XOX ... Jun11

The company reported a net loss of RM1.67mil for the three-month period ended March 31, mainly due to the selling and distribution expenses necessary in creating brand awareness for XOX's services. Revenue for the period was RM12.69mil on the back of about 391,000 subscribers.

Industry observers say XOX's expenses to boost its brand awareness were necessary or else it will just lose market share to competitors.

As a full-fledged MVNO, XOX was able to ride on Celcom Axiata Bhd's network for infrastructure, meaning that costs on infrastructure would be minimal. Consequently, proceeds from the IPO would be used mainly for branding and customer acquisition activities.

Nevertheless, XOX predominantly targeted the Chinese community, which includes blue-collars, business owners, foreign Chinese nationals and youths. As per agreement with Celcom, XOX's advertising and marketing activities can only be in English and Mandarin. While this does not restrict XOX from acquiring other customer segments, it would limit the company's opportunity to reach out to the Malay populace.

XOX's entrant as a niche player to cater for the ethnic Chinese seems to be a viable idea, with strong backing from its MVNO, Celcom, which looks at it as a win-win situation as Celcom does not concentrate on this segment.

XOX lacked both financial and operations records. The company had been loss-making for the past four years. And marker observers do not hold as much confidence as XOX's management on its spirited forecast for its current financial year (FY11) in terms of subscriber acquisition and higher ARPU (average revenue per user) assumptions.

According to its prospectus, XOX expects a net profit of RM19.7mil for FY11 against a net loss of RM15.9mil posted a year ago. It also anticipates revenue to surge more than 10 times to RM249.5mil from RM20.1mil achieved in FY10.

It posted a net loss of RM1.66 million for its first quarter ended March 31 (1QFY11).

The loss after taxation was mainly due to the selling and distribution expenses that were necessary to create brand awareness of XOX’s services.

XOX is a mobile virtual network operator (MVNO) that rides on Celcom Axiata Bhd’s existing network to provide mobile services. It was granted 1.5 million service numbers by the Malaysian Communications and Multimedia Commission (MCMC) in 2008, and is targeting to grow its services among the local Chinese speaking market.

For 1QFY11, XOX posted revenues of RM12.7 million on the back of about 391,000 subscribers.

During the current quarter XOX has also managed to record an average revenue from sales of recharge of approximately RM30 per user per month.

Despite the losses in 1QFY11, XOX is still positive that it could meet its profit forecast for FY11.

Its FY11 financial performance would be dependent on growth of the subscriber base and average monthly revenue from the sales of recharge voucher.

XOX hopes to achieve this by increasing its distribution channels to allow subscribers wider and easier access to recharge vouchers, and thus increasing customer retention. It also plans to introduce new products and services such as Mobile Wallet, Social Network Portal and other additional convergence subscription plans.

XOX currently has 400,000 subscribers, and plans to grow its subscription base to 1.5 million by year-end 2011.

Correspondingly, the group forecasts to attain higher monthly average revenue per user (Arpu) of RM40.30 from convergent subscribers, and RM76 from postpaid subscribers in FY11.However concerned is that XOX’s growth guidance of 300,000 new subscribers per quarter as “ambitious” given the other mobile operators only saw an average of 248,000 new subscribers per quarter in 2010.