quarter ended Aug. 31, Irwin expects to see a stronger return in sales both in the company and in the lighting fixture sector in 2010.

Building completions remain as a major driver of lighting fixtures demands, but Irwin said he remained conservative in both the company and the sector because lighting usually lags in a recovery.

For the fourth quarter, analysts surveyed by Thomson Reuters expect per-share earnings to tumble 44% to 57 cents and revenue to drop 23% to $405 million.

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com