CyberWorks Ad Promises Miracles; Investors Lose Faith (Update4)
By Thomas Lau
Hong Kong, Sept. 12 (Bloomberg) -- Pacific Century CyberWorks Ltd.'s first television ad since its $28 billion purchase of Cable & Wireless HKT Ltd. is as baffling as some people find its plans.
``With the vision of CyberWorks, coming together with the power of HKT you can expect something miraculous,'' intones an unseen narrator as children chase what look like dazzling digital doughnuts. ``Bringing together people from all countries and cultures and enriching your life beyond your imagination.''
If that leaves you wondering what this company is trying to sell, you're not alone. Investors tired of waiting for CyberWorks to deliver on its promise to be Asia's leading network for digital entertainment drove the stock down 45 percent in six months, making it the Hang Seng Index's second-worst performer. It fell for a fifth day today and may drop further unless it bridges the gap between dreams and reality.
``I have no idea what the ad is all about with the children and the flying balls,'' said Kelvin Choi, an electronic business consultant who used to own HKT stock. ``The only impression that I have is they have spent a lot of money on this.''
The acquisition of HKT, Hong Kong's 129-year-old dominant telephone company, was a climax to a string of acquisitions by founder Richard Li. In under a year, Li turned a start-up into a company with a market value larger than Cheung Kong Holdings Ltd., the real estate arm of his billionaire father Li Ka-shing.
Now, the flow of acquisitions has eased, and in some cases reversed. On Friday, CMGI Inc. and GigaMedia Ltd. pulled out of joint ventures with Cyberworks.
Concrete Plans
Three brokerages switched their recommendations on the stock to ``sell'' during the past two months, saying it's unclear how many HKT staff the company will shed, how much it will spend on new businesses and, most importantly, how long those ventures will take to earn a profit.
``The longer they don't come up with a concrete plan you can dig your hands into, the more they'll get downgraded,'' said Aaron Pong, a director at RBC Investment Management (Asia) Ltd. in Hong Kong, which oversees $200 million in Asian stocks. The new ad's lack of focus ``just reinforces peoples' view,'' he said.
Richard Li blames CyberWork's slump on a decline in global Internet stocks rather than loss of faith in its plans and says HKT's earnings and management expertise set it apart from rivals.
``We now have very strong cash flow to fund our Internet push going forward,'' Li said in an interview. ``They are very good in financial control and engineering management, while we are much quicker in doing deals.''
Under pressure to show it has a service that will eventually repay its $5 billion in debt, CyberWorks is starting Websites and television channels, often in an embryonic state.
``CyberWorks has yet to show its earnings capability'' especially from its Websites, said Norman Yuen, a fund manager at Value Partners Ltd., which manages $150 million of China stocks.
Imagination
The Network of World service, started in June, includes an Internet portal and a satellite television service. Viewers of NOW on televisions, computers and mobile phones can call up text, sound or video on everything from skydiving to punk rock. They can even `space-race' their way round a futuristic track.
Many users will have to use their imagination to enjoy the site, however. Only 4 million homes in Asia now have high-speed broadband connections so many logging onto www.now.com are greeted by this message: ``For optimal experience on this site you need broadband.'' Others may stumble at the English-language text.
Chris Cheung, an analyst at WorldSec International Ltd. who has a ``sell'' on the stock, said the Website needs to provide more relevant local material. CyberWorks won't introduce Chinese and Japanese language content until next year, although a channel and a site will start up in India later this month.
``It is interesting that the ad didn't say anything about NOW,'' said James Loh, an analyst at Typhoon 8 Research Ltd., which is among the three of 12 analysts with a ``sell'' rating. ``Maybe they know their content is not good enough at the moment.''
Experimental
Hong Kong's I-Cable Communications Ltd. started carrying NOW on one of its cable TV channels two weeks ago. The channel, which CyberWorks is marketing to other networks in Asia, runs through short music, sports and documentary clips available on the site without allowing interaction.
``What they are trying to pitch is not something traditional but innovative, maybe even at this stage, a bit experimental,'' said Samuel Wong, vice president of corporate development at I- Cable. ``Like many new things, it's going to take time to improve.''
CyberWorks' choice of I-Cable raises questions about its confidence in ITV, an HKT company with an interactive television service that had similar ambitions as CyberWorks. ITV's slow subscriber growth -- it won just 90,000 subscribers in two years compared with 480,000 at I-Cable -- scuppered a joint venture with News Corp.'s STAR TV channel in May.
``I'd rather see them close it down, start again and do something better,'' said RBC's Pong, whose holding in CyberWorks is lower than its weighting in the Hang Seng Index.
Some of CyberWorks' own partners are also getting cold feet as the company's stock slides. GigaMedia, one of Taiwan's largest Internet service providers, pulled out of a venture to distribute video content online on Friday, a day after CMGI, a U.S.-based Internet investment company, scrapped plans to start a fund with CyberWorks.
Future
Granted, Cyberworks stock, down 17 percent in five days to HK$12.20, is still double its price a year ago. It's seeking a high-profile global telephone company to buy Cable & Wireless Plc's 20.2 percent stake and has lined up other partners in China, India, Japan and Taiwan. In Hong Kong, its purchase of HKT will win it access to 561,000 narrowband and 77,000 broadband Internet users.
Yet CyberWorks' latest ad sheds no light on these plans.
Set to the backing track of an as yet unreleased song by Cantopop star Jackie Cheung, ``Sparkle of My Life,'' one set of children plays with computer chips and another set clutch sparkling fiber optic cables. They bind the chips with fiber to form UFO-like discs.
``The settings represent the merging, with one child playing with one thing and another child playing with another thing,'' said spokeswoman Joan Wagner. ``When they show it in the air -- it's to symbolize the union.''
Company officials declined to say how much the campaign cost, although its slots on Hong Kong channels and on Asia-wide cable channels such as CNN often run regularly at peak times.
The ad may have found at least one target audience. After watching it recently, one three-year-old expatriate girl in Hong Kong turned to her father and said, ``Daddy, I want a CyberWorks!''
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