AWSJ: Woes Of Hong Kong's PCCW Go On As UK's C&W Dumps Stake
Updated: Tuesday, April 3, 2001 04:32 PM ET Email this article to a friend!
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Staff Reporter
There's not a lot of pity these days for Hong Kong's Pacific Century CyberWorks Ltd.
The former star of Hong Kong's once-raging stock market has dimmed once again. Its share price fell more than 11% Tuesday to end at a 20-month low of HK$2.725 (35 U.S. cents), a day after Cable & Wireless PLC said it was unloading its remaining stake in the telecommunications firm through a US$1.5 billion exchangeable bond issue.
PCCW hasn't seen these levels since May 1999, when it transformed itself from a local fax-machine supplier into a "convergence" firm with regional telecommunications and media aspirations under the direction of 34-year-old Internet entrepreneur Richard Li.
While the stock retains its distinction as the worst-performing blue-chip issue this year, it also continues to top the short-selling list, accounting for HK$234.5 million, or 49%, of the market's total short-sell orders Tuesday.
"All the cheerleaders have disappeared into the stands," Stephen Brown, head of research at brokerage firm Kim Eng Securities, said of PCCW's former legions of fans.
Once the darling of investment banks and telecom-holding institutional and retail investors, PCCW is now hard-pressed to find kind words from the same people who helped push its price to a high of HK$28 14 months ago.
In fact, many analysts say the stock doesn't deserve to trade higher and has more downside in the near term.
"The price reflects the management's complete lack of credibility and the lack of faith in the management to execute their business plan," said an analyst at a U.S. investment bank who declined to be named.
While market watchers agree the bulk of Tuesday's selling came from hedge funds shorting the stock to buy the Cable & Wireless bonds, whose strike price is at a premium, some say it's still overpriced.
According to a telecom analyst at another U.S. house, who estimated PCCW's enterprise value, or market capitalization plus net debt, against earnings before interest, taxes, depreciation and amortization, to be 10 times based on 2001 projected earnings, its valuation is far richer than the 7.7 to eight times of U.S. telecom providers with comparable product ranges such as AT&T Corp. and Verizon Communications Inc.
"The problem is the product range," the analyst said, referring to PCCW's fixed line operations, its 40% ownership of a Hong Kong mobile business and a 50-50 undersea cable joint venture with Australia's Telstra Corp., which failed to generate enough earnings growth potential to impress the market. As the analyst asked: "Where will the real kicker come from?"
While a few analysts say PCCW could recover by selling property assets, counting staff costs savings and charging more for more services, many others are still feeling burned by old promises not kept.
The U.S. investment bank analyst said: "The market is penalizing them, yes. But they still have to deliver, and we haven't seen them do that."
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