Yucheng Shows How Dire Chinese Bank Situation Is (YTEC)

Posted in pre-market 
January 29th, 2010

Yucheng Technologies Limited (NASDAQ: YTEC) is getting killed after the IT-solutions provider for Chinese banks reported earnings.  The company’s guidance for 2010 is awful as a direct play on Chinese bank spending post-cuts that have now been mandated.

The company is offering some clarity over the Chinese loan-halt situation: “We believe that the prospective reserve ratio increase by the People’s Bank of China and the possibility that non-performing loans may increase in the near future, which would adversely affect the profits of Chinese banks, caused Chinese banks to reevaluate their spending and contract signings ahead of the New Year. As a result, contracts that management had been negotiating in the fourth quarter 2009 have slipped into 2010, and as negotiations progress may become more limited in scope or provide lower margins. We anticipate banks to remain cautious initiating new projects in the near term. Overall, the shifts in the banking market caused us to experience a revenue shortfall in the fourth quarter of 2009.”  In short, business is falling off a cliff.

The company issued guidance based upon uncertainty based on approximately 25% growth on the top-line and 10% to 15% growth on the bottom-line.  That puts first quarter 2010 expectations of revenues of $11.6 to $12.2 million and non-GAAP EPS of $0.08 to $0.10. Thomson Reuters has estimates at $0.08 and $13.5 million in revenues.

The 2010 annual guidance expectations are where things fall off the proverbial cliff…. revenues guidance $65 to $68 million and non-GAAP EPS of $0.30 to $0.36, versus Thomson Reuters estimates of $0.91 EPS and $84.14 million in revenues.

At 9:00 AM EST we have just hit 1 million shares and the average volume is 165,000 shares.  The price drop is horrific… -48% at $3.48.  The 52-week range had been $4.06 to $9.64.  Shares closed at $6.74 yesterday and had been $8.00 just two weeks ago.

JON C. OGG

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