Analysts say it is unlikely the buyer will pay a premium for half a business that is losing market share Analysts were quick to play down a report yesterday that China Network Communications Corp (CNC) might pay $30 billion for 50 per cent of PCCW's local fixed-line assets, but that did not deter investors. They pushed PCCW's shares up by 4.9 per cent, yesterday, with the stock closing at its $5.35 intraday high. Turnover more than tripled as 43.7 million shares changed hands. The Oriental Daily News quoted unnamed sources yesterday as saying that the two carriers were close to an agreement that would see CNC pay a 10 per cent premium for the assets. Street consensus gives PCCW's fixed-line assets an enterprise value of about $45 billion and analysts said it was unlikely that CNC would agree to pay $30 billion for 50 per cent of a business that was losing market share and operating in a stagnant market. 'It is highly unlikely that [PCCW's fixed-line assets] can achieve $60 billion in valuation with CNC willing to pay $30 billion in cash for half of it,' said Stephen Leung Siu-hong, an analyst at Kingsway Securities. Sources close to the deal said the parties were in talks about a joint venture that would see PCCW sell a substantial portion of its fixed-line business to CNC in a cash-equity deal. 'The talks are at an advanced stage,' the source said. A PCCW spokesman said the parties were still in talks and that no agreement had been reached. In a note to clients, ABN Amro analyst Helen Zhu said: 'We do not advise investors to rush into PCCW on the back of the rumours. We think the shares are fairly valued at this point but are not terribly compelling for offering absolute upside.' Both ABN and Credit Suisse First Boston warned that PCCW shares could face further downward pressure after the carrier announced its half-year results on Thursday, with a further loss of market share expected. 'We remain concerned about competitive pressure in the Hong Kong fixed-line market. Although PCCW successfully introduced aggressive customer retention programmes, it has so far slowed instead of stopped its continued market-share losses,' CSFB said in a note to clients. The brokerage firm expects PCCW's market share to fall to 67.2 per cent by the end of this year, down from 72.8 per cent last year. CSFB expects PCCW to post a 10.2 per cent gain in first-half revenue to $11.8 billion but forecasts the carrier's net profit for the half year to fall by 11.5 per cent year on year to $733 million. CLSA Asia-Pacific Markets analyst Francis Cheung said analysts would watch PCCW's line losses in the first half and look for management guidance on whether they would accelerate. Analysts, who have largely factored in unimpressive interim results for its core fixed-line business, are hoping the carrier's British wireless broadband business can yield upside surprises.