Shanda Faces Fierce Competition
Shanda Interactive's (SNDA) revenue and earnings for the fourth quarter showed strong growth, which exceeded market expectations. We think Shanda's results demonstrate the strengths of its item-based revenue model and its comprehensive operating platform, despite the fierce competition in the Chinese online gaming market.
However, we are concerned how long the company can maintain this growth momentum without new hit games in this competitive market. Therefore, we are maintaining Hold rating on Shanda.
Based on our estimate for fiscal year 2008 earnings per ADS, the stock is trading at 18.8x, which is much lower than the industry average and similar to its Chinese peers. Based on our estimate for fiscal year 2009 earnings per ADS, the company is trading at 14.2x, which is still far below the industry average. Using a P/E multiple of 15.0x our fiscal year 2009 earnings per ADS estimate yields a target price of $39.00 which we believe reflects the company's prospects.
Better Partnerships than TEPPCO
TEPPCO Partners (TPP) posted significantly better-than-expected first-quarter 2008 recurring earnings on the back of upstream strength and contribution from new midstream projects, which more than offset downstream weakness. The upstream and midstream segments posted year over year increases in EBITDA of 29% and 22%, respectively.
Importantly, TEPPCO raised its quarterly cash distribution to $0.71 per unit (annualized $2.84 per unit) from $0.695 per unit (annualized $2.78 per unit). While TEPPCO units trade at a discount to the peer group, it is primarily due to its tepid distribution-growth prospects. As such, our Hold recommendation remains unchanged.
The relatively unfavorable macro backdrop characterized by restricted access to capital continues to weigh on the entire market in general and MLPs [master limited partnerships] in particular. As a result, yield spreads have widened significantly for the entire group.
Our unchanged $35 price objective reflects a 5% distribution growth to $2.98 per unit over the next twelve months and a target yield of 8.55%. Our yield expectation is based on a yield spread of 405 bps over our 10-year Treasury bond yield expectation of 4.5%.
Churn Rates Holding Back NII
NII Holdings (NIHD), formerly known as Nextel International, is licensed to provide wireless services in Mexico, Brazil, Argentina and Peru. The company remains challenged with higher churn levels than expected and a possible slowdown in regional economics that may impact business communications needs.
However, overall demand of wireless services in Latin America, in the longer term and the company's expansion activities into untapped markets remain encouraging.
