Funny how ZSUNEQ never makes the legitimate stories: "AWSJ: Heard On The Street In HK: Potential In Internet Firms
12/27/99 18:8 (New York)
Thom Beal
Staff Reporter
In the parallel universe of publicly traded Internet incubator companies, earnings have little meaning and the value of an outfit's assets doesn't have much connection to the share price. Not only that, the value of an incubator's holdings in unlisted start-up firms is just guesswork. So analysts can only ask whether a company's
stock price deserves to go higher. Sometimes - no, make that almost
always - the market agrees.
With a few analysts raising their target prices, and a few
share-lifting rumors circulating, Pacific Century CyberWorks Ltd.
soared last week. The incubator's stock vaulted 41% on Thursday
and shot up another 41% in Friday's holiday-shortened session
to close at a record HK$15.95 (US$2.05) a share. That is a gain
of HK$10.50 since May 6, shortly after the company, a unit of
Pacific Century Regional Developments Ltd., was formed and obtained
a backdoor listing in Hong Kong with the takeover of ailing Tricom
Holdings.
Analysts say the stock was driven higher last week partly by
rumors of a share swap with Microsoft Corp. and a planned Nasdaq
listing; both were later denied by CyberWorks Chief Executive
Richard Li.
Obsession With Speculating
The jump in price also reflected the continuing obsession with
speculating in technology shares, both in Hong Kong and the U.S.
In Hong Kong, some analysts talked up a new target price of HK$25
to HK$30 a share, while in the U.S. on Wednesday, CyberWorks'
stock doubled overnight on the U.S.-dollar-denominated, over-the-counter
market. This provided Hong Kong investors with a golden arbitrage
opportunity before the price here caught up.
Investors thinking they're too late to buy this stock won't
find much support. Most analysts recommend the shares as a buy.
"The company will drive the Hong Kong stock market through the
next year," says John Schofield, an analyst with Prudential-Bache.
But like many Internet companies, CyberWorks poses problems
for analysts. "A real valuation is very elusive," says Ambrose
Chang, director and chief of investments for Daiwa SB Investments
Hong Kong. "And it's a real problem determining earnings and growth
potential. In that sense, sentiment is running way ahead of fact.
`Out of Sentiment'
CyberWorks is far from making a profit. Mr. Li declines to
provide a timetable for going into the black, but says it would
be in line with other major Internet firms, such as Yahoo! Inc.,
which took more than six years to turn a profit.
"People are buying it out of sentiment and expectation," says
Lilian Leung, research analyst for CEF Brokerage. "Despite the
rumors, the value of the stock depends on the value of benchmark
stocks on the Nasdaq."
Indeed, some analysts say CyberWorks is rising because it is
beginning to be seen in the same light as the world's best-known
Internet incubator companies, including CMGI Inc., Softbank Corp.
and Internet Capital Group Inc. Although each of these companies
has its own twist on the business, all offer investors huge growth
potential along with the benefits of diversification.
Rewarding Shareholders
Like CMGI, Softbank and Internet Capital, CyberWorks buys shares
in Internet-related businesses, demanding varying degrees of management
control while developing partnerships and synergies among the
companies. So far this year, the incubator business model has
rewarded shareholders lavishly, with CMGI and Softbank at about
fivefold and 11-fold returns, respectively, through November.
Internet Capital went public on Aug. 4 at US$6 a share. In Nasdaq
trading midday Monday, it was at US$170.31 a share.
So far, Mr. Li has forged alliances with Microsoft, the world's
top software maker; Intel Corp., the No. 1 computer-chip maker;
and the satellite-making arm of DaimlerChrysler Aerospace. He
has raised more than US$900 million and snapped up stakes valued
at about US$650 million in about 20 high-tech ventures through
a combination of share swaps and cash transactions.
"Only one in about 40 Internet companies in Asia will succeed
in becoming a world-class player," says Mr. Li, who rose to prominence
in Hong Kong by founding Asia's first and largest satellite television
network, Star TV, with US$125 million in seed money from his billionaire
father, Li Ka-shing. Five years later, in 1995, he sold the network
to Rupert Murdoch's News Corp. for US$950 million. "We don't want
to be the largest Internet play just for the sake of it. We want
to be the preferred partner of high-tech investors in Asia who
are seeking an avoidance of risk."
Of the US$900 million in capital Mr. Li has raised in recent
months, CyberWorks has earmarked US$200 million for start-up investments
and US$350 million to US$400 million for the launch of Pacific
Convergence, its high-speed, satellite-based Internet-access arm,
which is slated to begin operations next year in India. The remainder
is being held for acquisitions and working capital.
Creating Internet Culture
Mr. Li's buying spree has covered a wide range of Internet
technologies. Two companies are Internet-protocol telephone providers,
the technology that enables voice communication over the Internet;
two are Internet service providers; one is a portal-technology
vendor; one a databank; and one a provider of Internet venture
capital; while another develops artificial intelligence products.
Others offer various services, from travel to personal finance
and entertainment.
Mr. Li says his goal is to create an Internet culture in Asia.
Despite regulatory hurdles, one of his strategies is to offer
a television-based service through agreements he already has with
35 cable-television operators serving more than 10 million households
in India, China and Southeast Asia. Mr. Li acknowledges that initially,
his customers may not own a computer but they probably have television
sets with cable service that can be used to link them to the Web
using broadband satellite.
Indeed, many analysts concede that in the short-term, expectations
of a big consumer market for the Internet in Asia is unrealistic
optimism. Yet, they also say Asia's enormity, its far-flung villages
and islands, and poor land-based telecommunications infrastructure
make it a natural market for satellite services.
Meanwhile, investors big and small and Hong Kong government
officials continue to be Mr. Li's most ardent admirers. With last
week's tech frenzy, CyberWorks' market capitalization soared to
more than US$17 billion, a value greater than 22 of the 33 components
of the Hang Seng Index. " |
