Thursday, August 25, 2011

Gpacket ... Aug11


It is confident of growing its subscriber base to 450,000 in 2011 for its 4G network and hopes to achieve positive Ebitda by year-end (2011).

In 2011 it will focused on growing its 4G penetration and coverage in Malaysia. They are targeting to have 1,600 sites by year-end (2011), 55% coverage in Peninsular Malaysia. They are also looking at an average revenue per user (Arpu) of RM61 in 2011.

Packet One Networks (M) Sdn Bhd (P1) had managed to achieve RM71 Arpu for 2QFY11 ended June 30 2011, which exceeded its target. P1 has also managed to grow its total subscribers to 338,000 from 274,000 at end 2010.

It posted net loss of RM15.24 million in the second uarter ended June 30, 2011 compared with losses of RM18.68 million a year ago, due to higher depreciation of plant and equipment.

Revenue rose 42% to RM127.80 million from RM90.01 million while loss per share was 2,3 sen versus 2,8 sen a year ago.

The 2Q11 loss after tax was higher than 2Q10 mainly attributed by higher depreciation of plant and equipment in accordance with the planned rollout of the broadband infrastructure even with higher revenue from software and broadband business.

Green Packet said for the first half, the net loss was RM34.24 million, narrowing by 21.3% from RM43.50 million in the previous corresponding period but revenue rose 41.1% to RM249.51 million from RM176.82 million.

Total accumulated losses at June 30 was RM317.35 million compared with RM302.11 million as at March 31.

The stronger financial position was due mainly to stronger sales of its modem devices and higher subscriptions for P1 WiMAX services. Modem sales grew 171% year-on-year to RM40.5 million, with 198,400 devices shipped in that quarter.

It managed to secure some new customers from its competitors in 2Q2011 which include Atheed, Wateen, Witribe, and Liberty.

It also sold 185,000 software licences in 2Q 2011.

P1 broadband revenue grew 31% year-on-year to RM68.6 million for 2Q on the back of 33,000 new subscribers with an Arpu of RM75.

For the cumulative six months ended June 30, Green Packet’s net loss shrank to RM34.25 million from RM43.5 million a year earlier. Revenue grew 41% to RM249.5 million from RM176.82 million.

It managed to add 64,000 subscribers in the first half-year (2011), which means that they are on track to hit 450,000 subscribers by year-end (2011). They currently have 338,000 subscribers.

The group has incurred RM679 million in capital expenditure (capex) so far 2011 and has allocated RM250 million for the next 12 months in order to grow the group’s businesses. The group had enough capital for this purpose as it had RM93 million in cash, and another RM232 milllion in bank and vendor financing facilities as at June 30 2011.

Going Forward …

Although Green Packet reported a net loss of RM15.2 million for 2Q, the loss was lower than the previous corresponding period, when it reported a net loss of RM18.7 million. It was a similar story in 1QFY11, when Green Packet also saw its losses narrow to RM19 million from RM24.8 million.

It is the performance of its broadband segment, Packet One Networks (M) Sdn Bhd, which has been dragging down the company’s earnings. However, this is inevitable in any start-up company, especially in the fast-moving technology sector.
Break-even for P1 has been a moving target. Green Packet has previously indicated tentative deadlines as to when it expects P1 to be profitable. However, those times have come and gone. Currently, consensus is expecting Green Packet to see an earnings turnaround during the second half of FY11.

However, although the company has seen subscriber numbers increase as a result of an aggressive marketing campaign, infrastructure restraints have capped growth.

According to the notes accompanying 2QFY11, broadband services reported a net loss of RM73.6 million, an improvement on the RM82.9 million loss chalked up in the previous year’s corresponding quarter.

One of Green Packet’s core issues has always been bandwidth, it needs more bandwidth to offer better services... in terms of more complex offerings.

Currently, the telco sector is undergoing an evolution that sees an increase in the number of partnerships between the players. However, the most immediate development in the sector is the award of the new 2.6 Ghz spectrum. The award of the spectrum by the Malaysian Communications and Multimedia Commission is still pending. The players have already submitted their business plans to the MCMC and are now awaiting the award. The company is confident it will gain a portion of the spectrum.

Meanwhile, Green Packet is “confident” of getting a portion of the 2.5GHz/2.6GHz spectrum announced by Malaysian Communications and Multimedia Commission.

While the industry waits for the announcement about the 2.6 Ghz spectrum, Green Packet is currently in talks with Telekom Malaysia Bhd (TM) to ride its high-speed broadband backbone. Embarking on this kind of wholesale agreement with TM would offer Green Packet better access to customers. The company hopes to enter into a memorandum of understanding with TM soon.

Another positive sign is Green Packet explaining in the note to its earnings that the losses were the result of its plant and equipment in accordance with the planned rollout of its broadband infrastructure.If the company chooses to front-load the depreciation of its equipment, which is what Digi.Com Bhd has also chosen to do, you will then see an impact on its numbers, even though it is a non-cash item. However, the company can be applauded for taking a more conservative stance.

Even so, there is no question Green Packet will continue to face intense competition as other players step up to the plate. Aside from the three main telcos, YTL Communications Sdn Bhd’s YES service is also gaining a lot of attention.

The fear is that in order to increase its subscribers P1 will have to increase its marketing efforts again, which means higher marketing costs. More subscribers also places P1’s network under strain that affects the network’s performance.

Industry observers said Green Packet is under pressure to deliver, especially considering that its major shareholder, South Korea’s SK Telecom, has invested substantially in the venture.

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