I-Cable's Deal of the Century
worldlyinvestor.com
By Alysha Webb
Correspondent
10/17/2000 05:05 PM
In recent weeks, analysts have talked up the charms of little-known I-Cable Communications (ICAB: Nasdaq), the lone pay-TV provider in the Special Administrative Region of Hong Kong. New deals with potential competitors and low costs per subscriber could spell big profits, according to the company's followers.
A recent deal with Pacific Century Cyberworks (PCW: NYSE) has help put I-Cable on the map. I-Cable will soon carry Pacific Century's regular cable service. Down the road, I-Cable will carry Pacific Century's broadband programming as well. Pacific Century offers regular and broadband cable content through its Network of the World (NOW) brand.
That news prompted Credit Lyonnais to upgrade I-Cable to a "trading buy" recommendation from "long-term buy." A trading buy means a short-term development may boost the value of the stock on a short-term basis.
"We think that it has been oversold and the recent positive development could provide some upside," says Credit Lyonnais telecom analyst Stephen Leung. He has a target price of HK$4.00 for I-Cable within the next six to 12 months. The Hong Kong-listed company, which also trades as an American depositary receipt, recently traded hands for HK$2.85. The ADR closed at $6.25 on Tuesday, close to a 52-week low.
Leung concedes that the PCCW deal is still in the experimental stage, and will likely contribute only a small part of I-Cable's revenue for the immediate future. But it is still "positive because I-Cable is using a part of its infrastructure more competitively," he adds.
Broadbanding Its Horizons
While I-Cable is capable of reaching almost all Hong Kong homes, only about 25% subscribe. The Pacific Century agreement will utilize some of that idle capacity, Leung explains. And Pacific Century is upgrading its existing networks to broadband, so it will carry NOW broadband content in the future.
Paying for cable TV is an accepted fact in the US, but it's relatively new to Hong Kongers, who have long enjoyed free cable access, albeit with limited programming. They have been slow to warm to the pay-TV concept. Even though I-Cable has been marketing its service for seven years, it still has only about 480,000 customers.
"Pay TV service in Hong Kong is getting more popular, but still lags behind in market value because it is still something relatively new," Leung says.
Though some might see this as a negative for I-Cable, Indosuez WI Carr's Greg Feldberg sees it as a big plus. Since I-Cable subscribers account for only about 25% of Hong Kong households, there is plenty of room for growth, he points out.
Service Enlistments
I-Cable is partnering with other powerful players to grow its service base. For example, I-Cable and IBM China/Hong Kong launched a cornucopia of broadband e-business solutions for small- and mid-sized businesses in late March, which will be delivered through I-Cable's expanding broadband network.
And in mid-March, I-Cable joined with six other Hong Kong conglomerates and US B2B giant Commerce One (CMRC: Nasdaq) in setting up a B2B trading site for the Greater China Region using Commerce One's platform.
Still, other developments in the Hong Kong cable world have some analysts worried. A few months ago, the Hong Kong government awarded six new pay TV cable licenses, representing possible competition to I-Cable, points out an analyst at a Hong Kong-based brokerage who asked not to be named.
In fact, the new licensees are a double-edged sword for I-Cable. On the one hand, the new entrants mean new business for I-Cable, since some will undoubtedly decide to use I-Cable's network to distribute content. On the other hand, some of the entrants will use satellites to distribute, points out Leung.
Now Accepting Bids
But I-Cable's programming costs could soon rise. I-Cable currently buys its content from outside suppliers, but "if more carriers come into market they will all compete for the content and that will bid up the price," says Leung. The new carriers will also compete with I-Cable for subscribers, he adds.
Indoseuz's Feldberg thinks the stock is cheap when compared with other major cable companies around the world. Comparable cable companies like Cablevision (CVC: NYSE) and Cox Communications (COX: NYSE) are valued at roughly $4,000 per subscriber. But Feldberg points out that I-Cable is valued at just $1,700 per subscriber.
"It's a bargain compared to all the cable companies I know of anywhere in the world," he says. Feldberg has a target price of HK$4.50 by mid-2001.
"This is the time to start looking at (I-Cable). It's down about 70% from its IPO" in November, he says enthusiastically. |
