After being mired in the red for several years as a result of the long gestation period for its broadband business, Green Packet Bhd is optimistic the company is now on the cusp of a turnaround.
The company hit a key milestone when it turned an operating profit (earnings before interest, tax, depreciation and amortisation [Ebitda]) in December last year. Although it remained in the red for 4Q11 with a net loss of RM29.9 million, and the whole of 2011 with losses totalling RM88.5 million, Green Packet believes that a return to profitability is within reach. The solutions business, including the sale of software licences and customer premises equipment, is already profitable but the broadband unit, P1, is still loss-making.
The broadband unit is, however, expected to turn Ebitda positive by mid-2012, helped in part by a change in accounting policy in which modem costs will now be classified as amortisation expenses instead of operating costs. But more importantly, Green Packet expects the underlying business to improve further.
P1 expected to turn positive Ebitda in 2012
Some 114,000 new subscribers were acquired last year, bringing the total subscriber base to 388,000 at end-2011. This is somewhat off the original forecast pace but revenue still grew 41% to RM293 million.
Bolstered by the addition of 356 new sites rolled out in 4Q11, the company is upbeat that subscriber acquisition will gain traction in the current year. It ended 2011 with a total of 1,527 sites and about 50% nationwide coverage.
P1 targets total subscribers to reach 550,000 by end-2012. This includes signing up existing customers for new services such as fixed voice, whereby a telephone will be connected to the home modem for voice over Internet protocol (VOIP) calls.
The One Plan, launched in 4Q11, which offers both home and portable modem (dongle) with a shared quota has been quite successful — and has given average revenue per user (ARPU) a boost. ARPU improved to RM81 in the last quarter of 2011, from the average of RM73 to RM75 in the three preceding quarters.
The company recently expanded its One Plan to include the option of high-speed broadband services, piggybacking on Telekom Malaysia Bhd’s fibre network. In addition to up-selling its existing high usage customers, P1 intends to sign up primarily higher value SME customers with its combination of high-speed broadband (HSBB) plus on-the-go broadband package.
An additional capital expenditure (capex) of about RM280 million is budgeted for the current year to expand its coverage to 60% with some 2,300 sites. The company plans to raise network capacity and coverage further, to about 65% to 70% with 3,000 sites by 2013/14. Capex is estimated at roughly RM200 to RM250 million per year.
The wider coverage will dovetail with the launch of long-term evolution (LTE) services in the country, which will enable P1 to compete with mobile operators in offering telephony and mobile Internet services. By this time, it is anticipated that a healthy ecosystem of LTE-enabled devices will be in the market. P1 is among the handful of operators awarded 4G spectrum blocks.
If all goes to plan, Green Packet expects to turn a small net profit in 2013. If so, we should see evidence of the turnaround through the current year, which would certainly give sagging investor confidence a strong shot in the arm.
P1 listing will crystallise value for Green Packet shareholders
The anticipated listing of U Mobile Communications later this year could also stir interest in Green Packet.
Recall that Singapore Technologies Telemedia acquired a 33% stake in U Mobile for about RM625 million in 2010, implying a total value of about RM1.9 billion for the mobile operator. Recent news reports on its IPO speculate a price tag of up to RM4 billion to RM5 billion. The operator is reported to have over a million subscribers, more than 1,000 base stations and recently inked an agreement to share Maxis’ radio access network.
Indeed, there has been speculation that P1 could be seeking a separate listing on Bursa Malaysia, perhaps sometime in 2013. A listing would enable the company to tap the capital market directly, to fund future capex, and crystallise value for existing Green Packet shareholders.
Green Packet sold a 26% stake in P1 to Korean telco SK Telecom for roughly RM374 million in two tranches in 2010 and 2011. The sale of the strategic stake values P1 at some RM1.44 billion. SK Telecom is actively involved in the company’s operations. An IPO would likely carry a higher valuation, with the broadband operator expected to hit, or be close to reaching, positive earnings before interest and tax (Ebit) by mid-2013.
Assuming a fairly modest RM2 billion valuation for P1, Green Packet’s 57.5% stake would be worth some RM1.15 billion, compared with the company’s current market capitalisation of less than RM382 million at the current share price of 58 sen. Green Packet had net debt totalling RM115 million as at end-2011.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
This article appeared in The Edge Financial Daily, April 18, 2012.
