2001-03-27 STOCKWATCH: PCCW sharply lower ahead of results/concerns over C&W stake sale
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Pacific Century CyberWorks Ltd shares were down sharply at record lows in midmorning trade ahead of 2000 results on Wednesday and increasing concerns that Cable & Wireless PLC may sell a 7.5 pct stake in PCCW in the open market, analysts said.
They said C&W, which cannot sell the stake for one month before the release of the company's results as it has PCCW board representation, will be able to release the shares once the results are announced.
In addition, uncertainties over PCCW's 2000 results, especially over the treatment of its provisions and goodwill, has resulted in a very wide range of forecasts, mostly negative, by research houses.
At 11:20 am, PCCW was down 0.20 hkd at 3.375 on 35.78 mln shares.
The Hang Seng index was up 197.92 points at 12,781.28.
An analyst with a local brokerage, who asked not to be identified, said other concerns centre on the current business model of the company, which is fast becoming "more and more unviable" given the challenges that regional telecommunication companies are facing.
"The results, the stake sale, the future of the company are all having an impact on the share price," he said.
He said although the stock has been oversold, current sentiment on the stock will see the share price continuing to extend losses.
"There is really nothing positive for the company at the moment. Sentiment on the stock is a big factor.
"The way we see it, the true value of the stock is based on its future earnings sources but this is highly dynamic for PCCW and it will change in a big way," he said.
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At 12:13 pm, PCCW was down 0.125 hkd at 3.45 on turnover of 45.325 mln shares. It hit a low of 3.35 hkd.
The Hang Seng index was up 221.87 points at 12,805.23.
The analyst said a lot of the items in PCCW's 2000 results will be one-off items and the company is expected to record more than 2 bln hkd in interest expenses this year.
The analyst, who is looking at a net loss of over 3 bln hkd for PCCW last year, said unless the company comes up with a new business model, future prospects do not look very good.
He said the fixed line business in Hong Kong will be coming under severe competition when the industry is completely liberalised in June 2003.
He said at the moment, PCCW is still a dominant player and can increase the prices of fixed line services without any problems and see its bottom line improving.
"I see perhaps another price increase next year," he said, adding that PVCCW's fixed line business can tolerate only one more price hike. If PCCW pushes for a further increase, he said, "they will be in trouble".
He said the regional IP backbone joint-venture with Telstra Corp is also unlikely to fare very well in the short term, given the strong competition from various players.
"Initially, I saw the IP backbone venture as a long term strategy to get new revenue sources. The tie-up with Telstra, the biggest player in Australia, would mean that they can become a powerful force to dominate the regional
market.
"We thought the jv would have pricing power as well but that is not the case ... at least for the time being.
"There are a lot of newcomers who are posing a threat to the joint-venture and prices are dropping. The pace of buildup, the supply of network is rapidly increasing," the analyst added.
In addition, PCCW's NOW venture does not seem to be taking off, with the market still not convinced of the potential for NOW.
"PCCW needs to convince the market that the NOW venture is the new driver for the company," he added.
"PCCW probably needs a new appealing story for the market or sentiment will weigh on the share price," he said.
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