On the wires:
(PR NEWSWIRE) Lehman Brothers: HL Korea Thrunet: Strong 3Q99 Results; Pric
Lehman Brothers: HL Korea Thrunet: Strong 3Q99 Results; Price Target Raised to
US$130
HONG KONG, Dec. 17 /PRNewswire/ -- The following press release was issued
earlier today by Lehman Brothers:
Ticker: KOREA 52-Wk Range: US$84.00-US$34 3/4 Rank (Curr): 1-Buy
Price (12/16/99): US$72 Price Target: US$130 Rank (Prev): NA
Today's Date: 12/17/99 Fiscal Year End: Dec 31
YEAR 1998A 1999E 2000E 2001E
Actual Prev. Curr. Prev. Curr. Prev. Curr.
Curr. Rev.
(US$ Mil.) $8 $55 $59 $99 $112 $167 $190
Rev.
(Won Bil.) W9.0 W62.3 W66.8 W112.7 W126.6 W189.6 W215.3
Return On Equity: NA Proj. 5-Yr Rev. Growth (99-04): 63%
Fully Diluted Sh. Outstanding:70.4 Mil. EV/Rev. 99E;00E;01E: 86x; 47x; 25x
Mkt. Capitalization: US$4,711 Mil. Disclosure(s): n/a
Exchange Rate (W/US$1): W1,133.5(12/14/99)
-- Thrunet reported strong 3Q99 results, which were ahead of expectations
on all business metrics.
-- 3Q99 revenue was W20.3 billion (US$17 million), up 755% year on year
and 31% quarter on quarter. This put the company 16% ahead of our
forecast of W17.5 billion, for the period.
-- Operating cash flow turned positive at W1,275 million (US$1 million)
in 3Q99, two quarters earlier than our expectation.
-- The total number of end users reached 112,995 at the end of November,
beating our year-end forecast of 106,044.
-- The recently opened Thrunet portal achieved 800,000 average daily page
views, versus our forecast of 400,000.
-- We are raising our forecast, DCF valuation and share price target for
the stock. Our share price target has increased from US$100 to US$130
and we would buy the stock aggressively at current prices.
Korea Thrunet (Thrunet) (Nasdaq: KOREA) reported impressive 3Q99 results
from both a financial and an operational standpoint.
Revenue: Total revenue reached W20,331 million (US$17 million) in 3Q99,
16% ahead of our forecast of W17,483 million, as a result of strong subscriber
growth. Revenue derived from broadband Internet access services grew to
W6,913 million (US$6 million), an increase of over 80% quarter on quarter, and
45% ahead of our forecast of W4,774 million. Broadband access services
contributed 34% of the company's total revenue in 3Q99 compared with 25% and
3% in 2Q 1999 and 3Q 1998, respectively, ahead of our forecast of 27% for the
period. Revenue from data communications services increased 15% quarter on
quarter to W13,417 million (US$11.0 million), slightly ahead of our forecast
of W12,709 million for the period.
Broadband Internet Service End Users: The total number of end users rose
90% from end of Q2 1999 to 112,995 at the end of November, exceeding our
year-end forecast of 106,044. Of these users, the total number of residential
users was 42,177, with the remaining 70,818 as commercial users. Our
forecasts for the total number of residential and commercial users at the end
of 1999 were 39,219 and 66,825 respectively.
Operating Cash Flow: On December 14, 1999, Thrunet reached an agreement
with KEPCO that will see the latter lower its lease fee rates to the level
that prevailed prior to July 1, 1999 with retroactive effect. These lower
lease fee rates will result in a W3.4 billion reduction in operating costs
in 4Q99.
After adjusting for this one-time extraordinary item, Thrunet's operating
cash flow was positive at W1,275 million (US$1 million) with operating cash
flow margins at 6%, significantly ahead of our forecast of W(1,834) million.
While we would not expect EBITDA to remain positive as the company continues
to aggressively roll-out its services, we do see the company's EBITDA margin
"trajectory" as being ahead of our previous forecast.
Earnings: 3Q99 net losses after adjusting for one-time extraordinary
items was W14,529 million, in line with our forecast of W13,126 million, after
adjusting for non-operating items including foreign exchange losses and losses
incurred on the value of marketable securities.
Others
Launch of Thrunet's open network portal: During the period, the company
moved to an open network structure and launched its broadband-enabled portal.
This portal achieved an average daily page view number of over 800,000 in
November versus our forecast of 400,000. In addition, during Q3, Thrunet
aggressively rolled out its suite of community products, adding free e-mail
accounts, personalized home pages, an Open Bulletin Board service with
multimedia bulletin boards, and the True Box Service virtual mail box. We had
not expected this roll-out until the Q1 next year, putting the company ahead
of our expectations in terms of product roll-out.
Continued strong growth of the Korean Internet market: According to the
Korea Network Information Center (KNIC), the total number of Internet users in
Korea reached over 6 million in October 1999, an increase of over 90% from the
end of 1998, and exceeding our year-end 1999 forecast of 5.6 million users.
In addition, as of October, over 38% of all stock transactions in Korea were
being conducted online, which puts the country ahead of the U.S. in that
respect. In our view, online stock trading is a leading indicator for the
widespread adoption of e-commerce. On this basis, we believe that the
potential for the development of e-commerce across other sectors in Korea
looks very promising.
Recommendation
We are raising our forecasts for Thrunet given the company's impressive
3Q99 results and our confidence in management's ability to capitalize on the
strong growth of the Korea Internet market. Our forecast for end users
increases from 106,044 to 116,141 for 1999 and from 208,644 to 243,693 for
2000. Our revenue estimates rise from W62.3 billion (US$55 million) to
W66.8 billion (US$59 million) for 1999 and W112.7 billion (US$99 million) to
W126.6 billion (US$112 million) for 2000. Given the company strong results
and our revised forecast, we have raised our share price target from US$100 to
US$130 and would buy the stock aggressively at current prices
Company Description
Korea Thrunet Co., Ltd. is the leading provider of high-speed Internet
services in Korea. Thrunet service features "always-on" Internet access at
speeds up to 100 times faster than traditional dial-up Internet access, with
attractive multimedia content ranging from on-demand music videos and Internet
telephony to multimedia bulletin board and multimedia chatting services.
Korea Thrunet also provides data communications services to more than
150 corporate customers in Korea.
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.
SOURCE Lehman Brothers Inc.
-0- 12/17/1999
/CONTACT: Ravi Sarathy, +852-2869-3642, or Juliette Chow, +852-2869-3026,
both of Lehman Brothers Equity Research; or Carolyn Leung of Gavin Anderson &
Co (HK) Ltd, +852-2218-9955, or cleung@gavinanderson.com.hk, for Lehman
Brothers/
(KOREA)
CO: Lehman Brothers Inc.; Korea Thrunet
ST: China, Korea
IN: CPR FIN TLS
SU: RTG
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