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Mavericks
Scott Blanchard on Richard Li, Jimmy Lai and John McCain
By MAUREEN TKACIK
February 24, 2000
Web posted at 7:30 p.m. Hong Kong time, 6:30 a.m. EST
Click here for current data on world markets from CNNfn
Scott Blanchard, head of sales trading at ABN Amro, wants to get a few things off his chest. We cut to the chase.
Issue 1: They're not Internet stocks, they're "Emerging Value" stocks.
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Q: Scott, come on, "emerging value"? What kind of propaganda is that?
A: Look, if you want to control the world view, if you want to control the zeitgeist as it were, you have to control the nomenclature? Anyway, the point isŠ?
Issue 2: Buy OnLine Credit!
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Q: So basically OnLine Credit, number 185, an incubator venture-capital company, is the newest Computer & Technologies. (Computer & Tech, for those who don't know, is a systems integrator with a lot of mainland business and a recently re-consummated tie-up with Hutchison Whampoa. It was also Hong Kong's second-best performing stock last year, entering finish with about a 1,700%, and Scott called it really, really early.)
A: Well, they're not really the same kind of company at all.
Q: Except in the sense that they both have value just emerging out of their pores, but no, I was basically comparing them in terms of your affection for the stock.
A: Well, what I like about the company is not so much the incubator angle, because there are a lot of those out there, but their unlisted venture ChinaNet communication, which has control of about 40-50% of the paging spectrum in China. Joe Locke (head telecoms analyst at ABN Amro) likes this name because he sees the growth of Internet access on Personal Digital Assistants for which the paging spectrum is remarkably effective. Joe sees ChinaNet listing on the GEM this half. Another OnLine Credit Venture, NeuroWeb, is a Malaysian systems integrator which has won contracts with the two leading cellular providers in Malaysia.
Q: So we're talking about the rare undiscovered Asian WAP play here. Sounds good to me, it's trading presently at HK$0.76 ($0.10) a share. Any price target?
A: Joe initiated coverage at HK$3.40 ($0.44) to $4 ($0.51) for the next six months, so there is significant upside to be had. But one thing I want to point out is that a lot of the money locked up in this 1,500-times oversubscribed Tom.com issue is going to rally the Hong Kong new economy names early next week. Computer & Tech is also down lately because Hutch took a stake in Vanda systems, which locals obviously see as a threat to C&T. It's not. Remember, C&T has a 50-50 joint venture with Hutch to exploit the mainland, and the technology Hutch wants from Vanda does not threaten C&T at all, so I'd be buying C&T on this weakness.
Issue number 3: Pacific Century CyberWorks.
A: I am disappointed with the speed at which Richard Li is closing deals. I want to see a deal a day, and one day he's going to wake up and just do it. They should have bought off the rest of Outblaze (a Web-services company) much, much earlier. They should've bought Computer & Technologies. You know, I think that Arnhold, the new investment vehicle that Simon Murray--the man who got Hutch into telecoms--is taking over for Internet investments, could quite possibly give Richard Li a run for his money. That said, I love the new PCCW-Legend tie-up: it is going to be massively good for both companies and it doesn't surprise me that they've been in talks for a long time. The deal is a natural. Legend is a badass; they're developing the Venus set-top box with Microsoft, their Internet strategy is the best in China, and they make 25% of the mainland's PCs. And for PCCW to get its Now.com content coming onto the screen at the touch of a button with every new Legend web-Computer, that's going to make them into the AOL of China. Legend is seriously going to dominate. On its own, Legend is still a company I would buy at these levels, partially because of another joint venture with a Taiwanese networking equipment maker called D-Link, which could reap for Legend a lot of major corporate or public-sector contracts that it didn't have before, and contribute even further to the spread of their portal.
Q: For our stateside readers and other NASDAQ addicts, give us a bit of wisdom on two things. Firstly, the Gigamedia (Taiwan's only broadband ISP) debut. It's down a bit from its high, but we are talking about a company with fewer than 11,000 subscribers in a market that's half the size of Korea--and you thought Thrunet (the NASDAQ-listed Korean broadband ISP) was ridiculous! So why is Gigamedia a $65 stock? And why do all my stateside readers refer to Pacific Century CyberWorks as PCCLF? Did it quietly decide to list on NASDAQ while I was sick?
A: No, PCCLF is just over-the-counter PCCW. You can buy it on E*Trade. And a lot of people have tried to get around Hong Kong's tight shorting regulations by shorting PCCLF in the States and going long on Pacific Century Regional Development, PCCW's Singapore subsidiary. But so far that trade hasn't worked, so I'd be cautious about it. As for Gigamedia you've got two halves of the equation. There's vision and execution. And I know this goes against the conventional wisdom. But I think vision is more important. And the Koos' group--these swashbuckling Taiwanese businessmen who are such big backers of Gigamedia--they understand the Internet. They have vision, they have a strategy. It's not much of a company yet, but they have a lot fewer competitors in broadband than Thrunet, and a lot more of their territory covered with infrastructure. And on the quiet, Taiwan's Internet penetration has really been growing.
Q: I notice your new website, www.blanchardhome.com, has a link to Honk Kong businessman Jimmy Lai's AdMart.
A: The clicks-to-doorstep model I find very compelling. You can see Amazon.com one day just taking over DHL. It's got the stock price to do it. And when Jimmy Lai lists AdMart, I think you're going to see that happen. I don't think it's a good idea for him to list everything separately; he wants to list Next Media apart from AdMart apart from AppleDaily.com, and I think that together as a whole they're worth more. But one of the things that I think Jimmy Lai has been very smart with is building up a business before he lists. He has been losing money every month, money out of his own pocket, because he knows if he just lists it immediately he's leaving a lot of money on the table. Now, Tom.com is a different story because it's Li Ka-shing, but I think as you see more venture capital money come in during the early stages you're going to see higher pre-IPO valuations and ultimately much higher market caps when these companies list. Tom.com and Sunevision are pumping the life back into the GEM and so, in the future, as opposed to the backdoor listings we've been seeing, we're going to see IPOs this year and we're going to see much higher valuations. But anyway, AdMart is going to be amazing when it lists and I love Jimmy Lai.
Q: He's a maverick.
A: And on that note I love John McCain, too. He's going to pay down the debt, he's going to make sure we've got an evenhanded China policy, and at the end of the day, what damage is he really doing by ignoring the religious right? Are they going to vote for Gore instead? No, the religious right are the biggest paper tigers around. South Carolina was given way too much credence.
Q: And he's nice to the media.
A: John McCain understands that the relationship with the media is symbiotic. I understand that, too. That's why I call you up when I have something I want to be heard.
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