Morgan Stanley: PCCW Earnings Lower Under US GAAP on HKT Amortization
Jul 24, 2001 - 11:11:42 HKT
Quamnet News Service
Morgan Stanley Dean Witter said PCCW's (0008) US GAAP earnings should be much lower than the set of figures reported under HK GAAP due to the amortization of the Hong Kong Telecom acquisition, after examining PCCW's F2000 form 20-F (financial results booked in accordance with US GAAP) to assess the earnings quality of PCCW's results as reported under HK GAAP.
In a research report to clients today, the investment house said the high premium paid for HKT assets should, according to US GAAP, haunt PCCW's profit and loss account as well as return on equity (ROE) for a much longer time than HK GAAP currently shows. By the same token, it noted that there is no impact on PCCW's future cash flows or earnings power under HK GAAP.
The house also addressed the impact of the potential asset value adjustments announced by Telstra for its PCCW joint ventures.
"The potential asset value writedown of the Regional Wireless Company (RWC) has no impact on our PCCW valuation, which was substantially lower than Telstra's purchase price," said the house's analysts Lina Choi, Hani Abuali and Kiet Truong. "We keep our sum-of-the-parts-based valuation (rather than based on Telstra's purchase price) for RWC unchanged - it still constitutes 4-5 percent of total valuation for PCCW."
Yet, they are more concerned about the new EBITDA guidance provided by Telstra for Reach, which was lower than their current estimates for the JV. They reckoned that high expectations have been built into Reach, judging by the US$4-8 billion consensus value range, and noted that any disappointment in its performance could take a serious toll on PCCW and Telstra's share prices.
Meanwhile, the house maintains its Neutral-V rating on the stock. |
