PCCW Ltd, the city's biggest fixed-line phone company, will probably post a first-half loss as its main business shrinks and it books a write-off resulting from an asset sale.
Results due on Thursday may show a loss of HK$571 million (US$73 million), compared with a profit of HK$935 million a year earlier, according to the average estimate of four analysts surveyed by Bloomberg News.
A goodwill write-off associated with PCCW's sale of mobile- phone unit CSL Ltd in June is expected to wipe out operating profit achieved by firing staff and reducing debt, analysts say.
Sales may have shrunk because of the city's economic slump and as customers switch to mobile phones.
That and PCCW's debt of US$4.2 billion, incurred when it bought Cable & Wireless HKT Ltd in 2000, have helped cut its share price 39 percent this year.
"PCCW have a lot of problems because they burdened themselves with debt," said Nitin Dialdas, an investment analyst who helps manage about US$120 million at Richmond Asset Management Ltd, which doesn't hold PCCW shares.
"There was always going to be a time when the debt caught up with them, and now is it."
Big plans
Chief Executive Richard Li, son of billionaire Li Ka-shing, paid US$28 billion to buy former monopoly Cable & Wireless HKT in August 2000, with plans to turn it into a communications powerhouse of telephone and Internet services.
The bursting of the Internet bubble and Li's retreat from those plans have reduced Pacific Century CyberWorks, as it was then known, largely to what Cable & Wireless HKT was before the takeover -- a phone company. And now that core business is confronting obstacles to growth.
Li has sold assets to pare debt by a fifth from US$5.3 billion last December. The sale of mobile-phone unit CSL to Australian partner Telstra Corp generated US$614 million to pay borrowings.
The transaction will also force PCCW to recognize the mobile business's drop in value since the Cable & Wireless HKT acquisition. PCCW said in July it will take a net charge of US$232 million for reduced goodwill, to appear in its first-half results.
PCCW has been losing market share on formerly high-margin international calls, and the number of fixed lines in use is shrinking as customers switch to mobile phones or high-speed Internet connections.
A weak economy has also sapped demand.
Total sales may have fallen 8 percent to HK$10.4 billion in the first half, said Stephen Leung, an analyst at CLSA Ltd.
"People are cutting down their phone lines because they tend to use broadband for Internet access, which is faster and getting cheaper," said Leung.
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