WSJ: WRAP: HK PCCW Dn 6.5% After Loss; Good News Seen Far Off
By ANETTE JONSSON
Of DOW JONES NEWSWIRES
HONG KONG -- Investors refused to pardon Pacific Century CyberWorks Ltd. (PCW) Thursday after the company reported one of the largest losses in Hong Kong history, pushing its shares below HK$3 for the first time since its high-profile merger with Cable & Wireless HKT last year.
The initial shock caused by the spectacular loss of HK$6.91 billion - about US$886 million - announced Wednesday was further aggravated by several analysts downgrading their recommendations for the telecom and Internet company, mainly to underperform or hold.
After the early selling-spree, the buying picked up slightly in the afternoon, however, and the stock finished down 6.5%, or 22.5 HK cents, at HK$3.25. Volumes were heavy with almost 218 million shares traded, compared with an average 57 million shares in the previous 10 days.
"I won't expect much good news in the future and a lot of investors have just lost confidence in the stock," said Herbert Lau, assistant director of research at Celestial Asia Securities.
Should the price fall below HK$2.50, however, some buyers are likely to start appearing again, he said. But Thursday's midsession recovery was probably largely caused by some covering of short positions related to the recent heavy short-selling, he added.
In general, analysts said PCCW's earnings briefing had provided little reason for near-term optimism, even though the core telecom businesses performed largely as expected.
HSBC cut its recommendation to hold from buy with a target price of HK$3.475, citing among other things the fact that the company's focus is now "clearly on cost cutting rather than expansion."
HSBC's Colin McCallum also pointed to the larger-than-expected loss for the company's Internet (Business-to-Consumer) operations at US$261 million last year and a lack of indications of a strategy for this unit going forward.
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PCCW said investors will have to wait another 90 days for a promised new strategy for its struggling multimedia content operation, Network of the World, which makes up the bulk of the business-to-consumer division.
At a four-hour analyst meeting Thursday, relayed to the media via video link, PCCW's Chairman Richard Li said the company will start to focus on a subscriber-based revenue model for NOW whenever possible, rather than one based on Internet advertising.
A day earlier he pledged to cap expenditure on the B2C operations at US$200 million this year, after they reported a loss of US$261 million in 2000.
"NOW is clearly not a focus, but I believe they will persevere on a smaller scale," said one analyst who declined to be named.
The indicated move to a subscriber-based revenue model was "a step in the right direction but the company will have to take a lot of steps in that direction" for investors to return, he said.
For such a revenue model to work, however, PCCW will have to get more localized content that people are willing to pay for, another analyst said.
Investors were also seemingly unimpressed by Li's projections Wednesday of "high single digit growth" in revenue this year, to which he Thursday added a forecast of above 10% growth in earnings before interest, tax, depreciation and amortization, or EBITDA.
"He is too optimistic," said Celestial Asia's Lau, noting that the fixed line business, which makes up the bulk of operations, doesn't have much growth prospect.
On a pro forma basis, telecom services reported a 7% decline in revenue to HK$20.23 billion last year and accounted for around 86% of the total.
Analysts at JP Morgan, also expressed "frustration with the lack of progress in identifying new growth avenues for the company" and lowered its valuation to HK$3.46 a share from HK$5.89 and its recommendation to a long-term buy.
Prudential-Bache Securities also expressed concern about PCCW's cash flow and its ability to cover the interest expense on its outstanding US$4.7 billion syndicated loan, which the company said will total US$284 million this year. Accordingly, the investment bank lowered its recommendation to hold from a strong buy.
While the share is already trailing 88% below its HK$27.859 all-time high reached in February 2000 and 78% off its HK$15.092 close the day the takeover of Cable & Wireless HKT was completed last August, it is hard to pinpoint the floor, analysts said.
"From a technical point of view it is looking bad - it just keeps hitting new lows every day," Lau said.
-By Anette Jonsson, Dow Jones Newswires; 852-2802-7002; anette.jonsson@dowjones.com
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