STOCKWATCH: City Telecom extends gains on interim results

HONG KONG (AFX-ASIA) - City Telecom (HK) Ltd extended gains in early morning trade from yesterday's rally, going up sharply, after the company posted 5.81 mln hkd in net profit, reversing 52.53 mln hkd in net loss recorded a year earlier, dealers said.



           They said the company is keen to reduce its operating costs in an attempt to overcome the current tough competition in the IDD business, adding the cost reduction efforts will further boost the company's bottom line.



           However, dealers said, investors should be cautious about possible profit-taking since the stock has gone up almost 50 pct in the past few trading sessions.



           At 10:51 am, City Telecom rose 0.15 hkd or 20 pct to 0.90 hkd on trade of 16.71 mln, while the Hang Seng Index was up 44.41 at 13,855.01 on turnover of 2.93 bln hkd.



           "It seems to me that the company's cost control efforts have helped to move the company's operations back on track," said a telecom analyst with a regional brokerage.



           The analyst said the reduction in the IDD lease line rate in China has been the major contribution to cost cutting.



           "The lease rate in China has come down 95 pct already. To City Telecom, it is especially good since calls to China account for about 50 pct of City Telecom's traffic," the analyst said.



           The analyst said international lease rates have also been reduced by 30-50 pct.



           "I expect City Telecom will post 26.7 mln hkd in net profit (in the year to January 2002)," the analyst said.



           However, the analyst said fierce competition in the IDD business remains a concern to all operators.



           "NT&T is a price leader in the IDD business, while Pacific Century CyberWorks is a market share leader. City Telecom is still under pressure," the analyst said.



           The analyst said the current price of City Telecom has exceeded his initial target price of 0.87 hkd.



           "In the past few trading sessions, the stock has risen by almost 50 pct. Investors should be cautious about any possible retreat in profit taking," the analyst said.

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