New bottles for old wine?

Panda’s fireworks in 2008

In 2006 a Hong Kong-listed firm called Credit Card DNA Security told shareholders that it would be renaming itself as Smart Rich Energy. The switch came after the security device provider decided to invest in an energy project in Madagascar which had oil and gas reserves rumoured to be worth $900 billion.

Understandably, a few eyebrows were raised. Even the state broadcaster CCTV spent 30 minutes in a prime-time show questioning how such a skyhigh valuation was possible.

The practice of renaming listed firms has become increasingly common for mainland Chinese companies too, as unexciting stocks latch onto new trends and business lines.

Research by Time Weekly shows that 182 listed companies changed their names during 2014. Another 68 have done so thus far this year. The study says that 115 firms opted to do so because of declining profits, while a further 135 were prompted by M&A opportunities or by moving into a new business sector.

According to financial data provider Royal Flush, the stock prices of companies that change their names appreciate by an average of 68% over the succeeding 20 days. The gains rarely last. As Time Weekly warns: “These high frequency name changes are little more than a way of propping up share prices.”

Dong Dengxin, a professor at Wuhan’s University of Science and Technology says the renaming trend reflects the huge pressure many firms are under. “Companies in traditional industries are faced with overcapacity,” he comments. “They are desperately seeking new sources of business.”

Earlier this week, the Shanghai-listed Panda Fireworks, maker of firecrackers for the Beijing Olympics, changed its name to Panda Financial. Its traditional business has been hit by environmental legislation to reduce pollution. According to the China Daily, 138 cities have banned fireworks completely and a further 536 have restrictions on their use.

Panda first attempted to change direction a year ago when it announced that it was moving into the film and television industry. But when that did not work out, it turned to another highflying sector, peer-to-peer lending (P2P).

In January, its founder Zhao Weiping told Tencent News: “There’s no other country in the world where every company can engage in the financial business, but in China we are granted this freedom. This is a once in a lifetime opportunity, so why not?”

Three months later, Panda acquired 51% of an online P2P lender called Shanghai Jiayin Financial Information Services and said that it would sell its firework business by the end of the year.

Whether companies can succeed in completely new business areas is always the doubt. As Time Weekly cautions: “This kind of big talk can attract investors for a while, but in the end it will be performance which supports the share price over the longer term.”

That’s a lesson that Cloud Live Technology has learned the hard way too. As we reported in WiC277, it was formerly a high-end restaurant business by the name of Xiangeqing. Last year, it decided to change its name and move into cloud computing after its catering business fell foul of Xi Jinping’s austerity drive. The refocus didn’t work and last month Cloud Live was the second listed company to default in China’s onshore bond markets.

Panda Financial must be hoping investors give it a little more time to prove itself in online lending. Shanghai Daily says there are now 1,728 online P2P sites in China, with loan volumes rising to a record Rmb49.3 billion ($7.9 billion) in March.

But local credit rating agency Dagong believes that as many as two-thirds of the P2P firms may go bankrupt or run into difficulties.

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