Local firms with even a small proportion of their business derived from Internet-related activities have seen share prices soar, with Wharf (Holdings) the clearest example. Wharf has been the biggest blue-chip gainer and has risen more than 80 per cent in the past month, closing on Friday at HK$18.45. Despite the firm still deriving most of its revenue from property, analysts attributed the stock's gains to plans for a broadband Internet service through the company's cable-television network. This service will be able to transmit six times faster than Hongkong Telecom's Super Netvigator. The company is still hampered in taking on Hongkong Telecom by its lack of coverage, which will be further reduced if the company has to hand its microwave frequency back to the Government. At present one million of Cable TV's 1.6 million subscribers are reached by microwave transmission. Wharf is planning to build out its fibre-optic network to 1.8 million households in 2001. The stock's meteoric rise may come from comparison with United States cable networks with Internet service potential. A similar cable service in the US would be worth US$5 billion but Wharf was valued at $500 million, Prudential-Bache Securities head of Hong Kong research Sanjeet Devgan said. Wharf has reportedly held talks with Microsoft Corp exploring possible co-operation between the two firms, which would strengthen Wharf's Internet service. Changes in the regulatory environment could also allow Wharf to reap benefits from cross-selling between its cable network subscribers and its New T&T fixed-line telephone network. Credit Lyonnais Securities Asia has also said that a possible consolidation between Wharf and Hutchison Whampoa over their fixed-line telecommunications networks would benefit both firms. Some analysts question the benefit of such a move, saying Wharf needed a partner with greater telecommunications and Internet expertise. Some who were bullish on Wharf are beginning to question if the rise has now neared its peak. Morgan Stanley Dean Witter last week changed its recommendation on the stock to neutral from market outperform. Managing director Peter Churchouse and analyst Rob Hart wrote in last week's research note: 'At this point, we think the shares have outreached themselves a little and will be hard-pressed to continue the strong outperformance over the coming few months.' Corporate activity on the cable or telecommunications side could still push the price up further, the note warned. Some analysts were bearish on the stock before its meteoric rise over the past five to six weeks, and remain so. South China Securities conglomerates analyst Kenny Lau placed a sell recommendation on the stock at the end of last month - shortly after the company reported its results for last year - when the share was trading at just $11.35. Since then the stock has risen 62 per cent, but Mr Lau believed the recent gains could be short-lived. 'We don't see any significant profitable contribution in the near term,' Mr Lau said. He said the company was eyeing any opportunity to make a share placement to help it with short-term debt nearing maturity. The company had $8 billion in debt to pay by the end of next year, but Mr Lau predicted a cash inflow of just $2.8 billion. 'It is a very good price to do a placement at the moment,' Mr Lau said. However, bullish analysts believe there are no nasty surprises in store on the cash-flow position, with the debt already public knowledge. 'Basically this has been in the share price for some time,' Credit Lyonnais Securities Asia research head Dio Wong said.
