Evening Wrap: Market Gains on HSBC, Mobile; PCCW Has Accounting Bounce
Jul 03, 2001 - 19:48:17 HKT
QuamResearch
Coming off of a 3-day weekend, Hong Kong traders pushed the market up 142.22 points or 1.09% to 13,184.75 on moderately light turnover of HK$7.624 billion.
Key stories included a property rebound despite a downgrade of local economic growth, PRC telecoms eliminating certain fees, PCCW (8) revealing slightly different numbers under U.S. accounting rules, and the ongoing Cathay (293) strike saga.
The Bank of China revised downward its estimate of HK's 2001 GDP growth to 2.6% from between 3% and 3.5%. Those latter figures were themselves downward revisions in March from an original 4% estimate. These BOC numbers are a bit more pessimistic than the latest government estimate of 3% growth, though that was last released back in May.
Properties
Properties finally seemed to get a little juice from the interest rate cut as the sector was broadly up. Investors may want to remember that a bit over a week ago, Credit Lyonnais issued a report saying it expects local residential prices to rise 10% by the end of this year on an improvement in apartment sales though office rentals would remain weak and could fall 20%.
Cheung Kong (1) was flat at $85, SHK (16) gained 25 cents to $70.50, and Henderson (12) rose $0.90 or 2.6% to $35.50. Didn't we tell you to buy? Henderson's turnover was a rather heavy $120 million.
Banks / Financials
Deregulation.
Today was the first day for full deregulation of local interest rates, which means banks are free to set their own rates. Increased competition could end up punishing the less efficient players, and hopefully consumers will benefit. Investors may end up with some bitter experiences later on if a focus on quality is neglected in favor of quick share price rises.
Merrill Lynch also came out saying that it maintained its cautious stance on the bank sector given the difficult operating environment and a weak earnings outlook.
Late last week, the government released mortgage figures for May. New mortgage lending fell slightly, 2.6% to HK$8.7 billion, but new loans approved during the month increased by more than 28% to $11.1 billion.
Despite these figures, Merrill stated that while the numbers appear "somewhat encouraging," they "do not believe a full-fledged recovery is underway yet as the number of transactions in the real market fell 6 percent in May." Merrill also said they asked some people at the banks and they indicated that "business remains difficult."
Perhaps this is the case. However, does one want to buy only after the market has demonstrated its clear strength and after the prices reflect it? Yet again, we maintain that now seems to be as good a time as any to buy a property, buy a property stock, or buy a good banking stock.
HSBC (5) gained 75 cents to close at $93, Hang Seng (11) rose $1.50 to $81.50, and BEA (23) rose 30 cents to $18.40. Amongst the second-tier banks, however, there was more downward than upward pressure. One counter that time forgets, Manulife (945), rose $7 or 3.4% to $213.
Comm. & Industrial
China Mobile (941) rose $1.10 and Unicom (762) 15 cents to $42.30 and $13.75 respectively. This was despite news that regulatory authorities told them that connection fees for service activation payable by mobile subscribers in the mainland on initial subscription were cancelled effective July 1. Of course this will likely result in stronger subscriber growth, but what of profits? Unicom said the cancellations may reduce its profits in the second half by about Rmb 70 million but that it doesn't expect the cancellation to have an adverse impact on its overall profits. That seems to be a slightly contradictory statement. However, Unicom did report annual profit of Rmb 3.2 billion, so a few million here and a few million there may just be nickels and dimes to the operator.
PCCW (8) managed to gain 2.5 cents to $2.25 despite its posting revised results numbers prepared according to US GAAP. The revision allowed the company to suddenly have net assets of $145.9 billion versus the $14.856 billion net liabilities under its HK GAAP presentation. That's because the US wouldn't allow PCCW to write off all at once the goodwill on the HKT purchase last year. Doing so would have hurt the balance sheet, of course, but it also would have allowed the company to start off will a relatively clean slate for the next year. The US GAAP instead demands that the goodwill be treated as an asset and amortized -- meaning an extra $8 billion per year to drag down the income statement. The revision pushed PCCW's net loss deeper from $6.9 billion to $14.571 billion.
Cathay (293) closed up 15 cents to $10.70 in seeming defiance to the pilots' industrial action, now underway. The last time this happened, Cathay took a $500 million hit, so hopefully it won't be so bad this time though it does seem the pilots are getting a bit belligerent considering the current pay and benefits of US$67,000 per year for newbies and going as high as US$463,000 per year for senior captains, according to Cathay via Reuters.
H-Shares / Red Chips
PetroChina (857) rose 3 cents or 1.8% to $1.65. Sinopec 386 was flat at $1.56, CNOOC 883 rose 5 cents to $7.45, and Zhenhai 1128 fell 4 cents or 2.2% to $1.77.
Zhenhai investors might want to consider bailing. It's not the most efficient of enterprises and it's share price has already seen about as much as it can for the time being. It's also considerably more expensive than its brethren with an 11x PE versus the 5-6.4x PEs for the other three. |
