Superboy heading for the bottom?
As Hang Seng looks set to follow suit, some blue chips will start to look interesting
By Quak Hiang Whai
POOR Richard Li. The son of billionaire Li Ka-shing must be wondering what spooked him in the last year which saw him crash-land from his "Superboy" status when he successfully snatched Hongkong Telecom from under Singapore Telecom's nose to a fumbling Stanford dropout accused of misleading the public about his education credentials. Along with this, his Internet phenomenon Pacific Century CyberWorks (CyberWorks) shrank some 90 per cent in value to take the title of the worst performing Hang Seng component stock -- a feat that must have given minders at SingTel a good last laugh.
One day before his father's press conference on the results of Cheung Kong (Holdings) and a week before CyberWorks' own final results, the younger Li was forced to issue an embarrassing statement which confirmed he, indeed, did not graduate from Stanford even though much of the corporate and media literature in the past decade had said so. Mr Li's media minders were blamed for not correcting publications which have included Time, Asiaweek, South China Morning Post and the Economist for saying the CyberWorks chairman graduated from the famous US university.
Analysts' reactions to the revelation were mixed. Ryan Fong of e2-Capital saw enormous damage done not just to CyberWorks but to Hongkong's image. Especially when this incident involves someone as representative and prominent as Mr Li.
But the chairman of the Institute of Investors Ricky Tam thinks "it is not an issue of integrity" as Mr Li wasn't using his degree to sell his company to investors. Another broker added what counts is that he is the son of Li Ka-shing and not where he was educated. This correspondent tends to agree that any comparison with Bill Gates is totally inappropriate.
Really, the fiasco over Mr Li's incomplete Stanford education ("I only said I received education there, I did not say graduation." Ouch!) would be the least of his problems. CyberWorks, which saw its share price plunge from a high of above HK$27.80 last year to as low as HK$3.48 last Friday, will be releasing its results this week and early figures projected by analysts look ugly. In fact, many are now gunning for a huge loss, no thanks to mind-boggling write-offs from dotcom investments and merger goodwill.
For instance, write-offs from investments in Internet vehicles CMGI and SoftNet alone could reach some US$540 million (S$962.5 million). Further, CyberWorks has to deal with up to HK$190 billion of goodwill arising from the merger with HKT which may also be written off although the company may opt to do it in phases. Meanwhile, we haven't even come to interest servicing yet.
One way or another, CyberWorks' books which are now stacked with huge debts, won't be looking good this year. A lot would, of course, depend on how the company's creative accountants choose to allocate the figures.
On a broader front, Mr Li's problems added more excitement to the already jittery Hongkong market which shed another 7 per cent of its value last week. We have argued often in this column that interest rates do not matter much these days in Hongkong and that seems to be the case now. Despite another half-point cut in rates with mortgage costs now at 30-year low, most investors remained unconvinced of any solid recovery. In fact, the question on most minds was: Where is the bottom?
One simple computation used by Quamnet provided some tentative answers. Based on Multex Global Estimates' projected combined profit of 33 Hang Seng companies for 2000 and 2001, the market at 13,500 was trading at price-earnings multiples of 14.7 and 12.7 times respectively. The numbers didn't include Cheung Kong and Hutchison's exceptional gain from Orange divestment. Historically, the index traded between 10.4 and 21 times from 1990-1999. So should the market trade to another low of 10 times, the index would be hovering at 11,000 -- a level at which blue chips such as HSBC, Sun Hung Kai Properties, Cheung Kong and Hutchison Whampoa should look interesting.
Of course, today's market no longer operates by itself and there is nothing to stop the Wall Street volatile sessions from tripping the Hang Seng to well below 11,000. Indeed, should you want to play safe and use the HSI Services' own computation method for market PE, then the low in the last 10 years was actually eight times reached in late-1998. This would have produced an index of 8,500 on Multex's prospective earnings. But then again, how many of us really get to buy at the real bottom?
Copyright © 2000 Singapore Press Holdings. All rights reserved.
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