At its peak in February, Hikari had a market capitalization of some U.S.$ 76 billion -- or about 30% more than General Motors, the world's largest automobile company or nearly three times the market value of Boeing that sells more than half of all globe's commercial aircraft. Who needs old economy stuff like cars or planes when you can ride the Internet wave in Japan?
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WYesterday, Monday April 10th, was the first time in seven days that Hikari shares actually traded on the Tokyo Stock Exchange. They immediately tanked 42% to Y45,800 a share. Today they are "Ask Only" at Y42,800. But there is no trading in Hikari shares because there are far too many sellers and hardly any buyers. The Japanese bourse requires that the number of sellers and buyers be about equal. When there is a big disparity trades aren't allowed to be executed.
At a reference price of Y42,800 a share, Hikari stock is more than 85% down on its February peak. Yes, just seven weeks ago Hikari was defying gravity at close to Y246,000 per share. Smitten analysts were predicting even higher peaks for Hikari.
What a difference a few weeks make. Hikari's market capitalization is down to U.S.$ 12.5 billion -- not even good enough to buy 20% of General Motors.
Remember that U.S $1-billion-share swap that Richard Li's Pacific Century CyberWorks (PCCW) did with Hikari in February, which sent its own shares skyrocketing? Well, that $1 billion worth of Hikari stock that PCCW purchased is today worth $150 million and falling. In a way it really doesn't matter to Richard Li because he didn't fork out a single cent for that purchase. All he did was to issue PCCW shares and those shares have fallen about 45% from their peak. Still, as it turned out, he paid nearly twice as much as he needed to for Hikari shares.
If you had invested $100 in Hikari in February you probably would own just $15 worth of stock. Actually by the time you are through with commissions and a slight decline in the value of the yen against the U.S. dollar, you probably have just $12 dollar worth of stock. In fact since Hikari is currently "Ask Only" if you were really desperate to get rid of your Hikari shares you would be lucky to pocket $10. But hey, look at the bright side: You are not alone. Many aggressive fund managers, who invested in Hikari in the first two months of this year, are sitting on huge paper losses. Among them is one of Jardine Fleming's Japan funds which at one point had nearly 5% of its holdings in Hikari stock. Nobody seems to know where the bottom is for Hikari stocks. Mitsubishi Securities is predicting a Y10,000 price target, 96% down from its peak price in February, which it says reflects the fair value of the company. Remember, stocks are as likely to overshoot on the way down as to overshoot on the way up.
What's Hikari's problem? The shares have been battered not just because the Internet hype is less sellable than it was seven weeks ago. Hikari's core business -- of selling and renting cellular phones -- is in trouble too. It will lose U.S.$ 125 million in the six months ending February 2000. Phone subscriptions are growing at a far slower rate than most analysts had anticipated. In the past few months Hikari has closed down over 550 of its HiT retail phone shops, leaving just over 1,450 from a peak of 2,000 stores in December. Analysts figure more store closures are likely. Hikari says it also needs to sell some of its Internet-company holdings to cover its first ever six-month operating loss. Just three weeks ago, Hikari founder and CEO Shigeta Yasumitsu was talking up the rosy profit forecasts that analysts had dished out.
Japan's other Internet star, Softbank has also lost a lot of its shine, though it isn't down as much as Hikari and it still has assets like its stakes in Yahoo! and E*Trade that can fetch money even when Nasdaq is down. Softbank is expected to report a Y530 million loss for the six months to March 2000. Its shares have lost 65% of their value since February. Softbank wanted to raise up to $2 billion through a share placement, but the market sentiment is too poor to try it anytime soon.
True, the "old economy" seems to be dead and the old ways of doing business are dying as fast. True, the Internet is here to stay. True too there is a lot of money to be made from Internet stocks -- in spite of the volatility in tech stocks there will tremendous upside in some selected stocks that are market leaders in their respective fields.
The lesson from the dramatic rise and fall of Hikari is that it actually pays to stick with fundamentals. Hikari stock kept climbing because every other day its management was announcing a new investment in yet another Internet play. Investors poured in because of news flows and forgot about cash flows. The more Internet investments Hikari made, the more likely it was that it would make a mistake. But investors were so awestruck by Hikari's Internet investment strategy that they took their eyes off Hikari's core business, cellular-phone retailing and its falling margins and plummeting subscription rates.
Hikari is unlikely to go under. It still has a good retail phone franchise in Japan that can be emulated in some, though not all, Asian markets. But its travails have brought home an important point: If a stock looks too good to be true, it probably is.
cnn.com/ASIANOW/index.html von Asseen Shamin