CHINA Netcom Group Corp shares fell the most in a month after their rating was cut to "neutral" by Credit Suisse Group because their price already reflects an expected merger between the company and China Unicom Ltd.
The stock fell 4.9 percent to HK$23.25 (US$2.98) in Hong Kong yesterday, the biggest one-day drop since February 6, compared to a 3.6 percent drop in the Hang Seng Index.
China Netcom, the smaller of the country's two fixed-line operators, was reduced from "outperform" because of "the high execution risk, uncertainty on merger ratio and the recent share price rally," analysts Jeffrey Tan and Terry Chan wrote in a report. Netcom's 12-month share-price estimate was cut by two percent to HK$26, the report said.
China Netcom may merge with Unicom and get its larger global system for mobile communications, or GSM network, while bigger rival China Telecom Corp may acquire Unicom's smaller CDMA, or code division multiple access, network, according to the report. China has yet to announce the timetable and details for a revamp of the telecommunications industry.
The recommendation on Unicom was raised to "outperform" from "neutral" by Credit Suisse, with the analysts recommending buying the stock in preference to Netcom as it's most likely to benefit from an industry overhaul. Unicom's share price estimate was boosted by more than half to HK$24 from HK$15.50.