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Technology Stocks : PCW - Pacific Century CyberWorks Limited -- Ignore unavailable to you. Want to Upgrade?

To: ms.smartest.person who wrote (289)	2/7/2001 11:18:51 PM
From: ms.smartest.person	Read Replies (1) \| Respond to of 2248

22/1/01 Pacific Century (0008) - BUY Source from W. I. Carr Securities Summary By our estimates, PCCW is trading at an EV/subscriber of only USD905, based on fixed-line customers; for comparison, Sing Tel is trading at USD3400 per subscriber. PCCW's EV/EBITDA multiple is 3.9x for 2001, vs. 8.7x for Sing Tel and 7.6x for the telecoms universe. However, these numbers have to be qualified. IWICS measures EV by subtracting the market value of associates; the biggest associate, the soon-to-be-created 50%-owned IP Backbone Company, is valued at USD10 billion in our model-and, during the current bear market, many investors are going to find this estimate too aggressive prior to the IP Backbone Company's IPO. Plug in PCCW's stake based on the book value of that company instead, or USD3 billion, and our estimate of PCCW's Enterprise value rises substantially. The adjusted EV/sub is USD2900, and the adjusted EV/EBITDA is 12.9x. Based on that math, PCCW is trading on par with Sing Tel right now. The EV comparisons leave out the Cyberport project, which is usually estimated to be worth about USD1 billion, as well as the value of other HKT real estate and PCCW market investments, which we estimate are worth another US1.8 billion in total. PCCW's EBITDA is very solid, in our view: more than 100% of EBITDA is from the local fixed-line business, for which PCCW faces little competition. Retail IDD is less than 14% of EBITDA. PCCW has just raised its local tariff from HKD90 to HKD110 per month, or USD14, and doesn't charge for usage-so there remains plenty of room to raise fees next year, when all tariff regulation ends. There also remains room for PCCW to cut EBITDA losses from its Internet businesses-we estimate those businesses will lose USD322 million for PCCW in 2001, about one-third of total fixed-line EBITDA. Our forecasts produce high PERs for PCCW. However, that's largely because we've amortised half of the USD24 billion goodwill arising from the HKT acquisition over 30 years, which lowers our earnings estimates. The company has hinted recently that it will write off the goodwill all at once. Table 1 FOR TABLE 1, CLICK ON LINK infocastfn.com Suggested price: HK$4.10 (16/01/01) Target price: HK$10.00 (12-month) (= US$1.28 YUCK!) Highlights We're sticking to our HKD6.10 core value estimate, which we explained at length in our November 2 report on PCCW. It is a sum-of-the-parts calculation; out of the HKD6.10 figure, HKD3.27, or 54%, represents our valuation of the fixed-line business, based on a 10x EV/EBITDA multiple; another HKD0.93, or 15%, is the IP Backbone Business taken at book value; and another HKD0.87, or 14%, is the Cyberport and other investments. We feel that the current price for PCCW is very inexpensive. The stock is clearly being held sown by speculation that Cable & Wireless plc will sell its remaining 15% stake at a lower price. Keep in mind, though, that Cable & Wireless faces no deadline for selling its stake, as it did in November when it sold substantially under the market price; it can afford to wait for market conditions to improve. The stock's recovery would be driven by: 1) resolution of the Cable & Wireless placement; 2) explanation-and quantification-of PCCW's plans for downsizing expenses on NOW and on iTV, HKT's legacy video-on-demand service; and, 3) successful packaging of the IP Backbone Company for its IPO. CLICK ON LINK AGAIN AND LOOK AT PCCW CHART - SUGGEST TAKING MAALOX FIRST. infocastfn.com