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

To: ms.smartest.person who wrote (793)	3/29/2001 12:41:03 AM
From: ms.smartest.person	Read Replies (1) \| Respond to of 2248

Broker's Views PCCW (8) - Dao Heng Sec, 2001-03-29 $3.475 Ben Tam - 2218 2866, bentam@guoco.com Results Distorted By Huge One-off Provisions. PCCW reported a net loss of $6,907mn for FY00, including provisions of $4,887mn for unrealised losses on investments and financial charges of $2,356mn. In addition, $172bn of goodwill was written off against its reserves, resulting in negative equity of $14.1bn. Results Included 4.5 Months Contribution From C&W HKT. The results included 12 months contribution from PCCW and 4.5 months from HKT and equity accounts for the results of Reach and Regional Wireless Company. EBITDA was $1,489mn. Interest coverage was over 3.5x versus bank covenant of 2x. Stripping out the exceptional items and financial charges, performance of the underlying telecom businesses were in line with market expectations. Provisions For Investment Portfolio Were Larger Than Expected. PCCW made a one-off provision of $4,887mn for its venture capital portfolio and an additional $312mn for its fixed asset impairments and content costs; the value of its investment portfolio currently stands at about US$310mn. We believe it has fully provided for its investments in marketable securities but investments in unlisted companies are still carried at book cost. PCCW will not commit new capital on its venture capital portfolio in the future; instead, it will finance new projects by cash generated from existing investments. Negative Shareholders Equity Of $14.1bn. PCCW has written off goodwill of $172bn against its reserves (which arose from the acquisition of C&W HKT), resulting in negative equity of $14.1bn at end-2000. In early FY01, PCCW sold 60% of its mobile operations for US$1,680mn and US$750mn in CBs to Telstra, transferred assets to Reach for US$1,125mn and replaced bridge loans of US$4.7bn with long-term loans; the deficit in shareholders equity has been reduced to $7.3bn at present. PCCW's Business Performance Telecommunications services revenue fell 7% YoY, largely due to a 34% decline in international voice (IDD) revenues. PCCW's reliance on IDD revenue is declining as revenue from IDD services to total telecommunications services fell to 13% in FY00 from 17% in FY99, while revenue from local exchange lines, broadband and data services rose to 86% from 83%. Management expects flat earnings growth for the telecommunications division in FY01. C&W HKT's Pro Forma Financial Data Management believes that revenue of the local telephone services is bottoming out, given the higher tariffs and growing demand on data services. Local telephone services revenue increased 8% to nearly $7.5bn due to an increase in residential line tariffs in September 1999; residential and business line tariffs were increased by $20 in January 2001 and this will be reflected in FY01. Local data services revenue increased to $3.4bn due to an increase of 196% to 282,000 in wholesale broadband access lines in service and strong demand for other local data and network solutions. The amount of local bandwidth sold increased 27% YoY to 86Gbps. Unaudited proforma revenue of the wholesale connectivity division declined by 20% to $7,340mn due to deregulation in the region; operating margin was 33% and EBITDA was $2,785mn. Voice gateway traffic volume grew 3% although the business was under increased competition. IP Backbone Business Y/E Dec ($mn) 2000 Unaudited proforma revenues 7,340 Unaudited proforma EBITDA 2,785 EBITDA margin 37.9% Source: PCCW Unaudited proforma revenue of the wireless business division increased 5% to $5,171mn and EBITDA was $1,186mn. ARPU increased 3% to US$58, as the cellular subscriber base increased to 1mn with a relatively low churn rate of 3.4%. Operating margin was maintained at 15%. Hong Kong Mobile Phone Business Y/E Dec ($mn) 2000 Unaudited proforma revenues 5171 Unaudited proforma EBITDA 1186 EBITDA margin 22.9% Source: PCCW Business eSolutions. Revenue from Business eSolutions increased 25% YoY to nearly $1.2bn, driven by major system integration projects for the finance and public sectors. Revenue from the new DSL-based retail business broadband Internet access services increased 190% to $219mn, with the customer base for the company's high-speed "@work" and "Always On" services expanding from 1,400 in 1999 to 19,400 in 2000; the services are primarily focused on small and medium enterprises in Hong Kong. PCCW is exploring the PRC market and has set up an eSolution centre in Shenzhen. Management projects 50% earnings growth in FY01 and EBITDA to be positive. Internet Data Centres. Revenue from the Internet data centres increased 120% YoY to $121mn following the launch of premium services under the Powerb@se brand in June 2000. PCCW owns an 18,000sq.ft data centre in Hong Kong and is expanding in the Asia Pacific region, targeting corporate customers rather than dotcom companies. As the company aims to provide connectivity services, it will lease capacity from other suppliers rather than build its own cable networks. While the business is still in the investment phase, management expects EBITDA to be negative in FY01. B2C Services. B2C revenues increased 34% YoY to $1,115mn, driven by accelerating local take-up in broadband Internet access services. Broadband take-up grew by 506% to 194,000 customers; in addition, there are also 432,000 narrow band subscribers. Management plans to consolidate the B2C businesses with about $200mn in sales, but EBITDA will still be negative for the division. Cyberport. Management expects phase I of the development to be completed in early 2001. PCCW will invest US$300mn on the project this year. The company will sell some of its investment properties to finance the construction costs until the year-end, and thereafter, it will borrow from banks. Capex Reduction And Cost Saving. PCCW will reduce its FY01 capex by 10% from US$528mn in FY00 (excluding the capex on Reach and its mobile phone joint venture) by rationalising its capex plan. In addition, it will reduce its staff costs by enhancing productivity; at the present time, management has no plans to trim its work force significantly. quamnet.com