PCCW

CyberWorks' strategy to become Asia's leading network for digital entertainment is unraveling as investors lose faith in online pioneers. It hasn't helped that it's so far been stingy with information about its plans for Cable & Wireless HKT Ltd., whether its pact with Telstra will be renegotiated, and how many of its ventures, if any, make money.

``Investors feel the information flow has been inadequate,'' said Aaron Pong, a director at RBC Investment Management (Asia) Ltd. in Hong Kong, which oversees $200 million in Asian stocks. The risk of holding CyberWorks will rise unless it makes it clearer when it will make a return on its investments, and how much, he said.

CyberWorks shares lost a fifth of their value this month. They rose 4.1 percent yesterday to HK$9 -- a third less than on July 12, when HSBC Holdings Ltd. said in its research report they would rise to HK$22. They rose 1.7 percent today to HK$9.15.

Yesterday's gains came amid speculation that Li will repurchase shares in his company. Senior company officials in Hong Kong aren't allowed to buy shares in their own companies in the month prior to announcing results, and Li said in Singapore this week that he may buy shares through parent company Pacific Century Regional Developments Ltd.

`Toasted' Research

In less than a year, Li transformed CyberWorks into a company with a market value larger than Cheung Kong Holdings Ltd., the real estate arm of his father, Li Ka-shing.

Now, the flow of acquisitions has eased, and in some cases reversed. This month, CMGI Inc. and GigaMedia Ltd. pulled out of joint ventures with CyberWorks, and some analysts say Telstra is eager to rethink its agreement to account for a 56 percent decline in the Hong Kong company's share price since the pact was reached.

Telstra is under fire, too. Today, Standard & Poor's cut its long-term credit rating on the company to ``A+'' from ``A,'' reflecting its investment in ``high-risk'' mobile, Internet and data businesses in Asia. Telstra rose 1.9 percent to A$6.01.

The Australian newspaper reported today that Telstra may quit its partnership unless CyberWorks agrees to new terms. The newspaper said Telstra executives are meeting in Hong Kong with their counterparts at CyberWorks as Telstra works on a new plan for its international strategy.

CyberWorks earned HK$20.2 million, or 20 HK cents per share, for the quarter ended March, compared with a loss of HK$9.12 million in the same period a year earlier. It earned a net HK$346.8 million last year, largely on gains from Internet-related investments that probably tumbled this year.

Granted, few Internet start-ups have proved adept at quickly earning a profit. What sets CyberWorks apart from many, however, is how easily it rode a wave a groundswell of support from analysts in its Hong Kong home base, even after technology stocks slid worldwide on concern Internet and mobile phone use wasn't growing fast enough to power earnings.

HSBC wasn't alone in its optimism. Merrill, Lynch & Co. set a target of HK$25 on CyberWorks in January, with Lehman Brothers following up with its own target of HK$35, according to Webb- site.com, a Hong Kong Web site run by former investment banker David Webb.

Lehman cut its target to HK$22 in July, when the shares had slipped to HK$15 from HK$28 in February, while UBS Warburg said as late as Aug. 29 that CyberWorks shares were due to rise to HK$24, according to Webb. ``A pungent smell of toasted research reports fills the air,'' he said.

Do The Math

That kind of track record helps explain why many analysts are reluctant to attach their names -- or the names of their banks -- to forecasts for first-half results.

``I've absolutely no idea'' what the company will say in its earnings report, said Sanjeet Devgan, an analyst at Prudential- Bache Securities. ``I'm not looking for any numbers. I'm looking for a sense of the direction that the company is going to take.''

Other analysts are more confident about the math.

Bethany Chan, an analyst at UBS Warburg, said CyberWorks lost between HK$150 million and HK$250 million in the first six months of the year, largely due to writedown in value of its venture investments including in Nasdaq-listed CMGI Inc. and SoftNet Systems. That's even after CyberWorks earned about HK$300 million in interest payments in the period, she said.

CyberWorks may also have earned exceptional profits after the listing of such ventures such as Rediff.com India Ltd., India's largest Internet portal, said Adrian Ngan, research head of BNP Paribas Peregrine Securities Ltd. CyberWorks also owns 4 percent of Tom.com Ltd. and 12 percent of StarEastNet.com, both are listed on Hong Kong's the Growth Enterprise Market.

And most analysts remain confident about the company, judging by their most recent recommendations. Of 12 recommendations tracked by Bloomberg Analytics, nine are now to buy the stock, with one ``hold'' and just two ``sells.''

One of the few dissenters is James Loh at Typhoon 8 Research, a small brokerage that rates CyberWorks a ``sell.''

``They don't talk to us,'' Loh said. ``They always put me on hold. It's probably because we're not a big enough company.''