Richard Li's Pacific Century CyberWork #8 found that it does not just rain, it pours, and keeps on pouring. PCCW's price yesterday fell to $4.2, down 35 cents on the day after having hit $4.15. The excuse was that Cable and Wireless's next tranche will be freed for sale next month and enthusiastic journalists expect it to be sold "at best" and that will mean an achieved level in the $3 region.
Unfortunately PCCW's asset, or intrinsic value, is in decline, because the fact is that interest rates are gobbling up more than the company is earning, and therefore this means either that they need to sell out assets to pay the interest, as had happened when they reached a deal with Telstra, or that they increase their indebtedness. The company is trying very hard to adopt the third option, which is to increase revenues, but that is being resisted by market forces and by the fact that permission for some increased charges needs to be obtained from the government telecoms authority.
It is for this very reason that an investor cannot just take the telecom, the backbone of Hong Kong Telecoms, and value it, using the last quoted price before Cable and Wireless got it off their chest into PCCW, because much of what had been the pillars of HK Telco have now been dissipated, for example the ample cash received from government for losing its monopoly has now been handed back to shareholders, and not only that they have saddled the balance with massive debt.
PCCW had been, originally, a property company developing a site at Pokfulam, and onto this had been grafted a venture capital company, as well as hopes for an Interent and a broadband dream. However, when one wakes up from a dream one faces the harsh reality of real life, and at present there is no way in which PCCW can contend with this.
The 2000 results will be released, hopefully, during March, and these will look absolutely ghastly, as not only is there a revenue loss but the assets will need to be written down following the severe collapse of many of its venture capital projects, and the markdown of most of those that are still extant. So far as one can see even after the 2000 results have been uttered the 2001 results will not in any way shine, so a purchase, even a speculation trying to cash in on a rally, is sticking his neck out if he buys before, at best, April 2002, because up until then the major direction of this share will be downward, and it is difficult to ride against the current.
Nevertheless other tech stocks mainly headed north. China Mobile, #941, gained $1.3 to $46.4, a level which will become more and more precarious. The 2000 profit figures should be released during March, and there is no guarantee that these will be up to general public expectations, and the probability is that the company will need to provide against obsolescent equipment again, as this is part of the company's ongoing business, because of the persistent progress within this chosen field. Legend, #992, also another Chinese tech stock, added 20 cents to $5.85, a tight rope which it will be increasingly hard to maintain its balance, as this values the company at $43.7 billion, whilst perhaps for the completed year to March 31, 2001 are unlikely to reach even $1 billion, so at a PE of well over 40 times buyers will be sitting in a canoe without a paddle.
ASM Pacific, #522, up by a () $2 to $13.7, QPL Int'l, #243, up 50 cents to $4.925, Varitronix, #710, up 60 cents to $8.25 and VTech, #303, up 55 cents to $6.7 were all up on the day. These shares are on attractive PE ratings, but those PE ratings are based on earlier figures, and an investor is not privy to the current level of sales. We would assume that it will be lower, although in U.S. the problem is not a fall-off in the sales of computers and related equipment, but in a slow down in the rate of growth. Whilst U.S. show prices are falling because of the very high expectations which had been explicit in their shares, the actual turnover is holding quite well. The Hong Kong companies' share prices are not so pregnant even to the extent of being quite cheap, so these falls could be quite unjustified, and a rally could well be prolonged.
Computer and Tech, #46, a favored systems analyst by Hutchison stable, rose 57.5 cents to $3.5, although this was perhaps more of a relief rally which is less likely to be capable of being sustained. Profit levels are quite steady, but in relation to the capitalization are miniscule.
Cathay Pacific, #293, did its best to deny the remarks, or at best, to be polite, to clarify them, when the statement to Singapore's analysts by Martin Cubben was denied, and that his warning that Cathay's profit would be "flat" this year was nonsense. This we had already assumed as the 1999 profits had already been matched in the first half, meaning that there would be a loss during the second half. This share may be on the cheap side and our range would be $12, buy, $16, sell, and take appropriate action in between, if you have to do something. (End)
Daily Commentary
Jan 16, 2001 - 10:37:29 HKT
Quam Research
quamnet.com |
