How long can it go on?

http://dailynews.yahoo.com/h/nm/20000115/wr/asia_investment_1.html

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Saturday January 15 9:40 PM ET

Asian Internet Stocks to Outrun U.S. Peers

By Nick Edwards

HONG KONG (Reuters) - Asian Internet shares look set for a strong run and should outpace their U.S. peers as investors drool over their vast potential, a top investment banker said.

The region's Internet ventures are the toddlers of the new on-line age and have more years of rapid growth ahead of them than the more mature firms of the U.S. market, said David Williams, head of Merrill Lynch's Asia Pacific Internet group.

Listed Asian Internet firms are also harder to find.

No major price correction is expected to hit them until there are several listed direct competitors in each of the local markets, said Williams, who is based in Hong Kong.

He told Reuters that Asian cyber share premiums ``should be at anything from 25 to 50 percent over the median in the U.S.'' given the potential size and immaturity of their markets, the limited number of shares available and strong investor appetite.

``Most of the sectors in the U.S. don't have as many years ahead of them of rapid revenue growth as you'll see in these (emerging market) countries,'' he said.

Revenues Now, Profits Later

Revenue multiples have emerged as the key trading measure for Internet stocks because most of them barely make profits -- certainly not at levels that validate their valuations.

Typical Internet access providers in Asia could expect to trade at 10 times their revenues per share, while top portals should trade at 50 times revenues, Williams said.

He said investors were drooling over the sheer population numbers and projected computer-usage rates in Asia. China and India alone account for about a third of the world's people.

Williams says firms looking to list no longer need to turn to the technology-rich U.S. Nasdaq market to achieve high valuations.

``A year ago that was true. There was a belief that only Nasdaq would give you the tech valuations that people in the sector wanted,'' he said.

Williams typically recommends both a local and a Nasdaq listing, but says the local route could be the best option if a company intends to focus its expansion strategy entirely in Asia.

``The whole Internet wave has hit Asia and investors want these stocks, but there aren't enough for them to invest in,'' he said.

Choice Of Markets

Williams expects at least a dozen Asian cyber firms to list on Nasdaq this year, but probably twice that number to list locally on Hong Kong's Growth Enterprise Market, South Korea's Kosdaq market, or in Singapore.

But he said investors would want hard evidence that the firms could fund growth investment and fulfil business plans.

``The market, for the huge multiples being paid for these companies, expects rapid growth and that includes in most cases acquisitions,'' Williams said.

``For a company like Pacific Century Cyberworks, the fact that they're continually making acquisitions helps support the share price. If they weren't doing any of that, they wouldn't be able to command the valuation they do,'' he said.

Pacific Century Cyberworks stock closed at HK$16.75 (US$2.15) on Friday, up 16.3 percent on the previous week's close.

The firm is one of a handful of pure Asian Internet plays, of which the Nasdaq-listed Satyam Infoway of India and Hong Kong's China.com are the role models.

As more cyber shares hit the local markets and compete, their valuations will begin to diverge, Williams said.

``Take China as the example: once the three major portals are public and they're out there with China.com, then you're going to see a lot more differentiation between the players... as investors choose business models they prefer.

``That will impact valuations on the positive side for the winners in each sector. Number one and number two will trade at significant premiums to number three and number four.

``And that will happen sooner than you might expect.''

(US$1 - HK$7.80)

-- Watching (on@the.sidelines), January 17, 2000

Answers

Nice to see the virtual stocks charging yet another virtual reality...Guess I'm just doing that barnacle-on-an-aircraft-carrier thing when it comes to modern economics.

-- Hokie (Hokie_@hotmail.com), January 17, 2000.