zoomFinance
- Round Table Forum
February 27, 2001 11:00
AM - 12:30 PM |
| The
Dotcom Report Card |
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RD:
All of us could remember the fiasco of last year, the US$1.8 trillion
dotcom meltdown in the America. It is very hard to think of a publicly
traded internet company that has not fallen perhaps 75% from its 52-weeks
high. You have got companies that are cutting expenses and people;
essentially this whole industry has gone from darling to dog quite
quickly. What happened externally has also hurt Malaysian companies
very badly. Global tech valuations have plummeted from their peak
a year ago. Even in Malaysia, MOL.com is 70% south of its peak and
EG.com, formerly known, as Daiichi Enterprises is 77% down. Are Malaysian
Internet stocks fairly valued now? Can or should their prices fall
further?
KT: First of all, let me stress that all the listed Malaysian
dotcoms are merely taking on the looks of 'real' dotcoms. From my
understanding, none of them are pure dotcoms. In fact, most of their
online businesses are merely diversification from their core businesss.
For example, MOL.com was a manufacturer of lights, fittings, electrical
components and switchgears but has since gone into portal services.
I wouldn't use any of them as a gauge for dotcom valuation in Malaysia.
However, there is no question that the dotcom valuation has come down
tremendously globally. An interesting study shows that, on average
since 1962, investors have been willing to pay a historical P/E of
about 33 times. At the moment, the average historical P/E of Nasdaq
is still higher than 33 times (approximately 38 times). Now that analysts
have downgraded the earnings and cash flow forecasts of many dotcoms
, the valuation of these companies should drop. I think some of these
dotcoms may still be overvalued given that their share prices have
not fallen as much as the theoretical valuation adjustment due to
the downgrading of their profit and cash flow forecasts.
RD: So your bottom line feel is that there is room still for further
collapse?
KT: Yes,, there is still room for further adjustment although
this may not apply across the board. Some companies will do well and
will enjoy growth in their values
 AS:
I think many listed companies got caught up in the hype. They probably
backed some very dodgy dotcom plans. Can they fall further? I think
a lot depends on their burn rate. If a company is breaking even and
it has some sort of steady revenue stream and more importantly not
losing money, it is going to survive. But if it is losing money month
after month, I think the access to the capital market has been cut
off now. You might find that if you have run out of money, you just
have to close shop or be sold off really cheap.
RD: So coming from a different direction, you are fairly pessimistic
as well?
TF: I must agree with them. However, let us take away the issue
of being listed in the capital market. Two years ago, the capital
market was wrong as you can see right now. So, looking forward, the
capital market might also be wrong this time. So, let us get rid of
this issue about getting listed on exchanges such as Kuala Lumpur
Stock Exchange, Nasdaq and so forth. Now, let us look at the basic
things. Do these dotcoms have something to sell? Do they have something
of a value to their clients? The fact is when you answer these questions;
the answer is yes. All these dotcoms do have certain values to sell.
They do have monetary and economic selling points. In the past, investors
came and invest in dotcoms that could provide extraordinary returns.
We saw what kind of returns that they were demanding and also what
kind of returns the dotcoms were able to generate. Two years ago,
that is a total mismatch but we are seeing some sort of equilibrium
being reached here. If we were to put the capital market issues aside,
dotcoms do provide value added services especially those that are
servicing traditional old economy companies. The traditional companies
require information technology to service their clients because of
increasing competition due to globalisation. These traditional companies
need to reduce their costs. All these are needed and new economy companies,
the dotcoms, can satisfy them.
RD: So, you are saying that the winners are those that are able
to provide services to serve those traditional brick and mortar companies?
 TF:
Yes. This is very true. Well, you will see a lot more failures but
you will also see faster successes. Yes, there are a lot of consultation
services going on. Well, we are talking about changing of resources
here. Remember, we are talking about people who went over to the new
economy companies, learnt from them and then go back to the old economy
companies. This people bring along with them certain knowledge to
add value to these traditional companies.
RD: Which presumably will give the traditional companies certain
competitive edge?
TF: These traditional companies are converting themselves to
use the Internet to fight the new economy companies. That is why we
see a big change in valuation of these pure dotcoms. Now, things are
changing. But, we must really get away from the hype that we were
involved two years back and start looking into the basic things. Do
these companies have a value to sell? Yes or No? The answer is yes.
RD: Before we move on, you talked about position of disequilibrium
reaching the point of equilibrium. I think the crux of this question
is if there is a readjustment going on now, do you think that we have
hit that point of equilibrium or do you agree with Keng Teik and Asgari
that we will continue to see further downward movement on dotcom valuation?
TF: I think there will be some slight downward movement on
valuation but I am not so pessimistic. Looking at the depressed prices
of some of these dotcoms, it is not because of their business model
but it is rather due to the economic downturn. We have to discount
this factor out. Assume, if there is no economic downturn, ask yourself
whether these companies have valid business propositions and the answer
is still yes.
NL: When you look at all these dotcoms, what you need to look
at the possibility of secondary placement or additional funding options.
If they need to raise more cash, how are they going to do it and whether
it is possible or not? This might not be true for Malaysian dotcoms
but it is crucial for other dotcoms. Now, when you talk about whether
listed Internet stocks in Malaysia are fairly valued, you have to
look at the gestation period of these businesses. EG.com is a business
which primarily involves the government sector. This is going to take
them a fair number of years to try to realise their business model.
So, now it is really the case of whether the capital market will appreciate
what they hope to achieve in the future. Someone else like MOL.com,
which is also a listed entity, are pretty fluid in terms of their
business model and the ways they want to make money. And given their
ties with other listed companies and businesses, they will find a
way to ensure that their business entity is viable. |
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