BEIJING, Jan. 7 -- US investment bank Morgan Stanley initiated coverage of Hong Kong-listed China Netcom, the country¡¯s second-largest fixed-line phone company, with an ¡°overweight¡± recommendation and an 12-month price target of HK$12.

    CSFB also started coverage of China Netcom on Thursday, with a price target of HK$15.60.

    The target prices imply an upside of 19 and 55 percent, respectively, from the company¡¯s closing price of HK$10.05 Wednesday.

    The stock has jumped about 18 percent since its November initial public offering.

    Morgan Stanley said it expected China Netcom¡¯s recurring earnings to increase by 34.4 percent last year to 6.63 billion yuan (US$800 million), and by 14.4 percent to 7.58 billion yuan this year, driven by broadband growth.

    ¡°China Netcom stock should benefit from potential accretive acquisitions from its parent, as well as slightly better-than-expected 2004 earnings,¡± the investment bank said in a research report.

    Morgan Stanley expected Netcom to announce acquisition plans around mid-2005.

    But the investment bank pointed to Netcom¡¯s regional expansion and third-generation mobile network investment as two major risks.

    ¡°While many would argue that the acquisition (of a 20 percent stake in Hong Kong¡¯s dominant fixed-line phone company PCCW Ltd.) is being made at the parent rather than the listed company, we view them as virtually the same entity from a strategic perspective. We are not convinced that a PCCW investment would be value-creative.¡±

    Parent China Netcom Group planned to pay around US$1 billion for 20 percent of PCCW, sources close to the deal said Wednesday, a much higher price than investors had expected.

    ¡°The deal will be sealed by the end of next week, if not this week,¡± said one source close to the deal.

    (Source: Shenzhen Daily-Agencies)