Heard in Asia - Analysts Are Wary of Li's Talk Despite CyberWorks Rebound
interactive.wsj.com
By JASON BOOTH
Staff Reporter of THE WALL STREET JOURNAL
Does Richard Li have more than just another deal up his sleeve?
Pacific Century CyberWorks' share price jumped 4.1% Wednesday on talk that the company might make a major announcement Thursday, following the release of its interim results.
The buzz got a little louder after Michael Dell of Dell Computer told the media later Wednesday that he was talking with Mr. Li about "broader cooperation" between the two companies.
After the pummeling the stock has taken over the past month -- it is down around 40% -- any good news would be greatly welcome by investors. But fund managers and analysts warn that the days when Mr. Li and his company can drive up the share price on news of speculative joint-venture projects are long gone.
Join the discussion: What can Richard Li and CyberWorks do to reassure investors that it can deliver on its promise for new services?
"As an investor we'll be looking for organic growth, not alliances and joint ventures with other Internet firms." says Ambrose Chang, fund manager at International Capital Management in Hong Kong. Limited Information
The semiannual results will be of only limited value on this front be cause they won't include Cable & Wireless HKT; CyberWorks closed its purchase of HKT in August. But while they won't say much about what Mr. Li intends to do with his telecommunications assets, they will shed some light on just how much money is going into CyberWorks' Internet operations.
"I think they will say something about how much they are spending on Network of the World [CyberWorks' broadband Internet service]," says Chris Cheung, analyst at Worldsec International. Included in the numbers will be the cost of setting up CyberWorks' content-production facilities in London. Given that producing Internet content on a large scale is a new industry, such figures will offer a taste of how much CyberWorks must spend as it expands its production capabilities around the world.
And indications are that the analysts will also be getting a taste of what kind of money the combined company could be generating.
"We will be giving some information to help the market understand the trend of the combined company," says company spokeswoman Joan Wagner.
Any such information would be greatly appreciated by the analyst community that covers the company. After all, many analysts have been thoroughly burned by the plunge in CyberWorks' share price. Of the 12 brokerages with published reports on CyberWorks in early September, 10 had buy or outperform recommendations, according to I/B/E/S.
As for the much-anticipated announcement, analysts are particularly hopeful that the company will say it will start buying back stock. A buyback would be a savvy move to boost investor confidence, especially given that CyberWorks' share-price plunge got its start after Mr. Li and other directors started offloading parts of their own holdings in the company in August.
Yet the most likely announcement is that the company is expanding its operation in China. One theory is that the company will announce the establishment of a content-production center on the mainland. Another is that it will unveil agreements to distribute CyberWorks' Network of the World in China.
Dark Cloud Remains
Unfortunately for CyberWorks investors sitting on big paper losses, neither one of these developments is likely to dispel the gloom that sur rounds this stock.
While a Chinese content center would be a valuable step toward its goal of generating more Asian content, all it will mean to investors is more capital expenditure on a project that could take years to generate profits. For starters, CyberWorks doesn't have the Chinese-language content ready to deliver to homes. And even if Network of the World gets delivered to a few million Chinese homes, it's unlikely CyberWorks will make much money off it: Most analysts doubt that Chinese cable sub scribers have enough money to make e-commerce or online advertising worth the cost of setting up the service.
Even CyberWorks' biggest sup porters are dubious about the value of such an announcement.
"Existing content is something that Chinese subscribers have proved unwilling to pay for," says Devgan Sanjeet, analyst at Prudential-Bache Securities, who still maintains a "long-term strong buy" on the stock.
He noted that Chinese cable subscribers pay only around 15 yuan (US$1.81) a month for cable service, a fee unlikely to reward CyberWorks for its investments in that nation.
The bottom line is that such localized developments will do little to dispel the worry that most investors feel toward this company. In the short term, much of that worry is focused on whether the US$3 billion joint venture with Australian telecommunications outfit Telstra -- which is expected to close by the end of the year -- will fall through.
"Without Telstra, CyberWorks would have to raise more debt to finance NOW," points out Eric Lau, analyst at Vickers Ballas, which downgraded its recommendation on CyberWorks in August from buy to hold.
In the longer term there is the overhang of a 14.2% stake that Cable & Wireless still holds in CyberWorks. The British company is expected to sell another large chunk of that holding early next year.
A real coup for investors would be if Mr. Li -- in a sign that his deal making prowess has returned -- could find a partner to buy out Cable & Wireless.
Even David Webb, an independent analyst who has been the most consistently negative voice on CyberWorks over the last year, admits that such a deal would improve his view of the company, albeit marginally. "It would certainly help the stock. But it would mean bringing in a sizable international partner," says Mr. Webb.
Cyberworks closed up nine Hong Kong dollars (US$1.15), up 35 Hong Kong cents. |
