Monday, February 14, 2011

Redtone ... Feb11

It has been dragged down by losses in the new segments it ventured into, such as its WiMAX operations in Sabah and Sarawak and its Chinese oriented IPTV service.

It has also not stayed the same as a telco, which means consumers can count on RedTone to always innovate and try something new. Although it burnt its fingers in the Pakistan market some years ago, the company’s entry into China in 2006 appears to be finally bearing fruit.

Redtone’s valuations of Redtone Asia Inc, which houses its China operations, was US$22 million (rm67 million) in 2010 – close to Redtone’s market cap of rm90 million. This valuations was derived in Redtone’s reverse takeover of Hotgate Technologies Inc.

Its China’s operations contributed 16% to Redtone’s top line in 2010 and was the most profitable segment, posting. Now into 2QFY2011, China looks set to contribute more to Redtone’s bottom line.

The good performance in China is attributed to ultra low capital expenditure and a highly scalable and replicable business model.

Redtone’s cap expenditure for China is only around rm1 million to rm2 million a year.

In Malaysia, the group is in the red in two of its segments – its IPTV business and WiMAX operations in Sabah and Sarawak. Their losses overwhelm the profits from China’s at parent company level.

However, Redtone has a few options to turn the tide.

First it is planning to pare down its stake in RAI to around 70% from the current 90% through a share placement exercise in 2011 that could boost its coffers and results. A 20% stake could fetch around US$4.4 million.

Second, the company’s IPTV market will grow. TM’s goes into the mainstream market, so it foes head to head with Astro. Redtone’s is estimated to have invested some rm20 million in the IPTV business over the last three years. The service was launched in 2010.

The other options is to cut its losses in Sabah and Sarwak. It hints that parties have expressed interest in acquiring the company’s WiMAX operations there, which have seen rm20 million in investment till Feb 2011. This presents another opportunity for Redtone to turn things around.
As for its 4G licence in Peninsular Malaysia, Redtone hopes to roll out the services by 2011, pending approval from the MCMC. It is targeting corporate and SME customers.

With so many possibilities, it is likely that RedTone will keep evolving with times.

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