Half Empty or Half Full?
By Sean Kennedy, AsiaWise
27 Mar 2001 12:30 (GMT +08:00)
Okay, so he dropped out of Stanford, but how's he done in the School of Hard Knocks? Looking at Richard Li's acquisition of Cable & Wireless HKT, analysts may cite PCCW's meager profit or get the yardstick out and measure the awfulness of PCCW's FY2000 loss.
They may groan about the 15% share overhang of C&W HKT's former parent Cable & Wireless Plc, which has until August this year to dispose of the stake.
But the fact of the matter is they can't begin to estimate how much the company will declare as a profit or loss because so much hinges on how PCCW calculates the goodwill involved in last year's C&W HKT acquisition, not to mention the dramatic fall in the value of some of its investments.
My straw poll suggests estimates, such as they are, vary widely.
Nomura International's Richard Ferguson expects the company to report a HK$2.58 billion net loss for 2000. That's coming in on the high side, but some industry watchers say it could go higher, depending on how it accounts for the C&W HKT deal.
Shea Kai-ming, senior investment analyst at Tai Fook Securities, doesn't expect a loss. "I think the company will be trying its best to keep in the black," he said, cautioning that much hangs on the way it handles HKT’s goodwill.
Analysts said the waters will be further muddied by other accounting issues, including how PCCW treats the drastic fall in the value of some of its investments in listed companies. (Its CMGI Inc. investment racked up over US$300 million in losses alone according to Deutsche Bank.)
Investors could also look at what the company's worth -- but don't count on a consensus. The jury is out on the company's true value, although its plummeting share price suggests investors expect still more downside.
On a fundamental basis, Worldsec International valued PCCW at HK$4.90 a share in a report issued last month, and recommended investors accumulate below HK$4.40. That's comfortably above its Monday close of HK$3.45, a 52-week low.
PCCW has lost 31.7% this year, compared to a 14.2% loss in the blue chip Hang Seng Index. Since the end of 1999, a year synonymous with stratospheric New Economy stocks, PCCW has lost 80.9% of its value, compared to a 23.7% loss in the Hang Seng Index over the same period.
Nomura's Ferguson said he still sees the company as overvalued despite its falls over the past year or so. "On our calculations, the company's NAV is HK$3.56/share. Based on a sum-of-the-parts discount of 20%, PCCW's fair value is a still more modest HK$2.85/share," Ferguson said. That's about 17.4% lower than PCCW's Monday close. That HK$2.85 fair value was reached after applying an integrated carrier discount, Ferguson said.
Tai Fooks' Shea puts its fair value at HK$3.07 a share. The vast spread of forecasts and recommendations on the company reflect both the breadth of its operations and the volatility of some of its core businesses.
One independent telecom and media analyst told me privately it's difficult to categorize PCCW among Asian telecoms or technology companies. "There is no peer for PCCW. There is no company like it," she said.
Not everybody is bearish on PCCW. SG Securities analyst Jonathan Iu, who expects a loss for 2000, but declined to name a figure, said PCCW was actually well-placed in Asia. It was a more regional player than just about any of its so-called peers from Singapore or South Korea, he said.
And Iu said PCCW's chance of breaking into the mainland market might just have improved now that it's seen as Hong Kong Chinese. "I think they have a better chance of cracking the China market than when it was under the control of Cable & Wireless," Iu said.
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