CITIC (267) - another PCC?
Will CITIC be another PCC (1186)? James Bond can only live twice, but will there be another miracle (hopefully not a subsequent tragedy) for the Hong Kong stock market?
CITIC made a formal announcement regarding the acquisition of a 60% stake in a fixed optical fibre network installation and a 50% stake in the reorganized Guoan. The latter owns numerous cable television networks, a 6% holdings in China United Communications (i.e. the coming IPO China Unicom), 4 GSM networks, a 10% holdings in CITIC securities and a 100% holdings in CITIC Building, Beijing.
The 2 projects will cost CITIC RMB 1.2 billion and RMB 2 billion respectively. Henry Fan, the managing director, said the company would pay by cash.
With a length of 32,100 kilometers, the fixed optical fibre network is a national network which extends from Harbin in the North to Guangzhou in the South.
The cable networks cover Hubei, Beijing, Shenyang and Wuhu. It has a subscriber base of 5 million. Larry Yung expects it could expand to 7 million within this year.
Though the announcement did provide some figures, it is far from comprehensive. As for the fixed optical fibre network, CITIC has to commit a further RMB 4 billion to enhance the system, implying that the network is not yet comprehensive. In addition, the announcement did not mention any development plan for this network.
The second acquisition is more ambiguous. Among the 5 businesses, it seems the property and securities businesses are least complementary to the tele-communication businesses. Is there any synergy between these 5 businesses? Or is it just a mix of candies with different flavours so that the seller can dump all its Christmas sweets after the season?
It is a "coincidence" that BNP Peregrine released a research report along with this announcement. This brokerage house admired CITIC was on the same successful path as PCC (1186). PCC has risen 68.5 times after asset injections, so CITIC has a potential of $27.7 increase per share. Peregrine also listed out 10 possible asset injections.
If this analogy really works, the estimation is really "conservative". Nobody can deny there is such a possibility in the present I-Tech craze. But we would prefer to use a little more common sense and suggest investors to wait for a concrete development plan.