PCCW Expected To Return To Pft In 1H; No Rescue For Shrs
September 4, 2001
Dow Jones Newswires
By SONIA TSANG
Of DOW JONES NEWSWIRES
HONG KONG -- Telecommunications and Internet company Pacific Century CyberWorks Ltd. (PCW) is expected to announce a return to profit in the first half of 2001 thanks to fewer provisions for the decline in value of its Internet investments.
However, that won't be enough to resuscitate the company's share price, which has shed more than 90% of its value from an all time high of HK$25.772 in mid-February last year.
According to a poll of five analysts conducted by Dow Jones Newswires, the company will probably register a net profit of HK$921.2 million for the six months to June 30.
While its bread-and-butter local fixed line business will provide the company with a stable cash flow, the accounting treatment of one of its investments with Australia's Telstra Corp. (TLS) is keeping analysts guessing.
PCCW, controlled by Richard Li, the younger son of billionaire Li Ka-shing, is to announce its results Thursday at 0815 GMT (4.15 a.m. EDT).
The company recorded a first half loss in 2000 of HK$34.9 million. However, that doesn't provide a good comparison because PCCW's US$28.5 billion buyout of the city's dominant phone company, Cable & Wireless HKT, was completed in August last year.
PCCW posted a net loss of US$886 million in the full year of 2001, as it put aside money for declines in its Internet investments.
A number of factors, including the bursting of the technology bubble, a failed attempt to build a Pan-Asia Internet powerhouse, and a scrapped bond issue have sent the shares of PCCW - once the best performing stock on the Hang Seng Index - down the drain in the past year.
Tuesday, the share closed up 4.9% to HK$1.71, after hitting a 25-month low at HK$1.68 in the previous session.
Analysts said a return to profit won't give the shares a significant boost.
"A lot of fund managers don't have this (stock) in their portfolio anymore," said Violet Chong, senior portfolio manager with Skandia Asset Management, which manages US$1.5 billion in Asia. "It's hard for them to regain confidence in PCCW," she said.
Local Fixed Line Ops Stable But Growth Limited
Analysts will look at the company's local fixed line business, which accounts for about two-thirds of PCCW's valuation.
Bertrand Chui of Worldsec International expects revenue for the division to be around HK$5 billion, with operating profit, or EBITDA, margin of about 45%.
However, room for revenue growth in Hong Kong's mature fixed phone line market seems to be limited, even though PCCW raised domestic telephone fees by HK$10 to HK$100 per month in January, said analysts. They are generally forecasting single digit growth of 2-4% in revenue for the full year.
Contribution from international direct-dial business, may post a slight decline, amid fierce competition in the Hong Kong market.
Analysts are mixed on how PCCW will deal with the decline in value of one of its joint ventures with Telstra. Last month Telstra wrote down about A$1 billion in the value of its 60% share in mobile company Regional Wireless Co.
Merrill Lynch expects PCCW to write down US$320 million of its 40% share in RWC, which should be offset by a US$2.25 billion book gain on PCCW's sale of mobile assets to RWC.
However, Nomura and SG Securities don't expect a write-off because the PCCW's book valuation of the joint venture is lower than the latest Telstra valuation.
Analysts also say PCCW may need to make a further provision on its venture capital investments.
The market value of those assets was about US$310 million as of Dec. 31, and the value may have dropped more in the first half. But Iu with SG said its previous write-off was more than enough to cover those investments.
PCCW's write-offs totaled US$628 million for the full year of 2000.
The company, which owes about US$5 billion in debt, will incur a net interest expense of about HK$2 billion in the first half. That was based on company guidance of US$490 million in net interest expense for the full year, analysts said.
Analysts are also looking for PCCW to continue to cuts costs through layoffs. Iu said, however, it's unlikely to do so because it would be politically incorrect under the current economic environment in Hong Kong.
PCCW, which employs about 15,000 employees in Hong Kong, laid off 340 Internet staff in August to cut costs.
The local economy grew a lower-than-expected 0.5% year on year in the second quarter, due to a global slowdown and sluggish consumer demand. The Hong Kong government cut its GDP forecast for the full year to 1% from 3%.
-By Sonia Tsang, Dow Jones Newswires; 852-2802-7002; sonia.tsang@dowjones.com
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