PETALING JAYA (May 21, 2012): Green Packet Bhd is undervalued with the stock currently trading near its record low, but its founder is confident that the broadband provider will be given a proper valuation when it turns around this year with its first positive earnings before interest, taxes and depreciation and amortisation (ebitda).
The company, according to its group managing director and group CEO Puan Chan Cheong, has not been given the right valuation.
"We believe when the group turns ebitda-positive in 2012, the confidence and sentiment (of investors) will be different, despite the public equity market not giving us the valuation due to risks and long gestation period," he told SunBiz in an interview.
At last Friday's closing price of 50.5 sen, the company has a market capitalisation of RM332.2 million, much lower than Puan's valuation of RM1 billion based on sum-of-parts calculation.
According to Puan, its 57%-owned 4G broadband unit Packet One Networks (Malaysia) Sdn Bhd is valued at nearly RM1.5 billion based on the US$100 million (RM312 million) invested by SK Telekom Co Ltd of South Korea for a 26% stake in the company, and the solutions business, which is valued at not less than RM200 million.
Last year, the solutions business posted a profit of RM25 million, and the price tag of RM200 million is based on the 8-12 times price earnings multiples fetched by major telecommunications companies.
Puan said this year also marks the end of the group's five-year transformation plan, and all sights will be on the company's financial results. It is expected to release its first-quarter 2012 results this Wednesday.
"The focus now is to build a positive ebitda, and when the group is cashflow-positive operationally, the route to profitability will come. Overall, revenue needs to be over RM600 million for us to achieve a positive ebitda."
Green Packet expects an annual performance of over RM1 billion in revenue by 2015 and more than RM500 million in ebitda by 2020. It is looking at an annual growth of RM100 million in ebitda from next financial year.
The group achieved its first positive ebitda in the month of December 2011, mainly from its solutions business. It expects both its solutions and 4G broadband – the latter via Packet One Networks (Malaysia) Sdn Bhd (P1) – pillars to also be ebitda-positive this year.
"Achieving investor confidence and share price performance is a matter of time," Puan said, adding that the group has developed its capabilities to compete with the telecommunications incumbents and beaten competition from newcomers.
He said some institutional investors took a temporary exit from Green Packet and divested their shares in the company because of the risk profile and the long term investment-changing landscape.
Despite this, it attracted long term shareholders Intel Capital and SK Telecom to invest in P1, in which the former holds a 17% stake in P1. Green Packet holds a 57% interest in P1.
He said the ebitda target had been postponed for a year after SK Telecom invested in the company, as it wanted Green Packet to gain more market share and become ebitda-positive.
Puan believes that ebitda and a positive cashflow are key factors in gauging the performance of telcos.
"For an infrastructure investment like telco, the capital expenditure (capex) is front-loaded. If we invest RM1 billion in capex, the amortisation and depreciation will be RM100 million a year over a period of 10 years. Hence, the more accurate measurement for the telco business will be the ebitda."
Green Packet is now the country's fourth largest broadband provider, with 388,000 paying subscribers. The group has a nationwide coverage of 55%, and an 80% coverage in the Klang Valley alone.
"By year-end, we expect a 100% coverage in the Klang Valley, and this will pave the way for us to offer mobile broadband and handset next year," said Puan. - The SunBiz
