Non-core asset sales seen lifting PCCW net
Cyberport expected to save the day as group's fixed-line phone business idles
Dominant fixed-line telephone service provider PCCW is expected to unveil a 22 per cent rise in net profit to $1.99 billion for last year when it releases its results tomorrow.
Analysts forecast contributions from the group's Cyberport residential project and one-off gains from non-core asset disposals will more than offset flattish fixed-line business performance.
While the management may say at the results briefing that PCCW's core fixed-line business has stopped losing customers, analysts said they remained concerned about falling average revenue per user (arpu) since any such gains were likely to have come only from price cuts - which the regulator allowed the firm to make from January.
Analysts added they would be examining disclosures for more clues on the Now Broadband TV business, which they expect will only break even by the end of this year or even next.
Also in the spotlight will be the company's mobile strategy after it bought Sunday Communications.
BNP Paribas Peregrine analyst Marvin Lo expects PCCW to book a $73 million loss from its 79.35 per cent stake in Sunday. But since its 3G mobile service did not start its six-month free trial until this year, any impact will only be reflected in its results for this year.
A poll of six analysts yielded a wide range of net profit estimates, ranging from $1.69 billion to $2.33 billion, as forecasters differed on the impact of the Bel-Air project's contributions, exceptional gains and losses from Sunday.
While its fixed-line market share is expected to improve slightly to 69 per cent, from 67 per cent in the first half last year, Mr Lo expects operating profit from local telephony, data and international direct dialling services to drop to $4.3 billion from $4.6 billion a year ago.
PCCW is not expected to provide much on Now's financials, but Now's customer base and arpu are expected to have grown to more than 550,000 subscribers with more than half paying $110 per month, the same as in its first-half result.
Analysts expect Now to have to book higher content costs going into 2006. Its investment in an in-house financial channel is also expected to challenge its 2006 break-even timeline.
'I'm sceptical on the management's new break-even time table for Now, revised to the end of this year from the original mid-2006, since content costs will only rise due to rivals scrambling for content amid intense competition in the market,' Mr Lo said.
Kelvin Ho of Nomura Securities expects the group to book about $560 million in exceptional gains from selling its remaining stakes in Japanese gaming firm Jaleco and Singapore mobile play M1.
Once again, its Cyberport Bel-Air project will be the saving grace for unexciting core businesses. The project is expected to contribute $830 million to $1 billion to operating profit, through PCCW's 62 per cent stake in Pacific Century Premium Developments.