-- SL: Pac Cent CyberWorks: Joint Venture With Hikari Tsushin in Hong Kong --
07:17am EST 30-Dec-99 Lehman Brothers (Stephen McKeever, 2869 3835; Ravi)
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Ticker: 1186.HK 52wk Range: HK$0.15-HK$19.50 Rank(Curr): V1-Buy
Price : HK$17.10 Rank(Prev): V1-Buy
Today's Date: 12/30/99
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* Pacific Century Cyberworks (PCCyb) has teamed up with Hikari Tsushin (HT) of
Japan to take control of Golden Power International Holdings, a Hong Kong-
listed company.
* We believe that Golden Power will become HT's vehicle for its Internet
investments in Asia ex-Japan.
* We view PCCyb's involvement in this venture as a positive as it represents a
deepening of the company's relationship with one of Japan's leading Internet
companies, which should benefit PCCyb as its seeks to roll out its Internet
businesses in Japan.
Key Points
Pacific Century CyberWorks has announced that it will take a 20% stake in
Golden Power International Holdings (GPIH), while Hikari Tsushin (HT), a
Japan-based distributor of cellular telephones and Internet investor, will
take a 51% stake in GPIH, rising to 55% should HT convert HK$93.4 million
worth of convertible bonds that it also is taking up. HT has said it will
change the name of GPIH to Hikari Tsushin International.
Prior to this deal, HT and PCCyb have been co-investors in Star East.Net, the
celebrity web site; Outblaze, a web solutions and community products provider;
and CASH Online, an online broker - all of which are based in Hong Kong.
We believe that Golden Power is likely to become HT's vehicle for Internet
investments in Asia ex-Japan. Having control of a Hong Kong-listed vehicle
will allow HT to pursue its investment strategy in Asia separately from its
strategy in Japan, where the market is at a different stage of development and
where the competitive environment is very different.
Both companies believe they have a similar management philosophy with more
focus being placed on the synergies which can be generated between their
respective operating businesses than, say, Softbank (9984, 97,800, rated 1-
Buy), which is more of a pure investor.
A Hong Kong-listed vehicle will also allow HT to raise cash and use its shares
for future acquisitions and investments. Given the enthusiasm for technology
and Internet plays in Hong Kong, this looks like a smart move by the Japanese
company.
We believe that the main benefit to Cyberworks will be that HT will likely act
as its local partner in Japan, assisting PCCyb to roll-out its Internet
business in Japan, with the Network-of-the-World (NOW) digital TV and
broadband Internet business being foremost among them.
One of HT's most valuable assets is its network of 1,700 outlets through which
it distributes cellular handsets and administers customers' service contracts
with the network operators. We believe that these shops could become a
possible distribution network for PCCyb's e-commerce offerings, along the same
lines as Yahoo! Japan distributes through Ito-Yokado's Seven-Eleven Japan
stores.
COMMENT
PCCyb management has commented on a number of occasions that its pan-regional
strategy is based on teaming up with well-placed local players who can help
the company to execute its strategy more efficiently and more quickly than
might have been the case on its own. We believe that the deepening of the
company's relationship with Hikari Tsushin is another move in this vein.
We also believe that HT will help PCCyb to identify promising investment
candidates in Japan by providing the Hong Kong company with market
intelligence. Of course, PCCyb will do the same for HT in Asia.
While PCCyb's share price has more than doubled in the past 10 days, PCCyb
remains one of the few ways to play the broad-based growth of the Internet in
Asia, although we would concede that the current valuation already discounts
much of the upside which would emanate from the successful roll-out of the NOW
network, which is scheduled to begin in the first half of 2000.
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Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the
past three years a public offering of securities for this company.
B-An employee of Lehman Brothers Inc. is a director of this company.
C-Lehman Brothers Inc. makes a market in the securities of this company.
First Call Corporation, a Thomson Financial company.
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