Punters search for value
JON OGDEN
The grown-ups have cleared up the mess after the naughty schoolboy ate too many sweets. Now it is time to make sure he sits down quietly at his desk and does his homework while the adults get on with the serious business of making money to pay the bills.
That is one way of seeing the big picture for Pacific Century CyberWorks in the wake of its headline-grabbing loss.
The HK$6.9 billion in red ink for last year and the plunge into negative equity clearly had some investors worried yesterday morning, with CyberWorks shares briefly plunging below HK$3 before recovering to $3.25, down 6.47 per cent.
Most of the loss came from US$667 million in provisions covering the huge drop in value of a hodge-podge of Internet investments engineered by chairman Richard Li Tzar-kai.
"In these results you see a lot of cleaning up," CyberWorks chief financial officer David Prince said.
To professional investors, Wednesday's shocking numbers were just history, said Stephen Brown, head of research at Kim Eng Securities.
"The issue for the market is can they create value. People don't believe that the management can," he said.
He said a sum-of-parts valuation would peg CyberWorks at about HK$4.20, with the share price expected to trade at a discount to that until CyberWorks brass proved they could deliver earnings growth.
The market is prepared to give CyberWorks another crack at creating rather than destroying shareholders capital, said a fund manager attending a post-results briefing at the Credit Suisse First Boston conference yesterday.
"There seemed to be a collective shrug. I had been expecting some tougher questions," he said.
What became clear is that a remodelled CyberWorks is emerging from the rubble of its results announcement. Gone for now are the Internet flights of fancy and its corporate mission to be the world's biggest broadband Internet provider.
In place of that was much talk of more bread and butter activities like providing packaged telecommunications services to corporate clients in Hong Kong. Notably it was Jeffrey Bowden, executive vice-president for corporate strategy, who did most of the talking when it came to outlining the vision for the future.
"In [business to commerce] we brought to market a service called Network of the World. We assumed broadband would provide [advertising revenue]. Guess what, that didn't work," said Mr Bowden, a veteran United States telecommunications executive who joined CyberWorks in September last year. "We've had to go back to the drawing board."
It certainly looked to some like older and wiser heads such as Mr Bowden and Cable & Wireless HKT veteran Mr Prince are gaining influence at the embattled company as it strives to regain credibility.
Mr Li may have to take a back seat for now.
"It would seem that Richard is being reined in," the fund manager said.
All the exceptional items and the takeover of HKT make results comparisons tricky. Fund managers will be keeping a close eye on the next results, with any change in the way the numbers are broken down a sure signal to sell out and move on.
The bankers can sleep soundly at night for now knowing the old telecommunications services can provide the cash flow to meet their interest payments.
But CyberWorks must do a lot more than stand still on cash flow.
"In our opinion, a real problem could emerge when portions of the principal of US$4.7 billion become due starting in [2004]," Prudential-Bache Securities said in a report.
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