Salomon Smith Barney: Pacific Century CyberWorks (0008) - NEUTRAL - Suggested Price: HK$2.25
07/09/2001
Summary
Revamped B2C strategy is a scaled down version of the original NOW plans, restricted largely to HK, and intended to curtail losses.
Even a revised HK-centric broadband content + connectivity strategy (effectively via a HK-wide Intranet) will be widely dependent on content. Details on content partnerships, revenue sharing, etc. will be released later this month.
Overall, B2C will target positive cash flow by Dec 2003. Meanwhile EBITDA losses from B2C will be capped at US$190m for 2001 and at a total of US$100m for 2002 & 2003. This is better than SSB est. of US$200m for 2001 and US$160m for 2002 & 2003, but not comparable, as iTV and the broadband ISP+portal will be classified under Telecom Services (these services will be sold through a common sales force). Prima facie, our EBITDA estimate is unlikely to change significantly for 2001-2003.
Net-net, the new B2C strategy does not address our concerns on PCCW's growth prospects, but it does indicate a conscious effort towards cost reduction.
Separately, HKTC (PCCW's local telecom ops) obtained a Baa1 credit rating from Moody's and a BBB rating from S&P - implying an investment grade rating slightly better than market expectations. This improves debt-refinancing flexibility and can help reduce interest rate risk, extend debt maturity, and possibly ease some debt covenants.
At HK$2.43, PCCW is trading at a 2001E adjusted FV/EBITDA of 10.3x and P/CF of 12.9 based on our below-consensus estimates. Possible debt refinancing and details on B2C content are the next near-term milestones. We maintain our NEUTRAL (3H) rating.
Table 1
Year end Dec
2000
2001E
2002E
Net profit (HK$ mn)
-6907
1225
3044
Weighted EPS (HK$)
-0.48
0.06
0.14
EPS growth (%)
-598.8
-112.5
133.3
P/E (x)
-4.7
37.5
16.1
Yield (%)
0
0
0
Suggested Price: HK$2.25 (3/7/01)
Infocast Ltd.
Email: support@infocast.com.hk
© Copyright 1998-2000 by Infocast Ltd. All Rights Reserved.
infocastfn.com |
