Analysts Hope CyberWorks Rings Up the Right Numbers
By GREN MANUEL and ANETTE JONSSON
Staff Reporters of THE WALL STREET JOURNAL
HONG KONG -- As Pacific Century CyberWorks Ltd. struggles to put its finances on an even keel in the wake of last year's blockbuster takeover of Cable & Wireless HKT Ltd., no one seems to know quite what to expect when the company reports its annual results after Wednesday's market close.
With the bursting of the Internet bubble, analysts have few clues on how to value the morass of deals that created a crop of conglomerates like the CyberWorks Internet and telecommunications giant. Add the Internet to the traditional problems of merger accounting, and the results can be baffling, they say.
In the case of Pacific Century CyberWorks, the problem is particularly acute, analysts in Hong Kong say. Projections by six analysts polled by Dow Jones Newswires range from core net profit of 1.2 billion Hong Kong dollars (US$154 million) to a loss of HK$2 billion.
"For the telecoms sector you tend to have a fairly narrow spread of estimates. But once you throw in the Internet angle it's all up in the air," says Geoffrey Wong, who manages the Asian Technology Fund in Singapore for UBS Asset Management.
From its intraday peak of HK$28.50 in February of last year, CyberWorks' share price slid to HK$12 by the time the HKT takeover took effect in August, and then lurched lower. Tuesday's close of HK$3.50, a 1.4% rise on the day, is half the price of the most pessimistic valuations made six months ago. Although CyberWorks is the 10th-largest stock on Asia's second-biggest exchange, the Internet tag has made it radioactive for many fund managers.
The head of one of Hong Kong's largest research teams says his company has issued no report on CyberWorks for more than six months and effectively has no recommendation on the stock.
"Being an analyst is all about numbers," he says. "And these numbers are difficult."
On the merger, the key question is how the company accounts for goodwill -- the difference between the price paid for a business and the value of its assets -- incurred when it acquired HKT, a figure estimated by Dao Heng Securities at HK$188 billion. Will CyberWorks choose to write off the goodwill all at once? Or will its accountants find a way to make the pain go away completely? The effect on the bottom line will be dramatic.
Once that is dealt with, what will CyberWorks do with its more than 50 Internet investments? An investment in CMGI Inc. of the U.S., for instance, has shed more than US$300 million in value since the last annual results. Analysts' estimates of total investment write-downs range from HK$1 billion to HK$4.3 billion.
"I believe they will take the chance to be conservative and write off as much as possible," says Colin McCallum, who follows CyberWorks for HSBC Securities and forecasts a write-off somewhere between HK$2.3 billion and HK$4.3 billion.
With such imponderables, many analysts will give CyberWorks' headline profit figures only passing attention. They want to delve into the details, to see how margins are going in the core telecommunications businesses, whether joint ventures with Telstra Corp. are progressing and whether there is scope for windfall profits from initial public offerings of those ventures or any other units.
Analysts are particularly keen to see whether the capital-spending plan for CyberWorks' Network of the World, an Internet-based interactive TV service, remains intact or whether it has been scaled back.
No matter how the company's numbers look today, many analysts say there is no retrieving the share price in the near future. Cable & Wireless PLC wants to shed a 7% stake in the company, which could weigh on the share price if the sale is rushed.
"I think it will break the HK$3 barrier," ABN Amro analyst Jahanzeb Naseer says of CyberWorks stock. "It's difficult to say when, but probably in the next three to four months."
Write to</HIGHLIGHT> Gren Manuel at gren.manuel@awsj.com and Anette Jonsson at anette.jonsson@dowjones.com.
Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved.
Used with permission of wsj.com |
