Talk about resiliency in a down market. The Chinese gaming sector (both mobile and internet) has been on fire outperforming the general market by several fold. For the past few years, I have been heavily focused on this sector, but it has taken years to finally see appreciable gains, as investors finally realize belatedly that this is a significantly undervalued sector. Since its February/March lows, Netease (NTES) has climbed from 18 to 30, reaching an all-time high. The stock has essentially traded sideways since 2005 after its first stellar stock move when it nearly quadrupled in price. Its most recent moves comes on anticipated news that it has won the Activision/Blizzard license to World of Warcraft III in China from The9 (NCTY). That said, The9 with a significant portion of its revenue from WoW III, is a stock that I would continue to avoid.
Kongzhong (KONG) has steadily increased since its October 2008 low of 2.31, to hit a new 52 week high of 6.74 this past week. Follower of this blog know that I have been following this company closely over the years. Looking back at my most recent post in regards to this sector and Kongzhong (KONG) back in September 2007, I was spot on in regards to its price action to over $8. It indeed was a short term movement as the stock traded back down to significantly. However, the value of this stock long term remains after its rebound. It has a sizeable cash reserve that accounts for a good portion of its market capitalization and remains profitable (albeit marginally). It also recently received an investment from Nokia Growth Partners. The company received an investment of about US$6.8 million in 5-year convertible senior notes plus warrants to purchase an additional 2.0 million American Depositary Shares (ADS) at US$5.0 per ADS, exercisable within five years.
Shanda (SNDA) has also been a stellar performer. It has risen from 19 in December to 53 this past week. In terms of valuation, they are still relatively cheap. Netease trades at a P/E of 16, with still rising revenue and profitability as the Chinese gaming market appears relatively immune from the global recession/depression. Although the easy short term gains are gone from these stocks, they still represent good long term stock buys, as the market for China remains enormous when compared to the United States.