WHAT THE BROKER SAID
About a year ago ICEA Securities said the efficient operation of Sunday Communications, its Hong Kong 3G licence and its ready-made subscriber base made the company an attractive merger and acquisition (M&A) target. The broker maintained its ''buy'' recommendation.
Sunday, which planned to launch 3G services at the end of 2004, had reported its first full-year profit after aggressive cost cutting. It made $27.17 million in 2003 against a loss of $117.26 million in 2002. Operating expenses dropped 22 per cent to $619 million.
ICEA said Sunday's efficient operation would enable it to weather any competitive storm ahead before the dawn came.
Net profit for 2004 was forecast to increase 76 per cent to $48 million. A mild revenue decline was expected due to competition in voice business but the top line should resume growth in 2005. Sunday shares were probably approaching fair value but shareholders got the potential upside from its M&A potential. ICEA had a price target on 63 cents on the share, with an M&A case valuation of 92 cents. The counter was trading at 49 cents a year ago.
Last month Sunday Communications reported an earnings loss of almost $13 million for the second half of 2004 as the cost of rolling out its 3G mobile network wiped out strong profit growth achieved earlier in the year. The $12.9 million loss resulted in full-year earnings of $5.54 million, down 79.5 per cent from a year earlier.
The dramatic second-half decline capped a difficult period for the company in which other key performance indicators also fell. The number of postpaid subscribers dipped 4,000 to 428,000 during the period, while revenue from mobile services dropped $10 million to $511 million. Earnings before interest, tax, depreciation and amortisation also suffered, falling 23.7 per cent to $113 million in the second half.
However, some of the pain was offset by an increase of 29,000 prepaid subscribers to 256,000 and a 1.5 per cent rise in turnover to $584 million, as mobile-phone and accessories sales surged in the period.
The counter closed at 45.5 cents on Friday.